Gujarat s Appellate
Authority for Advance Rulings (GAAAR) has held that in case of artificial
bifurcation of contracts under EPC (Engineering, Procurement and Construction),
GST will be levied on gross value of supply comprising both goods and services.
Experts say though this ruling will have very high significance for all EPC
projects, but will be more for solar power projects.
The appellant Shilchar Technologies
Limited, a manufacture of electronics and telecom and power & distribution
transformers received purchase order from Adani Green Energy (AGEL) for supply
of Aluminium Foil Type Winding Inverter Duty Transformers (IDT) along with the
mandatory spares for transformers. Further, as per the technical specification
for IDT issued by AGEL, services are also included and therefore they got a
separate contract for service with regard to supervision.
The appellant submitted
that since two separate contracts had been issued to them, by the recipient of
supply as supply of goods and services and have separately been bid,
explanation given in June 2017 notification, shall not be applicable. According
to it, the value of supply of goods shall be deemed as 70 per cent of the gross
consideration charged for all such supplies and the remaining 30 per cent of
the gross consideration shall be deemed as value of the said taxable service.
The appellant also said
that since they are charging GST at the rate of 18 per cent on supervisory
services provided by them and therefore, the supply of Transformer will attract
GST at the rate of 5 per cent. The matter first reached AAR (Authority for
Advance Rulings) which had said that the appellant is liable for payment of GST
on the total value of both the purchase order i.e., supply of goods and supply
of service. Also, out of the gross value of the supply, 70 per cent shall be
deemed to be on account of goods and 30 per cent deemed to be on account of
service. Aggrieved with this the appellant moved to GAAAR.
Based on arguments and
facts presented, GAAAR said that entire supply will attract GST based on two
notifications. There will be no change in composition of supply. However,
effective rate up to September 30, 2021 would be 8.9 per cent while from
October 1, 2021, it would be 13.8 per cent.
Commenting on the ruling,
Saurabh Agarwal, Tax Partner with EY says this is likely to be a landmark
ruling under GST regime for entire EPC industry if not over ruled by the higher
judicial authorities. While the ruling is applicable on the applicant, it would
have persuasive value for the industry and would likely be quoted by the
Department where-ever artificial bifurcation of contracts can be established.
The EPC industry should revisit their contracting structures to avoid any
exposure arising in account of this ruling, he said.