The GST is liable to get paid in advance obtained against the supply concerning the work contract, The Gujarat Authority of Advance Ruling (AAR) ruled.
The turnkey contract entered into by the applicant has been ruled to be a work contract, remarked by the bench of Amit Kumar Mishra and Milind Kavatkar.
The petitioner is in the engineering, procurement, and construction (EPC) contract business with various distribution companies (DISCOMS).
The petitioner mentioned that they pose a turnkey contract with Paschim Gujarat Vij Company Ltd. (PGVCL) for the supply of the plant as a contract agreement and the supply of installation services as a contract agreement under a single agreement.
It was argued by the petitioner that as per the notification No. 66/2017-CT on November 15, 2017, the Central Government has waived payment of GST at the time of receipt of advances in the case of goods, effective November 15, 2017. The Contract Agreement Part I is related to the supply of goods and the Contract Agreement part-II is related to the supply of services. For supply and erection, they do separate billing.
The same is a purely divisible contract. No GST is levied to get paid on the advance obtained against the supply during the receipt of the advance as per the notification that they have obtained an interest-bearing advance against the supply by furnishing a bank guarantee for 110% of the advance received, which can be deemed as a corporate credit facility (loan) from the client.
Department argued that in the world contract agreement experienced between the employer and the assessee, the same resembles that the employer is in the services of the contractor for the successful erection and installation of an 11 KVA medium voltage conductor along with its supply.
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The supply arrangement intended to be obtained via the employer is not the only supply of the goods however for a complete package of the supply and the goods installation.
As per the provisions of the agreement only then shall the service be considered to be complete. But the fiscal bifurcation of the goods and services is available in the agreement, the sort of the services intended to be obtained via the employer are a complete all-round supply and installation work through the contractor.
It was contended that the outward supply of services could not be divided into two separate components of the supply of goods and services but instead comprised a single works contract service for the GST payment.
As per that the advances obtained via the contractor for the scope of the work to be completed could not get bifurcated separately for part of the goods supply or part of the service supply but would be regarded as a gross receipt of advances for the complete works contract, which possesses elements of both supply and service.
On November 15, 2017, the provisions of Notification 66/2017-Central Tax, being relied on through the applicant or contractor for waiver of tax payment on advances received do not seem applicable.
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The problem raised was Notification 66 of 2017 was applicable for the turnkey contracts and GST was obligated to be paid in the advance obtained against the supply part of the turnkey contract. An additional problem was finding out the rates for the supply and services separately under a single contract that could be read as a divisible contract.
It was remarked by the AAR that the turnkey contract entered into via the applicant is a works contract, Notification No. 66/2017-CT on November 15, 2017, does not apply to the turnkey contract.
It was ruled by the GST AAR (Authority for Advance Rulings) that the Turnkey contract entered into via the petitioner has been ruled to be a works contract and the GST is subjected to get paid in advance against the supply part of the turnkey contract. The turnkey contract could not be divisible since the same entered into via the applicant has been ruled to be a works contract.
| Name of Applicant | M/s. Vijai Electricals Ltd. |
| Advance Ruling No. | GUJ/GAAR/R/2024/16 |
| Date | 02.07.2024 |
| Present For Appellant | Shri Mehar Tej Alamuri |
| Gujarat AAR | Read Order |