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.