Transportation is Composite supply: AAR

Transportation is Composite supply: AAR

The Applicant is stated to be a supplier of materials and allied services for the erection of towers, testing and commissioning of transmission lines and setting up sub-stations collectively called the Tower Package. His question is related to contracts obtained mainly from M/s Power Grid Corporation of India (hereinafter the contractee).

The contractee awards the Applicant contracts for supply of Tower Packages split up into two separate sets of contracts – one for supply of materials at ex-factory price (hereinafter the First Contract), and the other for supply of allied services like survey and erection of towers, testing and commissioning of transmission lines etc (Second Contract), which also includes inland/local transportation, in-transit insurance, loading/unloading for delivery of materials and storage of them at the contractee’s site.

The contractee agrees to reimburse the actual GST payable, except on the price component for inland/local transportation, in-transit insurance and loading/unloading. The applicant raises separate freight bills on the contractee as per the rate schedule annexed to the Second Contract.

The Applicant wants a Ruling on whether he is liable to pay tax on such freight bills. An Advance Ruling is admissible on this question under Section 97 (2)(a) & (e) of the CGST / WBGST Act, 2017 (hereinafter “the GST Act”). The Applicant also declares that the issue raised in the application is not pending or decided in any proceedings under any provisions of the GST Act. The concerned officer has raised no objection to the admissibility of the application. The application is admitted.

It was held that, 

The Applicant is not a goods transport agency (hereinafter the GTA) or engaged in insurance business. He will, according to the application, arrange such services and pay the GST as applicable on the consideration paid to the suppliers of such services.

Serial no. 18 of the Exemption Notification exempts services by way of transportation of goods by road, except the services of a GTA. he is not transporting the goods, but hiring the service of a transport agency. Similarly, the Applicant is not providing the insurance service, but buying such services from an insurance service provider. The Applicant is, therefore, the recipient of such services and not a supplier thereof. The question of the Applicant providing transportation service, therefore, does not arise.

It is immediately apparent that the First Contract cannot be executed independently of the Second Contract. There cannot be any ‘supply of goods’ without a place of supply. As the goods to be supplied under the First Contract involve movement and/or installation at the site, the place of supply shall be the location of the goods at the time when movement of the goods terminates for delivery to the recipient, or moved to the site for assembly or installation [refer to Section 10(1) (a) & (d) of the IGST Act, 2017].

FINAL DECISION

The applicant supplies work contract service. In which freight and transportation is merely a component and not a separate and independent identity. GST is to be paid at 18% on the entire value of the composite supply, including the supply of materials, freight, and transportation, erection, commissioning etc.