PES Engineers (P.) Ltd. {AUTHORITY FOR ADVANCE RULINGS, TELANGANA}

PES Engineers (P.) Ltd. {AUTHORITY FOR ADVANCE RULINGS, TELANGANA} :

Date of Order : 13-04-2023

Issue: PES Engineers (P.) Ltd. sought clarification on the GST treatment for two separate contracts issued under a single turnkey contract agreement for the construction of a single immovable property.

Ruling:

1. Nature of Contracts: PES Engineers (P.) Ltd. entered into two separate contracts with the recipient on the same day under a single turnkey contract. Each contract involved distinct supplies, with the first contract involving the supply of goods ex-works and loading onto transport, and the second contract involving transportation services for the goods from the first contract.
2. Independent Contracts: Despite being part of a single turnkey contract agreement, the Authority for Advance Rulings (AAR) in Telangana ruled that the two contracts are independent of each other. This independence means that they do not constitute a ‘composite supply’ under Section 2(30) of the CGST Act, 2017. Therefore, each contract is treated separately for GST purposes.
3. Tax Liability: Since the contracts are independent:
   • The tax liability on the sale of goods under the first contract arises as per Section 12(a) of the CGST Act, 2017, which specifies that the time of supply is either the date of issue of the invoice or the last date by which the invoice should have been issued under Section 31 of the Act.
   • Similarly, the tax liability on the transportation services provided under the second contract would be determined based on its specific terms and conditions.
4. Benefit of Notification No. 66/2017-CT: PES Engineers (P.) Ltd. is eligible for the benefit of Notification No. 66/2017-CT. This notification deals with specific provisions related to the time of supply and tax liability for goods involved in the construction of immovable property under a turnkey contract.

Elaboration:

• Single Turnkey Contract: Despite being part of a single turnkey contract agreement for the construction of a single immovable property, the AAR considered the two contracts as distinct and independent due to their separate nature and distinct supplies involved.
• Composite Supply Clarification: According to Section 2(30) of the CGST Act, 2017, a composite supply involves a principal supply and ancillary supplies that are naturally bundled together. In this case, since the supplies under the two contracts are not naturally bundled and can exist independently, they do not qualify as a composite supply.
• GST Liability: The ruling clarifies that each contract’s supplies are to be treated separately for GST purposes. This ensures that the tax liability is determined accurately based on the terms of each contract and the specific provisions of the CGST Act regarding the time of supply and issuance of invoices.
• Notification No. 66/2017-CT: This notification provides specific provisions related to the time of supply and tax liability for goods supplied under a turnkey contract for construction of an immovable property. PES Engineers (P.) Ltd. qualifies for the benefits outlined in this notification, ensuring clarity and compliance with GST regulations.

Conclusion: The AAR’s ruling provides clarity on the treatment of multiple contracts issued under a single turnkey contract agreement for GST purposes. By confirming the independence of the contracts and their separate tax liabilities, it allows PES Engineers (P.) Ltd. To comply with GST regulations accurately and benefit from the provisions of Notification No. 66/2017-CT applicable to their specific contracts.

Relevant Section : 10,12,31 of CGST Act