Tata Advanced Systems Ltd. {AUTHORITY FOR ADVANCE RULINGS, GUJARAT}

Tata Advanced Systems Ltd. {AUTHORITY FOR ADVANCE RULINGS, GUJARAT} :

Date of Order : 06-12-2023

Issue: Tata Advanced Systems Ltd. entered into a contract with Airbus to produce and supply C-295 aircrafts. The contract included both the supply of aircrafts and the provision of maintenance services. The key issues were the classification of supply, applicable GST rates, valuation including Free-Issue-Materials (FIMs), and the time of supply for GST payment on advances received.

Ruling:

1. Composite Supply Classification: The Authority for Advance Rulings (AAR) determined that Tata Advanced Systems’ contract with Airbus constitutes a composite supply. A composite supply involves multiple supplies naturally bundled together where one supply is considered principal. In this case, the principal supply is the supply of aircraft (goods). The maintenance service can only be provided after the aircraft (goods) are supplied, thus forming a composite supply under GST law (Section 8 of CGST Act, 2017).
2. GST Rate and Classification: The supply of aircraft falls under Heading No. 8802 and attracts GST at a rate of 5% as per Notification No. 1/2017-Integrated Tax (Rate), dated 28-6-2017. This notification specifies the GST rates for various goods, including aircrafts (Paragraph 40 of the ruling).
3. Valuation Including Free-Issue-Materials (FIMs): Free-Issue-Materials (FIMs), provided by Airbus for manufacturing the aircraft, are to be included in the valuation for GST purposes. This decision aligns with previous judicial interpretations where goods or services provided free of cost by the recipient are considered part of the transaction value for GST calculation (Paragraphs 43 and 44 of the ruling).
4. Time of Supply for GST Payment on Advances: According to Section 12 of the CGST Act, 2017, the time of supply for goods is determined based on specific events like invoice issuance or receipt of payment. However, GST on advances received for supply of goods was abolished through Notification No. 66/2017-CT, dated 15-11-2017. Therefore, Tata Advanced Systems Ltd. is not required to pay GST at the time of receiving advances for the supply of aircrafts. Instead, GST liability arises only at the time of actual supply (Paragraphs 47 and 48 of the ruling).

Elaboration:

• Composite Supply: The ruling clarifies that when goods (aircrafts) and services (maintenance) are supplied together and one cannot be provided without the other, it constitutes a composite supply. Here, the aircrafts are the principal supply, and maintenance services are ancillary to the supply of the goods.
• GST Rate: Aircrafts are classified under Heading No. 8802 and attract a GST rate of 5%, as specified in Notification No. 1/2017-Integrated Tax (Rate). This rate is applicable uniformly across India for the supply of such goods.
• Valuation Including FIMs: The value for GST calculation includes the value of Free-Issue-Materials (FIMs) provided by Airbus, despite being supplied free of cost. This ensures that the total consideration received or receivable for the supply of goods is fully accounted for GST purposes.
• Time of Supply for Advances: Advances received for the supply of goods do not attract GST liability at the time of receipt, as per the relevant GST notifications. GST liability arises only when the goods are supplied or when specific events triggering the time of supply occur as per Section 12 of the CGST Act, 2017.

Conclusion: The AAR’s ruling provides clarity on the GST treatment of complex transactions involving the supply of aircraft and associated maintenance services by Tata Advanced Systems Ltd. It underscores the principles of composite supply, correct classification for GST purposes, inclusion of FIMs in valuation, and the timing of GST liability in relation to advances received. This guidance helps businesses in complying with GST regulations while engaging in similar composite supply contracts involving goods and services.

Relevant Section : 2,8,9,12,15 of CGST Act.