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    AAR Summary - EMC Limited


    Sl. No

    Case Number 07 of 2018

    Name of Ruling

    EMC LTD.

    TMI Citation


    AAR State


    Macro Issue

    Whether freight charged by the applicant is subjected to GST or Not?


    1. Applicant is stated to be a supplier of materials and allied services for


    erection of towers, testing and commissioning of transmission lines and


    setting up sub-stations collectively called the Tower Package.


    2. Contractee awards the Applicant contracts for supply, erection and


    commission of Towers which was split up into two separate sets of


    contracts – one for supply of materials at exfactory 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.


    3. 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.

    Applicant Stand

    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. His service to the contractee for inland/local


    transportation, the applicant argues, is exempt under the GST Act. He refers to


    Notification No. 9/2017 – IT (Rate) dated 28/06/2017, which, according to


    him, grants exemption on transportation service provided by an entity other


    than GTA. Since the applicant is not a GTA, he claims that his services are


    exempt vide the above notification.


    Department Stand

    1. the First Contract cannot be executed independent 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.


    2. The First Contract, however, does not include the provision and cost of


    such transportation and delivery. It, therefore, does not amount to a


    contract for ‘supply of goods’ unless tied up with the Second Contract. In


    other words, the First Contract has “no leg’ unless supported by the


    Second Contract. It is no contract at all unless tied up with the Second



    Ruling with reasons

    The  applicant  supplies  works  contract  service,  of  which  freight  and


    transportation is merely a component and not a separate and independent


    identity, and GST is to be paid at 18% on the entire value of the composite


    supply, including supply of materials, freight and transportation, erection,


    commissioning etc.




    1. Two contracts are linked by a cross fall breach clause that specifies that


    breach of one contract will be deemed to be a breach of the other


    contract, and thereby turn them into a single source responsibility


    contract. Black’s Law Dictionary defines that “a severable contract, also


    termed as divisible contract, is a contract that includes two or more


    promises each of which can be enforced separately, so that failure to


    perform one of the promises does not necessarily put the promises in


    breach of the entire contract”. In terms of this definition, the ‘cross fall


    breach clause’, in the present context, settles unambiguously that supply


    of goods, their transportation to the contractee’s site, delivery and


    installation,  erection  of  towers  and  testing  and  commissioning


    transmission lines and related services are not separate contracts, but


    form only parts of an indivisible composite works contract supply, as


    defined under Section 2(119) of the GST Act, with ‘single source




    2. Composite nature of the contract is clear from the clause that defines


    satisfactory performance of the First Contract (supply of goods) as the


    time when the goods so supplied are installed and finally commissioned in


    terms of the Second Contract. In other words, the First Contract cannot be


    performed satisfactorily unless the goods have been transported and


    delivered to the contractee’s site, applied for erection of towers, the


    transmission lines laid, tested and commissioned in terms of the Second


    Contract. The two promises – supply of the goods and the allied services –


    are not separately enforceable in the present context. The recipient has


    not contracted for ex-factory supply of materials, but for the composite


    Discussion Outcome

    1. The AAR has concluded that the contract is of indivisible nature on the


    basis of cross fall breach clause.


    2. Having said this, the Supreme Court in the case of State of Madras v.


    Gannon Dunkerley& Co. - IX STC 353 (SC) has held that if there is an


    instrument of contract which may be composite in form, unless the


    transaction in truth represents two distinct and separate contracts and is


    discernible as such, then the State would not have the power to separate


    the agreement to sell from the agreement to render service,and impose


    tax on the sale. This implies that in cases where contract is separable, each


    of the divisible component of the contract can be subjected to tax




    3. Whether a contract is divisible or indivisible must be construed on the


    basis of the intention of parties. The fact that a single tender document


    issued for whole project would be of no relevance. In this regard, the


    following judgments of Income Tax are referred viz.


    a)  M/s. Caterpillar Global Mining Europe GmbH India Project Office


    Versus Asstt. Director of Income Tax


    b)  Ishikawajima-Harima Heavy Industries Ltd. versus Director of Income-






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