Case-IZ-Kartex named after P G Korobkov Ltd (GST AAR West Bengal)
1. Facts: The applicant is a local branch of a Russian business entity by the same name hereinafter “Foreign Company‟), which entered into a Maintenance and Repair Contract (hereinafter called “MARC”) with Bharat Coking Coal Ltd (hereinafter “BCCL”) with respect to the machinery and equipment it had supplied.
2. Query: The applicant wants to know whether the MARC makes the supplier liable to pay GST (which, for the purpose of this order, includes IGST). More specifically, the applicant wants to know whether the recipient is not liable to pay tax on reverse charge basis in terms of Notification No. 10/2017 – Integrated Tax (Rate) dated 28/06/2017.
3. Observation by AAR
Responsibility of the Maintenance and Repair Contract Holder:- The contract was a longtermcontract spanning over seventeen years from date of commissioning of equipment. The Maintenance and Repair Contract Holder was responsible for supply of spares, components, and consumables over the entire period. It was required to depute officers, support staff and system expert at the site for maintenance and repair of equipment and train the BCCL personnel. BCCL was to provide the Maintenance and Repair Contract Holder access to the machines and repair facilities at all reasonable time. BCCL and the Maintenance and Repair Contract Holder shall jointly sign Equipment Logbook on daily basis recording actual working hours per shift, breakdown hours and other details. The Maintenance and Repair Contract Holder is to be paid at an agreed rate for supervision, supply of spares and consumables, and for overheads per working hour of the equipment for 5000 expected annual working hours.
AAR Observed that It was evident from the discussion that Maintenance and Repair Contract Holder had to maintain suitable structures in terms of human and technical resources at the sites of BCCL. It ensured supervision of equipment, supply of spares and consumable and overheads for 5000 annual working hours for seventeen years, indicating sufficient degree of permanence to the human and technical resources employed at the sites. The Maintenance and Repair Contract Holder, therefore, supplied service at the sites from fixed establishments as defined under section 2 (7) of the IGST Act. The location of the supplier should, therefore, be in India in terms of section 2 (15) of the IGST Act.
Supply of the MARC Holder to BCCL was not, therefore import of service within the meaning of section 2 (11) of the IGST Act. The MARC Holder was held as a supplier located in India triggering clause 9.2.2 of Maintenance and Repair Contract, and made liable to pay GST, the place of supply being determined in terms of section 12 (2) (a) of the IGST Act. The applicant, therefore being registered branch of Foreign Company, was held to be treated as the domestic Maintenance and Repair Contract Holder in terms of clause 9.2.2 of the MARC and be liable to pay tax accordingly.
4. Held
Supply of service to BCCL in terms of the MARC is not import of service. The recipient is not, therefore, liable to pay GST on reverse charge basis in terms of Notification No. 10/2017 – Integrated Tax (Rate) dated 28/06/2017. The applicant, being the domestic MARC Holder, is liable to pay tax as applicable in terms of clause 9.2.2 of the Maintenance and Repair Contract.
5. Comment
The issue regarding Location of Supplier is far from over. Initially there was a ruling form Rajasthan AAR in the matter of Jaimin Engineering Private Limited [2018] 97 taxmann.com 195 (AAR- RAJASTHAN) wherein it was held that while supplying services if the supplier of services (i.e. applicant who in the given case is a Works Contractor and is registered in State of Gujarat) has any place of business/office in the State of Rajasthan i.e. has a fixed establishment for operation in State of Rajasthan (place where the services are to be provided) then he is required to get himself registered in State of Rajasthan. However, the ruling did not categorically held whether or not applicant was required to get registered in the State of Rajasthan and laid out general principle.
In case of T & D Electricals, [2020] 116 taxmann.com 390 (AAR – KARNATAKA) although it washeld that the there was no requirement for a separate registration in other state wherein contract was being executed but the ruling was given on the basic premise that applicant intended to supply goods or services or both from their principle place of business, which is located in Rajasthan and does not have any other fixed establishment other than the principle place of business, as admitted by the applicant. Therefore, this ruling again did not go into the fact of the case whether presence of staff or otherwise at Karnataka was to be treated as “Fixed Establishment” or not but straightaway assumed that there was no fixed establishment.
This decision in the case IZ-Kartex named after P G Korobkov Ltd (GST AAR West Bengal) clearly provides that responsibility of applicant to ensure supervision of equipment, supply of spares and consumable and overheads for 5000 annual working hours for seventeen years, indicated sufficient degree of permanence to the human and technical resources employed at the sites. Therefore, Maintenance and Repair Contract Holder, supplied service at sites from fixed establishments as defined under section 2 (7) of the IGST Act. The given case is specific to holding of fixed establishment or otherwise.
