The West Bengal Authority of Advance Ruling (AAR) in its recent ruling on the application filed by M/s Maninder Singh (Under trade name Mideast Pipeline Products) has ruled that the works contract service undertaken by the applicant of laying pipelines in Bangladesh is not export and 18% tax is applicable, as the recipient is located in India.
Facts of the case:
- The Government of India and the Government of Bangladesh have signed a Memorandum of Understanding for construction of an oil pipeline from Siliguri in India to the depot of the Bangladesh Petroleum Corporation (BPC) at Parbatipur in Bangladesh.
- The work will be monitored by the Ministry of External Affairs (MEA), Government of India, which has engaged M/s Numaligarh Refinery Ltd (NRL) as the implementation agency.
- The NRL has awarded the applicant, M/s Maninder Singh the contract for the installation of the pipeline by HDD method.
Issue on which Ruling was sought:
1.Whether the work of laying pipelines in Bangladesh is supply works contract service.
2. Whether the supply of service to NRL for the above construction in Bangladesh is an export and exempt under the GST Act.
3. Whether the applicant is entitled to input tax credit on its inward supplies for the service rendered in the construction of Bangladesh portion of the pipeline on behalf of NRL.
4. Whether the applicant is liable to pay tax on goods or services procured locally within Bangladesh for the purpose of construction of Bangladesh portion of the pipeline on behalf of NRL.
5. Whether the applicant is entitled to input tax credit on procurement of such goods or services in Bangladesh used in the construction of Bangladesh portion of the pipeline on behalf of NRL.
6. If all the queries come out with responses that lead the applicant taxable, then what will be the proper method of valuation of tax.
Order of west Bengal AAR: Deliberation and Ruling on work contract service:
- NRL has awarded the contract to the applicant for construction of the pipeline in Bangladesh and pays the consideration. NRL is, therefore, the recipient in terms of section 2(93)(a) of the CGST Act.
- A strip of land extending over more than a hundred kilometre is not a fixed establishment
in terms of section 2(7) of the IGST Act. Location of the recipient in the present context
cannot, therefore, be determined by applying the provisions under section 2(14) (b) or (c) of
the IGST Act. NRL being registered and resident of India, the location of the recipient of the
service shall be in India in terms of section 2(14)(d) of the IGST Act.
- The place of supply of the service should, therefore, be determined in terms of proviso to
section 12(3)(a) of the IGST Act for carrying out the construction work of immovable property.
It shall be in India, being the location of the recipient.
- The applicant’s service will not, therefore, be the export of service within the meaning of
section 2(6) of the IGST Act.
- The provisions for deemed export under section 147 of the CGST Act is available for supply
of goods only. The applicant’s supply of service cannot, therefore, be considered „deemed
export‟ under the GST Act.
- Although a public sector undertaking NRL is not a Govt Entity as defined in clause 4(x) of
the Rate Notification (direct Govt participation in equity is less than 90% in NRL). The concessional rate in terms of Entry No. 3(iii)(c) of the Rate Notification is, therefore,
unavailable. It will, therefore, be taxable @ 18% under Entry No. 3(xii) of the Rate Notification.
In view of above deliberations the two-member bench consisting of Susmita Dey and Parthasarthi Dey ruled as under on each of the six issues raised by the applicant:
(i) The applicant‟s supply is works contract service.
(ii) It is not an export of service.
(ii) The applicant‟s works contract service is taxable @ 18% in terms of Entry No. 3(iii)(c) of Notification No.
11/2017 – CT (Rate) dated 28/06/2017, as amended from time to time.
(iv) The applicant is entitled to input tax credit on the GST paid on procurement.
(v) As the applicant has not paid GST on purchasing goods or services in Bangladesh used in
the construction of the pipeline, the question of the input tax credit does not arise.
(vi) GST shall be payable on the consideration receivable for the applicant‟s service.
READ / DOWNLOAD ORDER:
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
