The Gujarat Authority for Advance Ruling (GAAR) ruled in favour of Tata Advanced Systems regarding payable GST in the Defence Ministry-Airbus order of 56 transport aircraft. The legally-constituted body ruled that the contract between Tata’s aerospace manufacturer and Airbus is a ‘composite supply’ wherein aircraft is the ‘principal supply’ thus a GST of five per cent is applicable in this case.
“The nature of supply under the contract between the applicant (Tata Advanced System) and Airbus is a composite Supply wherein the principal supply is the supply of aircraft,” AAR said in its order dated December 6. Under GST, a composite supply would mean a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. Rate of GST on the principal supply will be the rate for the entire supply.
The Defence Ministry entered into a contract with Airbus for the manufacturing and supply of 56 C-295 MW transport aircraft with associated equipment. Under this, 16 aircraft are to be supplied directly while the remaining 40 will be manufactured/assembled in the countryby Tata Advanced System. The present application was related with the treatment of supply.
Further, AAR said as the aircraft attracts a GST of five per cent, so in this case, the GST rate would be five per cent. “The value to be adopted for payment will include the supply made free of cost by Airbus, i.e., it will include the value of FIM (Free Issue Materials),” it said. Also, it ruled that support services for after-sale activities and maintenance of aircraft are incidental and ancillary to the principal supply of the aircraft.
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“What is pivotal is that the supply of service is possible only when the goods i.e. aircraft are supplied,” the bench held while noting that Applicant’s supply involves both goods (Aircraft) and service (maintenance, etc.). On a conjoint reading of the contract and the scope of work, the AAR determined that the main task entrusted to the Applicant (Tata Advanced Systems), under the contract, is to produce 40 aircrafts and the scope is essentially a detailing of the various activities to be undertaken, which ultimately results in the manufacture and supply of aircrafts, and in addition, the Applicant is also required to provide support and maintenance services post-sale.
AAR ascertained that completion of services in isolation will not result in the discharge of the obligations under the contract, thus, it constitutes a composite supply and also refers to the Apex Court’s stance in Mohit Minerals in this regard. With regards to valuation, the bench applied the reasoning of the Chhattisgarh HC’s ruling in Shree Jeet Transport case, which reckoned that the transaction value be adopted for payment of GST while inlcuding the free-of-cost supply Airbus i.e. free issue material (FIM).
Sandeep Sehgal, Partner- Tax, AKM Global, a tax and consulting firm said: “The Gujarat Advance Ruling Authority has decided regarding the GST treatment of a composite supply involving manufacturing and ancillary support services for aircraft. The ruling emphasizes that, since these services are naturally bundled, the ancillary service can’t be provided without the main supply in normal trade practice, thus GST is payable at five per cent as a supply of goods.”
Although AAR rulings are only applicable to the applicant and the concerned jurisdictional tax authority, they can still be relied upon in similar matters. Also, many of CGST rules or even amendments in law have been based on AAR rulings.