GST implications on Pipeline Installation Services – AAR West Bengal
by ReinHeads Team | Nov 2, 2020
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AAR West Bengal* – GST implications on Pipeline Installation Services
| Facts |
- The Government of India (‘GOI’) and Bangladesh have signed Memorandum of Understanding for construction of an oil pipeline from Siliguri (India) to Parbatipur (Bangladesh). The GOI engaged Numaligarh Refinery Ltd (‘NRL’) as the implementation agency
- NRL has awarded the contract to M/s Maninder Singh (‘the Applicant’) for the installation of the pipeline
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| Issue before the Authority for Advance Ruling, Gujarat (‘the AAR’) |
- Whether the supply is works contract service?
- Whether the supply of service to NRL for the said construction in Bangladesh is an export and exempt under the GST Act?
- If the answer to the above query is negative, then what should be the appropriate tax rate?
- Whether the Applicant is entitled to Input Tax Credit (ITC) on its inward supplies for the service rendered in the construction of Bangladesh portion of the pipeline on behalf of NRL?
- 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?
- Whether the Applicant is entitled to ITC on procurement of such goods or services in Bangladesh used in the construction of Bangladesh portion of the pipeline on behalf of NRL?
- If all the queries come out with responses that led the Applicant taxable, then what will be the proper method of valuation of tax?
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| Discussion and Findings of the AAR |
- The AAR analysed the following aspects to provide the Ruling:
| Aspects |
Findings of the AAR |
| Recipient |
· NRL is the recipient under GST law since it has awarded the contract to the Applicant for construction of the pipeline in Bangladesh and pays the consideration |
| Location of the Recipient |
- A strip of land extending over more than a 100 km is not a fixed establishment in terms of the Section 2(7) of the Integrated Goods and Services Tax Act, 2017 (‘the IGST Act’)
- A strip of land cannot be considered as fixed establishment for the purpose of the location of the recipient (by applying the provisions under Section 2(14)(b)/(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 the Section 2(14)(d) of the IGST Act i.e., usual place of residence of the recipient
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| Place of Supply |
- The place of supply of the service should be determined in terms of proviso to the Section 12(3)(a) of the IGST Act i.e., the location of immovable property is located or intended to be located outside India, the place of supply shall be the location of the recipient
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- Basis the above discussions, the AAR held the following for the question raised by the Applicant:
| Questions raised |
Ruling |
| Eligibility to qualify as ‘Export of Services’ |
- Since the place of supply is in India, the supply of services shall not fall within the meaning of export under the IGST Act
- Provisions for deemed export under Section 147 of the Central Goods and Services Tax Act, 2017 are applicable only for supply of goods. Accordingly, supply of services by the Applicant cannot be considered as ‘Deemed Export’
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| Classification of services under ‘Works Contract’ |
- The Applicant is engaged in providing works contract services chargeable to GST @18%
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| Eligibility for concessional rate of tax |
- It was held that NRL is a public undertaking, however, not covered under the definition of Government entity as defined in clause 4(x) of the Rate Notification i.e., direct Government participation in equity is less than 90% in NRL. Therefore, the concessional rate in terms of Entry No.3 (iii)(c) of the Notification No. 11/2017-CT (Rate) dated 28 June 2017 is not available and services would be taxable at 18%
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| Eligibility to claim ITC on Indian Procurements |
- The Applicant would be eligible to claim ITC on the GST paid on procurements made in India
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| Liability to pay tax on goods/ services procured in Bangladesh |
- The AAR did not comment on the issue pertaining to liability of tax on goods or services procured by the Applicant in Bangladesh
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| Eligibility to claim ITC on procurements made in Bangladesh |
- Since the Applicant has not paid GST on procurement of goods/ services in Bangladesh, question pertaining to ITC would not arise
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| Valuation of the taxable services |
- GST shall be payable on the consideration receivable by the Applicant for its services from NRL
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*Advance Ruling No. 10/WBAAR/2020-21 dated 12/10/2020 (The Authority for Advance Ruling, West Bengal) |
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