GST Vidhi | GST Advance Ruling

GST Implications on High Seas Sale Transactions and EPC Contracts                                                                                                 

By Yogesh Verma (CS/LLB) / 2 min read / GST Advance Ruling

Name of the Party: Thyssenkrupp Industrial Solutions (India) Private Limited (now known as Thyssenkrupp Uhde India Private Limited)

Name of the Ruling Authority: Gujarat Authority for Advance Ruling (GAAR), Goods and Services Tax (GST)

Ruling Number: GUJ/GAAR/IV/2025/01 (Application No. Advance Ruling/SGST & CGST/2023/AR/29)

Date of Ruling: 23.01.2025

Summary of the Ruling:

The ruling analyzes the GST implications on an Engineering, Procurement, and Construction (EPC) contract awarded by Indian Oil Corporation Limited (IOCL) to Thyssenkrupp. The key issues addressed are:

1.     Whether the contract is a divisible contract or a composite contract.

2.     Taxability of imported goods supplied under a High Seas Sale (HSS) basis.

3.     Applicability of GST on imported goods at two stages – first, as supply at the time of import, and second, as part of the EPC contract.

4.     Whether the contract should be taxed as a supply of goods or services.

The ruling concludes that the contract is a composite works contract and that the value of imported goods cannot be taxed separately under GST. The entire contract is taxable as a supply of services under the works contract provision.

Facts of the Advance Ruling:

• Thyssenkrupp Industrial Solutions (India) Pvt. Ltd. was awarded a lump sum turnkey (LSTK) EPC contract for the supply, erection, commissioning, and installation of a Catalytic Dewaxing Unit (CDWU) at IOCL Gujarat Refinery.
• The contract involved two components:

1.     Supply of imported components on a High Seas Sale basis.

2.     Construction, installation, and commissioning of the unit.

• The applicant argued that these two supplies are separate transactions and should be taxed independently under GST.

Question Raised for Advance Ruling:

1.     Whether the contract between the applicant and IOCL is a divisible contract or a composite contract?

2.     If it is a single and indivisible contract, will the imported goods be taxable at the time of import as goods or at the time of incorporation in the works contract as a service?

3.     If imported goods are sold on a High Seas Sale basis, can GST be levied twice—once at the time of import and again when they are used in the EPC contract?

4.     Can the value of goods sold on a High Seas Sale basis be included in the value of a works contract merely because they are used in the construction of the unit?

Submission Made by the Applicant:

• The contract with IOCL is a split contract and not a single EPC contract.
• Imported goods should not form part of the works contract, as they were sold separately under a High Seas Sale agreement.
• GST should not be charged twice on imported goods—once at import and again when incorporated into the works contract.
• The applicant cited various judgments, including:
• Kone Elevator India Pvt. Ltd.
• Builders Association of India
• Larsen & Toubro (L&T) Ltd.
• BSNL case
• Claimed that the imported goods were separately invoiced, and IOCL paid customs duty and IGST at the time of import.

Relevant Sections Considered in the Ruling:

1.     Section 2(119) of CGST Act, 2017 – Definition of Works Contract

2.     Section 7 of CGST Act, 2017 – Scope of Supply

3.     Section 10(1)(a) & (d) of IGST Act, 2017 – Place of Supply for Goods

4.     Section 5(1) of IGST Act, 2017 – Levy of IGST on Imports

5.     Section 15(2)(b) of CGST Act, 2017 – Valuation of Supply

6.     Schedule II, Para 6(a) of CGST Act, 2017 – Works Contract is a Supply of Services

7.     Customs Act, 1962 and Customs Tariff Act, 1975 – Taxation on Imports

Discussion and Findings of the Ruling Authority:

• The contract is a turnkey EPC contract, which means it includes design, engineering, procurement, supply, installation, commissioning, and testing of the entire unit.
• High Seas Sale does not change the nature of the contract, as the goods are ultimately used in an immovable project.
• The place of supply of goods is the location of the project, and hence, GST is applicable on the entire contract as a service.
• The contract is not divisible because the supply of goods and services is intrinsically linked and cannot be executed separately.
• The value of the High Seas Sale goods will be included in the value of the works contract, and GST will apply at the time of supply of services.
• The imported goods do not qualify as a separate supply of goods because they are used in the construction of an immovable property.
• Cited Supreme Court judgments in Larsen & Toubro and Kone Elevators to support the conclusion that an EPC contract is a composite supply of services.

Final Ruling and Conclusion:

• The contract between the applicant and IOCL is a single and composite contract, not a divisible contract.
• The supply of imported goods under High Seas Sale does not make the contract divisible because the goods are used in the execution of an immovable project.
• GST on imported goods is paid at the time of import, but their value must also be included in the taxable value of the EPC contract.
• The contract is taxable as a works contract (supply of services) under Section 2(119) of the CGST Act.
• High Seas Sale does not affect the GST treatment, as the project is an indivisible works contract.
• GST will be applicable at the time of incorporation of goods in the works contract, not separately on the imported goods.
• The applicant must charge GST on the entire EPC contract under the applicable rate for works contract services.

This ruling establishes an important precedent that even if imported goods are sold separately under a High Seas Sale, their value must be included in the taxable value of the works contract if they are used in an EPC project.

Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.