Value of Goods Supplied on High Sea Sale to Be Included in Transaction Value of Works Contract Service | AAAR

Case Details: Tecnimont (P.) Ltd., In re - [2025] 173 taxmann.com 612 (AAAR-GUJARAT)

Judiciary and Counsel Details

• Rajeev Topno & B.V. Siva Naga Kumari, Member
• Kevin Gogri, Adv. & Sandeep S. Khedeker for the Petitioner.

Facts of the Case

The applicant, a wholly-owned subsidiary of an Italian company, entered into a turnkey contract with Indian Oil for executing EPC work. The contract had two separate supplies, i.e., works contract for EPC work and supply of imported materials for the same project. During the course of importation, before the goods reached the Customs frontier in India, they entered into a High Seas Sale (HSS) agreement with Indian Oil, transferring the ownership of the goods to Indian Oil. The applicant raised a custom invoice with respect to such goods, and Indian Oil filed a Bill of Entry as the importer of the said goods and discharged customs duty and IGST by clearing the goods for warehousing or home consumption. The applicant contended that the sale of goods on HSS basis cannot form part of a composite supply of works contract service. The supply of goods in the course of import into India cannot be subject to tax as an intra-state supply. Thus, the value of goods sold on HSS basis is not to be included in the transaction value in respect of works contract service. The Authority for Advance Ruling (AAR) ruled that the transaction of sale of goods on a high seas sale basis by the applicant to Indian Oil is covered under Entry 8(b) of Schedule III of the CGST Act, 2017. Such supply is neither a supply of goods nor a supply of services, and hence the question of levy of GST on such supply does not arise. Aggrieved by the ruling, the applicant preferred an appeal to the Gujarat Appellate Authority for Advance Ruling.

AAR Held

The Gujrat AAAR held that in terms of Schedule III, read with section 7(2) of the CGST Act, 2017, supply on a High Seas Sale basis is treated as neither a supply of goods nor a supply of services. The EPC contract encompasses both the supply of goods and services. Since the applicant is contractually bound to supply both goods and services, the value of the goods sold on High Sea Sale basis is to be included in the transaction value of the works contract service.

List of Cases Reviewed

• Technimont (P.) Ltd., In re [Advance Ruling No. GUJ/GAAR/R/2024/02, dated 5-1-2024)(AAR – Gujarat) (para 18) affirmed.
• New Jai Hind Transport Service v. Union of India [2024] 167 taxmann.com 133/90 GSTL 242 (Uttarakhand) (para 15) followed.
• Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 STT 245/2 STR 161 (SC) (para 4)
• State of Madras v. Gannon Dunkerly & Co. (Madras) Ltd. AIR 1958 SC 560 (para 12) distinguished

List of Cases Referred to

• Bharat Sanchar Nigam Ltd. v. Union of India [2006] 2 STR 161 (SC) (para 7)
• Union of India v. Mahindra & Mahindra Ltd., Bombay 1995 taxmann.com 311/76 ELT 481 (SC) (para 7)
• Mirah Exports (P.) Ltd. v. Collector of Customs 1998 taxmann.com 1114/98 ELT 3 (SC) (para 7)
• Kone Elevator India (P.) Ltd. v. State of Tamil Nadu [2014] 45 taxmann.com 150/304 ELT 161 (SC) (para 11).