Facts of the Case

1. Uttarakhand Peyjal Nigam issued a tender in December 2017 for the project ‘construction of sewage treatment plant including operation & maintenance thereof for 15 years’.
2. The petitioner submitted the bid as under:

1. Construction: Rs. 72.43 Crores
2. O&M: Rs. 53.94 Crores

3. The petitioner completed construction phase and begun the O&M phase.
4. As per Not. No. 12/2012 CT (Rate), “composite supply of goods and services in which the value of goods constitutes not more than 25% of the value of said composite supply provided to the CG or SG or UT or local authority or a Governmental authority or a Government Entity by way of an activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution” is fully exempt from levy of tax.
5. Accordingly, an Advance Ruling was filed before AAR on the question whether O&M service is exempt from tax?
6. The AAR answered in negative and held as under:

1. O&M is part of same supplies.
2. Construction is a principal supply.
3. O&M is a supplementary supply which is secondary to construction
4. Bifurcation of goods and services provided by petitioner is not reliable
5. Petitioner has tried to split the contract and shown the value of O&M only to avoid GST liability
6. Full value of contract attracts GST
7. There is neither separate contract nor separate schedule for payment of O&M services
8. If the total value of contract is taken into consideration, the value of goods cannot be justified below 25%.

7. On an appeal filed before AAR-Appeals, the ruling of AAR was upheld with following observations:

i.              There was a single E-Bid

ii.            O&M is an intrinsic part of the main contract

iii.           The word “including” has been used between construction and O&M

iv.           O&M cannot be an independent activity

v.            No separate exclusive contract has been made for O&M

vi.           O&M is an ancillary supply

 

Our Analysis

8. Bid Price was separate for each activity
9. Performance Security is separate for each activity
10. Separate consideration has been agreed for each work
11. Separate schedules are incorporated in contract for each work
12. Payment schedules are separate in contract for each work
13. Contract period is contractually defined as “Construction period” and “O&M period”
14. There are independent clauses for liquidated damages
15. At the time of discussion on issuance of exemption notification, O&M activity of the water purification projects was also discussed in examples put forth before GST Council
16. Hon’ble Supreme Court has already upheld that a single document can have two separate and distinct contracts.
17. On completion of construction, a commissioning certificate is issued. That is the end of construction period. The O&M for duration of 15 years after the commissioning is entirely independent of the first part and at no rate can be considered to be ancillary.
18. From the economic point of view of customer, O&M do have its independent utility, and must be considered as separate and distinct to construction.
19. AAR-Appeal exceeded the jurisdiction by pronouncing ruling on the entire contract.

 

Action taken

20. A writ petition was filed before Hon’ble Uttarakhand High Court at Nainital.
21. The court admitted the writ petition and issued notice to the respondents among other directions.