Page 244 - GSTL_21st May 2020_Vol 36_Part 3

490 GST LAW TIMES [ Vol. 36
2007). In this case, all the petitioners had executed turnkey projects for different
PGCILs (same customer as in present case). They claimed that the goods sup-
plied by them, for being used in the turnkey projects, were subsequent sales ex-
empt from tax under Section 6(2) of the CST Act, import sales under Section 5(2)
of the CST Act, and the respondents lacked jurisdiction to subject these transac-
tions to tax under the AP VAT Act treating them as intra-State sales. The as-
sessing authority also examined the question whether there can be a sale in trans-
it, or a sale in the course of import, in a transaction of works contract. He held
that, from the nature of the contracts awarded, it could be seen that the petitioner
was required to supply the goods as per the supply contract; they were also re-
quired to execute the works themselves; the intention of both the contractor and
the contractee was completion of the works involving supply of goods as well as
labour and therefore the transaction is a ‘works contract. The Court observed-
.. “In turn-key projects, more particularly of the kind involved in this batch of Writ
Petitions, the same person has been entrusted with the responsibility of procuring
material, and of erection and installation of equipment. While in-built safeguards
are provided in all the contracts to ensure quality of the material, and effective per-
formance of the erection contract, the supply contracts, in substance, do not absolve
the petitioners-contractors of their obligations of erection and installation of equip-
ment after the goods are sold by them to the owner. The petitioners- contractors ob-
ligations, under both the supply and erection contracts, cease only after the turn-
key project becomes operational, and after final payment is made both for supply of
material and for erection installation of equipment. While a dual role is not imper-
missible in execution of turnkey projects, its relevance, in determining whether or
not the subject contracts are indivisible works contracts, is insignificant.”
It further referred to a specific clause in the agreement as below -
.. “Appendix-H of the L & T Vemagiri supply agreement stipulates that 5%
of the price shall be paid on successful test for the identified packages as
per the pricing and technical specifications; 5% of the price on provisional
acceptance; and 5% of the price on final acceptance. Provisional acceptance
is defined under the supply agreement to mean the achievement of provi-
sional acceptance as defined in the civil works and erection agreement, and
in accordance with the terms thereof. It is evident, therefore, that 10% of the
payment under the supply agreement is required to be made only after
provisional and final acceptance as stipulated under the erection agree-
ment’.
The Court concluded -
. “The goods supplied to the owner, under the supply contracts, are tailor
made goods, and cannot be bought off the shelf. Such goods cannot, ordi-
narily, be sold to another except for its use in turnkey projects of a similar
nature. The petitioners have been entrusted with the work mainly for their
expertise in erection and installation of plants in the execution of turnkey
projects. As they were entrusted with the work of erection and installation,
the petitioners-contractors have also been entrusted with the task of procur-
ing material therefor. The functions relating to the supply of material, and
rendering services of erection and installation, are integrally connected and
are interdependent”.
The above observations of the Hon’ble High Court are clearly applicable in the
present case. The functions relating to the supply of goods and the installation
thereof are clearly interdependent and though distinct agreements are made they
are linked to each other and are indivisible.
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