Page 68 - GSTL_20th August 2020_Vol 39_Part 3

282 GST LAW TIMES [ Vol. 39
6.17 In terms of the foregoing factual matrix and position in law, we
have analyzed on the ensuing paragraphs that whether the LIH charges are to be
treated as part of the overall bundle of services under the Contract, and accord-
ingly charged to GST at the rate of 12% as a ‘works contract’, or, are to be treated
as a service of ‘agreeing to the obligation of tolerating a situation’ and to be taxa-
ble at the standard GST rate of 18%.
6.18 It is submitted that the classification of a transaction can be deter-
mined on the basis of the true nature and character of the transaction in question.
In the present case, based on the background hereinabove, the following position
emerges as to the true nature of the transaction in relation to LIH equipment :
(i) There is an agreed upon scope of work under the Contract, which
comprises a certain bundle of goods and services set out at Annex-
ure-II to the General Conditions of Contract.
(ii) For the above scope of work, there is an agreed upon monthly
charge.
(iii) In case of any breach of the Contract on the part of the Applicant,
including by way of delay, there are liquidated damag-
es/compensation agreed upon between the parties in terms of cer-
tain clauses of the Contract.
(iv) Separately, given the nature of the scope of work to be carried out,
there is a possibility of accidents occurring, whereby certain the
equipment/tools owned by the Applicant may be irretrievably lost
during operations. In such a case there is a pre-agreement between
the parties, that LIH equipment will be compensated by ONGC, in
terms of a formula based on the depreciated value of the equip-
ment/tools which have been lost.
(v) The aforesaid LIH equipment scenario is a distinct transaction un-
der the Contract, whereby it is contemplated that certain capital
goods in the form of equipment/tools, which are deployed for the
drilling operations, may be irretrievably lost during such opera-
tions, and would consequently trigger a contractual payment by the
ONGC to the Applicant. This is not agreed upon as a routine or
even inevitable part of the scope of supply to be made by the Appli-
cant under the Contract, and in fact, it is entirely possible that no
such accident may take place at all in the course of executing the
scope of work under the Contract. Furthermore, the LIH equipment,
being in the nature of capital goods deployed/used at site, are also
not in the nature of consumables. This is all the more so, given that
the Contract separately identifies and charged for certain goods as
consumables (e.g. mud/brine chemicals). Even in terms of the
clauses under the Contract, reimbursement towards LIH equipment
does not find mention under the scope of work at Annexure II to the
General Conditions of the Contract, but is a separate clause under
the Special Conditions of the Contract contemplating a potential
event that may or may not occur during the tenure of the Contract.
There is also a separate event of invoicing for the reimbursement for
LIH equipment, which is contingent on both the accident resulting
in irretrievable loss of the goods, as well as the acceptance by
ONGC that the same was not on account of the gross negli-

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