CLASSIFICATION OF EPC SERVICES FOR SULPHATE REMOVAL PLANT UNDER GST : M/S ION EXCHANGE (INDIA) LTD VS AAAR RAJASTHAN
RAJASTHAN APPELLATE AUTHORITY FOR ADVANCE RULING
GOODS AND SERVICES TAX
Before the AAAR comprising of:
1. Sh. Mahendra Ranga, Member (Central Tax)
2. Dr. Ravi Kumar Surpur, Member (State Tax)
Case Title :- M/s ION Exchange (India) Limited
(GST AAAR RAJASTHAN)
Appeal No. RAJ/AAAR/APP/07/2021-22
Advance Ruling No. RAJ/AAR/2020-21/20 dated 15.09.2021
Date of Judgement/ Order :- 19th December 2023
BRIEF FACTS OF THE CASE
Para No. 1. M/S ION Exchange (India) Limited, Plot No. 186, 22 Godam, Jaipur (Rajasthan)-302006 (herein after referred as Appellant) submitted that they are engaged in the business of water treatment, waste-water treatment and its recycling. They are registered under the Central Goods & Service tax Act 2017 having registration no. 08AAACIl726LIZK. The Appellant reportedly offers wide range of customized treatment plants for water, waste liquids and waste-water which are installed in thermal and nuclear power plants, fertilizer factories, refineries, and the petrochemical and other industries. As a part of their business operations, the Appellant enters into Engineering, Procurement and Construction contracts (“EPC Contract”) with their customers.
Para No. 3. According to the said EPC contract, the Applicant have to undertake the construction of ‘Sulphate Removal Plant’ or SRP with respect to the petroleum operations at Mangala wells (“subject services”). For the purpose of construction of the said plant, the Appellant will have to undertake the activities as per the specification & customization laid down in the EPC contract.
Para No. 5. Reason for undertaking Sulphate Removal
The output from the Sulphate Removal Plant is purified water which is used by Vedanta for drilling operations. While drilling petroleum crude Oil, Mangala wells produces Hydrogen Sulphide (H2S) which is very poisonous, corrosive and flammable. It is a safety hazard to the personnel and workers and poses an integrity threat to the oil wells and surface facilities. Therefore, as a mitigating measure, sulphate free water is recommended for controlling the H2S.
Para No. 7. A letter dated 24.04.2023 has been received from Additional Director General, DGGI, JZU, Jaipur informing that “during the inspection (search) carried out by them, it has been found that the Appellant i.e. M/S ION Exchange India Limited have an EPC contract with M/S Vedanta Limited for setting up a “Sulphate Removal Plant” broadly ranging from designing, engineering, procurement, fabrication, erection & installation, construction, commissioning; training and handover the said plant to M/S Vedanta. It seems to be a “Works Contract” Service instead of Support Service”. The DGGI, JZU, vide the said letter, also provided a copy of Panchnama dated 14.03.2023 and a copy of Incident Report No. 65/GST/2022-23 dated 03.10.2022.
As per the Incident Report, differential amount of Rs. 10.65 crore of GST was adjusted/paid by the Appellant by raising Debit Note in their GSTR-3B. The difference was owing to difference in rate of GST applicable on the services provided by them, as pronounced by the AAR Ruling dated 15.09.2021 and the rate of GST actually paid by them.
RULING
Para No. 9. The Appellant submitted that they are of the considered view that the subject services are appropriately classifiable under the Heading 9986 [Sr. No. 24(ii)] (viz., “Support services to exploration, mining or drilling of petroleum crude or natural gas or both”) or alternatively under the SAC Heading 9983 [Sr. No. 21(ia)] (viz., “Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both”) and are liable to attract 12% GST under the CGST Act. By filing the application under Section 97(1) of the RGST Act/ CGST Act before the AAR, Rajasthan, the Appellant had sought to confirm this classification. The AAR, Rajasthan have answered the questions of the Appellant, vide their Ruling dated 15.09.2021 as under:
Question 1 – With the introduction of Notification No. 20/2019-Central Tax (Rate) dated 30.09.2019, whether the services with respect to EPC contract entered for execution of Sulphate Removal Plant supplied to M/S Vedanta Limited vide contract No. 4600008952 dated 14.08.2018 is covered under Sr. No. 24 (ii) (Support Services to Mining) or Sr. No. 21(ia) (Professional, Technical or Business Service to Mining) of the Rate Notification.
Answer: – No
Question 2 – If the subject services are not classified under any of the aforesaid entry, what would be the appropriate classification for the same and what rate GST would be imposable?
Answer – The activities of supply of survey, designing, installation, Commission of project under EPC contract by the Appellant shall attract GST @18% under S.No. 3 (Heading 9954) (ii) of the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017.
ORDER
In view of the above discussion and findings, we hold that the Ruling dated 15.09.2021 of the AAR for Rajasthan in respect of the Appellant needs no interference up to the extent mentioned in item (i) to (iii) above bnd the same are hereby modified to the extent mentioned in item (iv) above of ra K of this order. The appeal is disposed of accordingly.
