• Notification Date: 11-12-2023
• Notification No: N/A

Gujarat imposes 5% GST on Tata Advanced Systems Airbus supply

In what could be a significant relief for ancillary service providers in the country, a recent judgment by Gujarat's Authority for Advance Ruling has ruled that the support services provided by Tata to supply Airbus aircraft to the Defence Ministry should be treated at a 5% GST. 

Tata Advanced Systems had approached the AAR to determine if GST is applicable to the supply of the aircraft. 

The matter pertains to a contract entered by the Ministry of Defence, Government of India, with Airbus Defence and Space, Spain, for the manufacture and supply of 56 C-295 MW transport aircraft under its C-295 aircraft program. Out of these, Airbus Defence and Space has contracted Tata Consultancy Services and Tata Advanced Systems for the manufacture and supply of 40 aircraft. 

Tata Advanced Systems believed that the supply of aircraft and support services, being a composite supply, should be treated at a 5% GST. 

The Gujarat Authority for Advance Ruling (AAR), after hearing the plea, held the view that the contract between Airbus and Tata Group’s company for the supply of aircraft to the defence ministry is a “composite supply” and would attract a 5% Goods and Services Tax (GST). 

Tata Advanced Systems Ltd. has a substantial Airbus contract, and AAR held that Tata’s supply of aircraft and provision of support services "are naturally bundled and supplied in conjunction with each other in the ordinary course of business" and thus constitute a composite supply under section 2(30) of the CGST Act, 2017. 

AAR also ruled that support services in relation to after-sale activities and maintenance of aircraft are incidental and ancillary to the principal supply of the aircraft, stating, “… What is pivotal is that the supply of service is possible only when the goods, i.e., aircraft, are supplied,” while noting that the applicant’s supply involves both goods (aircraft) and services (maintenance, etc.). 

According to the AAR, aircraft are classifiable at a taxable rate of 5% GST. 

AAR, based on its reading of the contract and scope of work, determined that the main task of Tata Advanced Systems under the contract is to produce 40 aircraft, and the scope essentially details various activities leading to the manufacture and supply of aircraft. Additionally, Tata Advanced Systems is required to provide support and maintenance services post-sale. 

AAR clarified that the completion of services in isolation will not discharge the obligations under the contract and thus constitutes a composite supply. 

Experts believe that this ruling will benefit many industry players who are ancillary service providers. 

Sandeep Sehgal, Partner-Tax at AKM Global, a tax and consulting firm, stated, “The Gujarat advance ruling authority's judgment aligns with the GST provisions, emphasizing that if main and ancillary services are naturally bundled, they should be treated as the main supply. The ruling also underscores the importance of valuation rules, stating that GST is payable on materials received from the recipient, even if the supplier can't arrange the material themselves. This will result in reduced tax liability for the taxpayer, with a 5% tax rate applied to the entire supply." 

"In complicated transactions, the importance of the intention of the parties along with the specific clauses of the contract are so critical to determine the GST applicability can be seen from this ruling. AAR has held this transaction to be a composite supply because it has appreciated that the main objective of Airbus is to purchase aircrafts from TAS. Fact that consideration has been calculated on per aircraft basis and the services being provided were mostly to ensure that the aircraft remains airworthy also lead the AAR to the conclusion that it is a composite supply," shared Anita Rastogi, Indirect Tax Partner at PWC. 

"These services in themselves would not constitute as discharge of contract but are needed for issuance of airworthy certificates by Airbus. This ruling illustrates the importance of understanding the core intention of the parties in a holistic manner to eventually determine GST applicability. It highlights how crucial every clause of a contract can be, more so in complicated transactions," Rastogi added.