No GST Exemption on Freight Charges inside EPC Works Contracts
Turnkey EPC contractors cannot split freight charges from project contracts to claim road transport GST exemption.
- Ruling
- NO.GST-ARA-36/2017-18/B-43 dated 04.06.2018
- Dated
- 04 Jun 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- An EPC contractor asked if transport charges in solar projects are GST exempt.
- Non-GTA road transport of goods is normally exempt from GST.
- The authority ruled turnkey solar project work is an indivisible works contract.
- Freight charges within an EPC contract cannot be separated for exemption.
- Entire contract value attracts GST under works contract service rules.
In short
The contractor proposed undertaking turnkey solar power plant projects, including design, equipment procurement, freight, civil works, and commissioning. Under GST rules, ordinary transport of goods by road is exempt from tax unless provided by a Goods Transport Agency. The contractor argued that freight charges inside his project contracts should be exempt because he is not a registered transport agency. The tax authority had to decide whether a single turnkey contract can be split into separate parts to claim tax exemptions on transport.
What has changed
How it worked before
Before this ruling, many project contractors split their EPC agreements into separate items for equipment supply, civil work, and freight. They assumed that listing transportation separately allowed them to claim the general GST exemption on non-GTA road transport.
What has changed
The Maharashtra Authority for Advance Ruling held that a turnkey project to construct a solar power plant is a single works contract under section 2(119) of the CGST Act. Because the final output is an immovable structure, constituent activities like transport cannot be carved out as separate exempt services. As a result, contractors must pay full GST under works contract rules on the total project value, including transportation charges.
Who this affects
Engineering, procurement, and construction contractors executing turnkey solar power plants, transmission facilities, or infrastructure projects.
An example
Solar Systems Ltd signs a single turnkey contract to set up a solar power facility in Maharashtra. The contract lists separate costs for solar panels, civil foundations, and road transport of equipment. The company asks if it can exclude GST on the transport portion since it does not operate as a registered transport agency. Based on ruling GST-ARA- 36/2017-18/B- 43, the tax office will treat the entire contract as a single works contract and demand full GST on the transport charges too.
What you should do
Review your turnkey and EPC contracts to ensure GST is calculated on the total contract price. Do not split freight or insurance into separate invoices in an attempt to claim GST exemptions on a construction project. Remember that an advance ruling binds only the business that applied for it and its tax office, so this decision is not an automatic law for everyone. Consult a tax professional to evaluate your specific contract terms.
If you do nothing
If you exclude transport charges from GST on turnkey construction contracts, tax officers may reclassify your entire contract during an audit. They will demand the unpaid GST on the freight portion along with mandatory interest. You may also face penalties under GST law for underreporting tax liability.
The terms explained
- works contract
- A single contract for building, constructing, installing, or repairing an immovable property where goods are transferred as part of the work.
- EPC contract
- An Engineering, Procurement, and Construction agreement where one contractor handles complete design, equipment purchase, and project construction.
- Goods Transport Agency (GTA)
- A business that provides road transport for goods and issues a formal consignment note for the shipment.
- composite supply
- A bundle of two or more goods or services supplied together, where one main service gives the overall transaction its principal purpose.
The ruling in detail
Authority for Advance Ruling
Dinesh Kumar Agrawal
NO.GST-ARA-36/2017-18/B-43 dated 04.06.2018 · Maharashtra
Questions before the authority
- Whether Standalone Contract of transportation merits classification under Service code 9965 and whether same is exempt under Entry No. 18 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017?
- Whether composite supply of transportation and insurance merits classification under Service code 9965 and whether same is exempt under Entry No. 18 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017?
- Whether composite supply of 'loading of goods at the premises of the supplier, transportation in own/hired trucks to the project site, unloading and handling of goods at project site and in-transit insurance' merits classification under Service code 9965 and whether same is exempt under Entry No. 18 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017?
- Whether supply of services namely 'loading of goods at the premises of the supplier, transportation in own/hired trucks to the project site, unloading and handling of goods at project site and in-transit insurance' under Service Contract (under Split Contract) merits classification under Service code 9965 and whether same is exempt under Entry No. 18 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017?
- Whether supply of services namely 'loading of goods at the premises of the supplier, transportation in own/hired trucks to the project site, unloading and handling of goods at project site and in-transit insurance' under EPC Contract merits classification under Service code 9965 and whether same is exempt under Entry No. 18 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017?
- Whether transportation charges received by the applicant are liable to GST, specially when the applicant is not a goods transport agency (GTA)?
Facts
The applicant, an individual contractor, proposed to undertake turnkey Engineering, Procurement, and Construction (EPC) projects for solar power plants and transmission facilities. The scope of work encompassed design, equipment procurement, transportation, transit insurance, storage, civil works, erection, and commissioning. The applicant submitted draft EPC contracts and claimed that transportation charges should be exempt from GST under Entry No. 18 of Notification No. 12/2017-Central Tax (Rate) because he is not a Goods Transport Agency (GTA) and does not issue consignment notes.
Ruling
| Question | What the authority ruled |
|---|---|
| Liability to GST on transportation charges received by non-GTA contractor under EPC contract | Answered in the affirmative; taxable as a **works contract** under section 2(119) Applies to single indivisible EPC contracts resulting in immovable property |
The Authority held that the proposed EPC agreement is a single, indivisible contract for solar power plant construction, constituting a composite supply of a **works contract** under section 2(119) of the CGST Act. The transportation of equipment cannot be carved out as a standalone service or isolated exempt supply. Consequently, transportation charges received by the applicant under the EPC contract are liable to GST as part of the works contract service.
Reasoning
The Authority analyzed the terms of the draft EPC agreement as a whole and noted that the applicant's single-point responsibility covers design, equipment supply, freight, civil foundation work, installation, testing, and commissioning. The resulting solar power plant involves civil structures and is intended to function as an immovable property at the project site. Following Supreme Court rulings on immovable property, the transaction qualifies as a works contract under section 2(119) of the CGST Act. Because the supply is an integrated works contract, individual activities like transportation cannot be split up to seek exemption under Entry No. 18 of Notification No. 12/2017-Central Tax (Rate).
Provisions relied on
- Section 2(119) of the CGST Act, 2017
- Section 2(30) of the CGST Act, 2017
- Entry No. 18 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017
- Section 97 of the CGST Act, 2017 / MGST Act, 2017
- Section 98 of the CGST Act, 2017 / MGST Act, 2017
For the practitioner
An EPC contractor carrying out turnkey projects cannot artificially segregate freight charges to claim the GST exemption available to non-GTA transporters. Where the overarching contract involves erection, installation, and civil work yielding an immovable structure, all constituent activities are treated as part of a single **works contract**. Furthermore, advance ruling authorities will decline to rule on hypothetical standalone or split contract structures unless actual draft agreements for those arrangements are produced.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/mah_aar_36_2017-18_b-43_04.06.2018_dka.pdf
Legibility of the scan, as read: high.
Prepared 18-10-2026.
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