GST Rules for Output-Based Management Contracts: Vesuvius India Ruling
Running an output-based process management contract without transferring material ownership is treated as a service under GST, not goods.
- Ruling
- 13/WBAAR/2018-19 dated 20/07/2018
- Dated
- 20 Jul 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
- Vesuvius asked if its refractory management contract is goods or services.
- West Bengal AAR ruled the contract is a supply of services.
- Materials consumed without transferring ownership are treated as service inputs.
- Contracts longer than three months qualify as continuous supply of services.
- GST liability arises on the date the invoice is issued.
In short
Vesuvius India provided refractory management and continuous monitoring to steel plants, charging clients per tonne of metal produced. Ownership of the refractory materials remained with Vesuvius, which handled their application, use, and disposal. The company asked whether this contract counted as selling goods or supplying services under GST, and when tax liability arises.
What has changed
How it worked before
Businesses entering comprehensive plant management contracts often struggled to classify their agreements. Many assumed that supplying physical materials like refractories constituted a sale of goods, even if payment was calculated based on production output rather than material consumption.
What has changed
The Authority for Advance Ruling (AAR) decided that since ownership of materials never transfers to the client and billing is output-linked, the activity is a service associated with metal manufacturing. If the agreement extends beyond three months, it qualifies as a continuous supply of service. This sets the time of supply to the date the invoice is issued under GST rules.
Who this affects
Industrial service providers, plant maintenance firms, and equipment operators charging clients based on output volume rather than material usage.
An example
SteelCare Solutions enters a four-month contract with a factory to manage ladle operations, charging a fixed rate per tonne of steel poured. SteelCare brings its own insulation bricks, uses them up during operations, and keeps complete control of disposal without transferring brick ownership to the factory. Following the reasoning in this ruling, SteelCare is providing a continuous supply of service rather than selling bricks, and GST applies when monthly invoices are issued.
What you should do
Review your operational contracts to see if material title transfers to your client or stays with you. Remember that this ruling (Order 13/WBAAR/2018-19) legally binds only Vesuvius India and its tax office. You should consult a tax professional or apply for your own advance ruling before changing your tax treatment.
If you do nothing
Assuming this ruling covers your business automatically carries real tax risks. If a tax officer inspects your business and decides your contract is a sale of goods rather than a service, they can reclassify your transactions. This can result in unpaid tax demands, interest charges, and penalties.
The terms explained
- input tax credit
- The GST paid on business purchases that can be used to reduce the GST owed on sales.
- continuous supply of service
- A service provided ongoingly under a contract for more than three months with periodic payment obligations.
- time of supply
- The exact date when a transaction becomes liable for GST payment.
The ruling in detail
Authority for Advance Ruling
Vesuvius India Ltd
13/WBAAR/2018-19 dated 20/07/2018 · West Bengal
Questions before the authority
- Whether the activity proposed to be undertaken as Contract Management System (CMS) will result in supply of goods or services within the meaning of that term under the CGST/WBGST Acts, 2017, and the time of supply when so determined.
Facts
The Applicant, a manufacturer of refractories, proposes to enter into contracts for a Contract Management System (CMS) involving Total Tundish Management, Ladle Management System, and Trough Management System for steel plants. Under the proposed CMS, the Applicant designs, supplies, applies, maintains, and disposes of refractories and provides 24/7 monitoring of liquid metal flow without transferring title of the refractories to the client. Consideration is received on a monthly basis at a fixed rate per tonne of steel or liquid metal produced.
Ruling
| Question | What the authority ruled |
|---|---|
| Classification of CMS activity as supply of goods or services | Supply of services associated with manufacturing of metal, qualifying as continuous supply of service Provided the service is agreed to be provisioned for a period exceeding three months |
| Time of supply of CMS activity | Date of issue of invoice in terms of Section 13(2)(a) read with Section 31(2) and Rule 47 Invoices are to be issued on or before receipt of payment under Section 31(5)(b) |
The Authority held that the proposed CMS activities constitute **services associated with manufacturing of metal** and qualify as a **continuous supply of service** under Section 2(33) of the GST Act, provided the contract period exceeds three months. The time of supply was held to be the **date of issue of invoice** in terms of Section 13(2)(a) read with Section 31(2) and Rule 47 of the GST Rules.
Reasoning
The Authority noted that there is no transfer of title to the refractories used during the production process, and the Applicant maintains full control over their application, use, and disposal. The refractories serve as inputs under Section 2(59) used by the Applicant to provide continuous process control and management services. Since consideration is linked to the volume of metal manufactured rather than refractory consumption, the primary activity is a service. As the service entails ongoing round-the-clock monitoring, it constitutes a continuous supply of service under Section 2(33) if extended beyond three months, making Section 31(5)(b) and Section 13(2)(a) applicable for invoice issuance and time of supply.
Provisions relied on
- Section 2(33) of the CGST/WBGST Act, 2017
- Section 2(59) of the CGST/WBGST Act, 2017
- Section 13(2)(a) of the CGST/WBGST Act, 2017
- Section 31(2) of the CGST/WBGST Act, 2017
- Section 31(5)(b) of the CGST/WBGST Act, 2017
- Section 97(2) of the CGST/WBGST Act, 2017
- Rule 47 of the CGST/WBGST Rules, 2017
For the practitioner
This ruling establishes that output-based operational management contracts where materials are consumed without transfer of title constitute a **supply of services** rather than a supply of goods. It confirms that long-term industrial maintenance and monitoring contracts qualify as a **continuous supply of service**, fixing the time of supply to the date of invoice issuance. It does not decide the specific HSN/SAC code or the applicable rate of tax.
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/order_no._13_of_fy_19_dated_20072018.pdf
Legibility of the scan, as read: high.
Prepared 20-10-2026.
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