EPC contracts and the single versus split contract debate
Splitting supply, services and civil work changes the tax. Whether the split survives depends on whether it was real.
An engineering, procurement and construction contract for an immovable project is ordinarily a works contract taxed as a composite supply of service. Splitting the arrangement into an offshore supply, an onshore supply and a services contract can change the tax treatment, but a split will be respected only where the contracts are genuinely separate in scope, risk, consideration and performance. Where the split is a paper exercise over an integrated turnkey obligation, the department and the courts have treated the arrangement as a single works contract.
Why splits are attempted
An offshore supply of equipment, where title passes outside India, is an import taxed at the customs frontier rather than as part of a works contract.
An onshore supply of goods may attract the goods rate rather than the works contract rate.
The service element may attract a different rate, and the credit position differs between the legs.
For foreign contractors, the split also affects the permanent establishment and withholding position under the income tax law, which is usually the primary driver.
When a split survives
Separate contracts with separate scopes, separate consideration, separate acceptance and separate risk allocation.
No cross default or single point responsibility clause that makes one party liable for the whole regardless of the split.
Actual performance consistent with the split — separate invoicing, separate deliverables and separate certification.
Where there is a single turnkey obligation with a single completion guarantee, the split is unlikely to survive, and the customer's own tender documents often prove the integrated nature of the obligation.
The practical advice
Decide the structure at the bid stage, with tax and legal input, and draft the contracts to match. A split introduced after award, by novation or by side letter, rarely survives.
Model both structures for total tax cost, including customs duty, the works contract rate, credit availability to the customer, and the withholding position.
Where the customer requires single point responsibility, accept that the arrangement is a works contract and price accordingly, rather than papering a split that will fail.
Maintain the performance record consistent with the structure throughout the project, because the assessment happens years later on the documents.
Authorities relied on
An indivisible works contract cannot be dissected to tax a component without statutory authority; the substance of the contract governs.
In the income tax context, offshore supply and offshore services under a turnkey contract could be taxed separately where the contract was divisible on its terms; frequently relied on in split contract structuring.
What to do on Monday
Decide the contract structure at the bid stage with tax and legal input, and draft to match.
Avoid single point responsibility language if a split is intended, or accept the works contract treatment.
Model total tax cost for both structures, including the customer's credit position.
Keep invoicing, deliverables and certification consistent with the structure for the life of the project.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Is a split contract legitimate?
Yes, where the separation is genuine in scope, risk, consideration and performance. A paper split of an integrated obligation is not.
Does single point responsibility defeat the split?
It is the strongest single indicator against a split, because it establishes one integrated obligation.
Does the customer's credit position matter?
Commercially yes. A customer that cannot take credit will prefer a structure that reduces the total tax, which shapes the negotiation.
Can we restructure after award?
Rarely with effect. Decide at the bid stage.
How is offshore supply treated?
Where title passes outside India and the goods are imported, the tax arises at the customs frontier. The contract and the shipping documents must support it.
In this cluster
- GST on real estate: the complete developer position
- Munjaal Manishbhai Bhatt: the one third land deduction is optional, not mandatory
- Joint development agreements: who pays, when, and on what value
- Transfer of development rights: the exemption and its conditions
- Works contracts under GST: classification, rate and the credit position
- Government contracts, escalation clauses and rate changes
- ITC restriction under Section 17(5)(c) and (d) for construction
- Preferential location charges, club charges and society transfer fees
- Affordable housing at one percent: the conditions that decide eligibility
- Redevelopment, slum rehabilitation and the value of free flats
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.