2018 (12) TMI 1277 - AAR - GST

Classification of supply - rate of tax - Composite Contract or Works Contract? - tender received from the Indian Railways for retro-fitment of Twin Pipe Air Brake Systems on wagons - principal supply - Twin Pipe Air Brake Systems or the supply of services of fitting these goods to the wagons? Held that - The contract referred to by the Applicant is that of a composite supply within the meaning of Section 2(30), where the Twin Pipe Air Brake Systems are the Principal Supply as defined under Section 2(90) ibid. The entire contract value is, therefore, taxable at the rate applicable for supply of Twin Pipe Air Brake Systems - Twin Pipe Air Brake System is classifiable under Tariff Head 8607 21 00 Parts of Railway.. ..Air Brakes and part thereof which is taxable @ 5% under Serial No. 241 of Schedule I of Notification No. 01/2017 CT (Rate) dated 28/06/2017 with no benefit of refund of the unutilized input tax credit (as per TRU Clarification issued under F.No.354/1/2018-TRU dated 25/01/2018). Ruling - The Applicant s contract for retro-fitment of Twin Pipe Air Brake System on Railway Wagons is to be treated as Composite Supply, where the Twin Pipe Air Brake System is the Principal Supply Twin Pipe Air Brake System is classifiable under Tariff Head 8607 21 00 and is taxable @ 5% in terms of Serial No. 241 of Schedule I of Notification No. 01/2017 CT (Rate) dated 28/06/2017 with no refund of the unutilized input tax credit as clarified in TRU Clarification issued under F.No.354/1/2018-TRU dated 25/01/2018 .

Summary

Issues:
1. Determination of whether the activity under contract is a Composite Contract or Works Contract.
2. Identification of the Principal Supply in the contract.
3. Appropriate classification of the supply and rate of tax.

Issue 1: Composite Contract vs. Works Contract
The Applicant sought a ruling on whether the retro-fitment of Twin Pipe Air Brake Systems on wagons constitutes a Composite Contract or Works Contract under the GST Act. The Applicant argued that the contract is a single indivisible contract for a Composite Supply, where the supply of goods (Twin Pipe Air Brake Systems) is the Principal Supply, constituting the predominant element of the supply. The service of fitting the brake to the wagon was considered ancillary to the supply of goods.

Issue 2: Principal Supply Identification
The ruling analyzed the nature of the contract, emphasizing that the supply of goods (Twin Pipe Air Brake Systems) was the Principal Supply as per the definitions provided in the GST Act. It was highlighted that the contract value was taxable at the rate applicable for the supply of Twin Pipe Air Brake Systems.

Issue 3: Classification and Tax Rate
The judgment classified the Twin Pipe Air Brake System under Tariff Head 8607 21 00, taxable at 5% under Serial No. 241 of Schedule I of Notification No. 01/2017. It was specified that there would be no refund of the unutilized input tax credit as per the relevant TRU Clarification. The ruling concluded that the Applicant's contract for retro-fitment of Twin Pipe Air Brake Systems on Railway Wagons is a Composite Supply, with the Twin Pipe Air Brake System identified as the Principal Supply, subject to the specified tax rate and conditions.

In summary, the judgment clarified the nature of the contract, identified the Principal Supply, and determined the appropriate classification and tax rate for the supply under consideration, providing a comprehensive analysis of the issues raised by the Applicant in relation to the GST Act.