2019 (11) TMI 1145 - AAR - GST

Classification of service - Works contract service or not - setting-up of the data centre facilities - rate of GST - CGST Act - Karnataka GST Act - HELD THAT - The term Works Contract is clearly defined in Section 2(119) of the CGST Act, 2017. The definition is self explanatory and leaves no doubt that it is in relation to an immovable property only. Secondly, in Section 17(5) of the said Act, the term plant and machinery is also defined. Here the machinery, apparatus and equipment is secured to the earth by way of a foundation or structural support. This foundation or the structural support is meant to impart stability to the machine while working. It, however, does not impart the machine/equipment the same degree of permanence that a building acquires when built on its foundation. Here the equipment is fitted on the foundation and the same can be removed and relocated without damaging it. The same does not hold true for a building or an immovable property - the inference drawn from the provisions of Section 17(5) are erroneous. The proposed activity of setting-up of the data centre facilities as explained would qualify as works contract as per Section 2(119) of the Central Goods and Service Tax Act, 2017 and Section 2 (119) of the Karnataka Goods and Service Tax Act, 2017 Rate of tax applicable on the activities proposed to be undertaken by them - HELD THAT - The activities proposed to be carried out by the applicant qualify to be treated as works contract the rate of tax applicable would be accordingly applied. Notification 11/2017 - Central Tax (Rate) dated June 28, 2017 provides the rates of GST applicable on intra state supply of goods and services. SI. No.3 of the Notification provides that a composite supply of works contract, as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017, is liable to GST @ 18% - Therefore, as the proposed activity falls under the category of the works contract it is liable to tax @18%.

Summary

Issues Involved:
1. Whether the proposed activity of setting up data center facilities qualifies as a 'works contract' under Section 2(119) of the CGST Act, 2017 and Section 2(119) of the KGST Act, 2017.
2. The applicable rate of GST on the proposed activities.

Issue-wise Detailed Analysis:

1. Qualification as 'Works Contract':

The applicant, a private limited company engaged in the sale of IT products and services, sought an advance ruling on whether their proposed activity of setting up data center facilities qualifies as a 'works contract' under Section 2(119) of the CGST Act, 2017 and Section 2(119) of the KGST Act, 2017.

The applicant detailed the activities involved in setting up the data centers, including civil, mechanical, electrical works, and obtaining statutory approvals. They argued that these activities involve both supply of goods and services, making it a composite supply related to immovable property, thus qualifying as a 'works contract'.

The applicant cited several judicial pronouncements, including decisions from the Supreme Court and High Courts, to support their argument that the term 'works contract' encompasses a wide range of activities involving both goods and services related to immovable property. They referred to cases like State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd and Kone Elevator India Pvt. Ltd. v. State of Tamil Nadu, which held that works contracts involve a composite supply of goods and services.

The applicant also emphasized that the activities proposed are in relation to immovable property, as defined under Section 2(36) of the General Clauses Act, 1987 and Section 3 of the Transfer of Property Act, 1882. They argued that the fixtures and installations involved are attached to the earth and meant to be permanent, thus qualifying as immovable property.

The Authority agreed with the applicant's arguments, noting that the activities involved in setting up data centers include extensive civil, mechanical, and electrical works that result in a fully functional data center. These activities involve both supply of goods and services and are related to immovable property, thus qualifying as a 'works contract' under Section 2(119) of the CGST Act, 2017.

2. Applicable Rate of GST:

The applicant sought clarification on the applicable rate of GST for the proposed activities. They referred to Notification 11/2017 - Central Tax (Rate) dated June 28, 2017, which specifies the rates of GST for various supplies. As per SI.No.3 of the Notification, composite supply of works contract is liable to GST at 18%.

The Authority confirmed that since the proposed activities qualify as a 'works contract', they are subject to GST at the rate of 18% (9% CGST and 9% SGST) as per Entry No. 3(ii) of Notification 11/2017 - Central Tax (Rate) dated June 28, 2017.

Ruling:

1. The proposed activity of setting up data center facilities qualifies as a 'works contract' under Section 2(119) of the CGST Act, 2017 and Section 2(119) of the KGST Act, 2017.
2. The applicable rate of GST for the proposed activities is 9% CGST and 9% SGST as per Entry No. 3(ii) of Notification 11/2017 - Central Tax (Rate) dated June 28, 2017.