2020 (8) TMI 54 - AAR - GST

Classification of supply - Works Contract or not - supply of goods and service by Prasa Infocom Power Solutions Private Limited to Cray Inc. (Cray) - Section 2(19) of the Central Goods and Services Tax Act, 2017 - whether the applicant in the subject case is dealing in any immovable property which is transferred in the execution of the contract? - HELD THAT - As per the subject agreement and documents submitted by the applicant, the major part of the contract is supply of goods. These goods are sold to the client by the applicant and they receive separate payment for such goods sold. Further, the goods that are supplied are used by the applicant to provide services of installation, testing and commissioning of the Data Centre. Without these goods the services cannot be supplied by the applicant and therefore we find that the goods and services are supplied as a combination and in conjunction and in the course of their business where the principal supply is supply of goods. Thus there is a composite supply in the subject case but there is no building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of the contract. Therefore there is no works contract involved in the subject case. The items are in nature of machine/instruments/equipment and are all replaceable and hence cannot he said to be of immovable nature - answered in negative.

Summary

Issues Involved:
1. Classification of the supply of goods and services as a 'works contract' under Section 2(19) of the CGST Act.
2. Applicability of GST to the supply of goods and services involved.
3. Eligibility of the application for an advance ruling given the completion status of the project.

Issue-wise Detailed Analysis:

1. Classification of the Supply as 'Works Contract':

The applicant, Prasa Infocom & Power Solutions Private Limited, engaged in data center construction and contracting services, entered into a contract with Cray Inc. for the preparation and maintenance of a Data Center. The scope of services included design approval, civil and mechanical works, supply, installation, testing, and commissioning of equipment, and detailed documentation. The applicant argued that the contract involves a composite supply of goods and services naturally bundled in setting up a data center, which qualifies as a 'works contract' under Section 2(119) of the CGST Act.

The Authority examined the contract documents, which showed separate pricing for goods and services. The major value of the contract was for the supply of goods, exceeding 85% of the total cost. The Authority determined that the contract pricing clearly demarcated goods and services, indicating a composite supply where the principal supply is goods. Therefore, the supply did not meet the criteria for a 'works contract' as it did not involve building, construction, or commissioning of any immovable property.

2. Applicability of GST:

The applicant contended that their activities resulted in the creation of an immovable property, thus qualifying as a 'works contract' subject to GST at 18%. However, the Authority found that the data center, comprising equipment and machinery, could not be classified as immovable property. The value of civil construction was insignificant compared to the value of goods and services. The supply was classified as a composite supply with the principal supply being goods, not a 'works contract.'

3. Eligibility of the Application for Advance Ruling:

The jurisdictional officer argued that the application should be rejected as the supply of goods and services was already completed, and advance ruling is only for proposed or ongoing supplies. However, the Authority noted that the maintenance work was ongoing and part of the contract, thus making the application eligible for an advance ruling.

Conclusion:

The Authority concluded that the supply of goods and services by the applicant to Cray Inc. does not qualify as a 'works contract' under Section 2(119) of the CGST Act. The supply was classified as a composite supply with the principal supply being goods, and therefore, the question was answered in the negative.