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2021 (4) TMI 143 - AAR - GSTRate of tax - Composite supply of Works Contract or not - supply of erection, commissioning and installation of ZLD plant along with O M services for a period of 5 years - taxable at 12% of GST in terms of N/N. 11/2017 Central Tax (rate) Dated 28/ 06/2017 - HELD THAT - It could be inferred from the definition of the works contract that any contract for erection, installation, commissioning, repair and maintenance of immovable property wherein transfer of property in goods ( whether as goods or in some other form ) is involved in the execution of such contract qualifies as works contract transaction as per entry No.6 (a) of the Schedule II. In the instant case applicant has undertaken erection, installation, commissioning of the ZLD plant which is permanently fastened to earth and hence the ZLD plant becomes immovable property. Construction, supply of relevant goods, assembly, commissioning of such immovable structure qualifies as a works contract transaction. It is observed that service of supply, erection, commissioning and installation of waste-water pretreatment plant qualifies as Composite supply of Works Contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017. The service of setup of ZLD plant is supplied to the KPCL which is Government Entity. Thus all the conditions of Entry No.3(iii) of the Notification No.11/2017 - Central Tax (Rate) dated 28.06.2017 as amended by the Notification No.20/2017- Central Tax (Rate) dated 22.08.2017 and Notification No. 31/2017 - Central Tax (Rate) dated 13.10.2017 are satisfied. Hence the services of setting up of ZLD plant supplied to KPCL by the applicant are classified under SAC 9954 and liable to tax at the rate of 6% under the CGST Act, 2017 and similarly taxable at the rate of 6% under the KGST Act, 2017. Whether the O M of said ZLD plant for a period of 5 years qualifies to be a composite supply of works contract or not? - HELD THAT - The O M service is inclusive of supply of spares as well as maintenance service, which are taxable supplies. Supply of spares arises consequent to maintenance and hence the said supply is ancillary to the supply of service of maintenance of the ZLD plant. Thus these taxable supplies are naturally bundled and supplied in conjunction with each other where the maintenance service is predominant and hence becomes principal supply. Therefore the O M service qualifies to be a composite supply of maintenance service. Whether the setting up of ZLD plant, a composite supply of works contract and the supply of O M service, a composite supply of maintenance service are a composite supply of works contract or not? - HELD THAT - The definition of works contract as per Section 2 (119) of CGST Act, 2017 includes repair and maintenance of any immovable property. In the instant case the O M services are meant for maintenance of the ZLD plant, an immovable property and hence the O M services are covered under Sr. No. 3 (iii) of Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017 as amended and attracts GST @ 12%.
Issues Involved:
1. Whether the service of supply, erection, commissioning, and installation of a waste-water pre-treatment plant followed by operation and maintenance attracts a GST rate of 12%. 2. Whether the service qualifies as a "Composite supply of works contract" under Sl. No. 3(iii) of Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017. Detailed Analysis: 1. Composite Supply of Works Contract: The applicant provides end-to-end solutions for water treatment, including the supply, erection, commissioning, and installation of a Zero Liquid Discharge (ZLD) plant, followed by its operation and maintenance (O&M) for 5 years. The applicant contends that these activities qualify as a "Composite supply of works contract" under Sl. No. 3 (iii) of Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017, attracting a GST rate of 12%. Applicant’s Interpretation: - Composite Supply: Defined under section 2(30) of the CGST Act 2017, it consists of two or more taxable supplies of goods or services which are naturally bundled and supplied in conjunction with each other, where one is a principal supply. - Principal Supply: Defined under Section 2(90) of the CGST Act 2017, it is the predominant element of a composite supply. - Conditions for Composite Supply: The applicant argues that their contract with KPCL meets the criteria for a composite supply, including the supply of goods and services naturally bundled and made in conjunction with each other, with one being predominant. Legal Precedents: - The applicant references several Advance Rulings and judicial decisions supporting the classification of similar contracts as composite supplies, such as the cases of Fermi Solar Farms Pvt. Ltd. and Giriraj Renewables Pvt. Ltd. 2. Immovable Property and Works Contract: - Immovable Property: The applicant argues that the ZLD plant qualifies as immovable property since it is permanently fastened to the earth, not saleable in the market, and cannot be moved without substantial dismantling. - Works Contract: Defined under Section 2(119) of the CGST Act, it includes contracts for erection, installation, commissioning, repair, and maintenance of immovable property involving the transfer of property in goods. Authority’s Findings: - Composite Supply: The authority agrees that the applicant’s activities qualify as a composite supply of works contract. The ZLD plant is considered immovable property, and the contract involves the supply of goods and services naturally bundled and supplied in conjunction with each other. - Government Entity: KPCL qualifies as a Government Entity as it is established by the Karnataka State Government with 90% or more participation by way of equity or control. 3. Operation and Maintenance (O&M) Services: - The O&M services for 5 years, including spares, consumables, and specialty chemicals, are considered a composite supply of maintenance service. These services are ancillary to the maintenance of the ZLD plant, making maintenance the principal supply. - Composite Supply of Works Contract: The O&M services, being for the maintenance of an immovable property (ZLD plant), qualify as a composite supply of works contract. Ruling: The service of supply, erection, commissioning, and installation of the ZLD plant, along with O&M services, is classified as a composite supply of works contract under SAC 9954. It is liable to CGST @ 6% and KGST @ 6% in terms of entry No. 3(iii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended by subsequent notifications.
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