2022 (2) TMI 1046 - AAR - GST

Classification of supply - supply of goods or supply of services - works contract or not - setting up of network - Section 2(119) of the CGST Act - supplies contemplated as per the contract with BSNL are not treated as works contract, can these continue to qualify as composite supply or not? - rate of tax applicable to the supplies made under the contract - HELD THAT - It is seen from the amendments from N/N. 11/2017-CTR dated 28.06.2017, the activities which were earlier covered by the Entry 3 (ii), after deletion of said sub-clause (ii), would get covered (said activities) under respective residual entry i.e Sr. No. 3 (xii) of the Notification No. 11/2017-CTR dated 28.06.2017 as amended by Notification No 03/2019 CGST (Rate) dated 29th March, 2019. The Authority, vide its earlier order (referred by the applicant) had classified the subject activities under the Entry 3(ii) of Notification No. 11/2017 - CTR- dated 28.06.2017, after considering all the headings of the said notification including Sr. No. 3 (vi) (a). The remaining headings are still in existence today and no new headings have been incorporated in the said notification after Notification No 3/2019 Dated 29th March, 2019, which can be considered to be relevant to the applicant's subject activities. Further, at this stage it is crucial to mention that the applicant had accepted the earlier ruling of this Authority - the subject activity of the applicant will be covered under Since Entry No 3 (xii) of Notification No. 11/2017-CTR- dated 28.06.2017 as amended till date. The activities of the applicant were covered under entry 3 (ii) of the Notification No. 11/2017 CGST (Rate) dated June 28, 2017 and thereafter with effect from 01.04.2019, the said activities are covered under Sr. No. 3 (xii) as amended by Notification No 03/2019 CGST (Rate) dated 29th March, 2019, taxable at the rate of 18% - the supplies of the Applicant are covered by sub-clause (xii) of Entry No. 3 of Notification No. 11/2017-CTR dated 28.06.2017 as amended and taxable @ 18% GST.

Summary

Issues Involved:
1. Determination of the applicable tax rate for supplies made under the contract.
2. Classification of the supply as a 'works contract' or 'composite supply.'
3. Applicability of the amended Notification No. 11/2017-CT (Rate) to the applicant's activities.

Detailed Analysis:

1. Determination of the Applicable Tax Rate:
The core issue revolves around identifying the correct GST rate applicable to the supplies made under the contract. The applicant, engaged in manufacturing telecom products and providing network infrastructure services, sought clarification on the tax rate post-amendment of the Notification No. 11/2017-CT (Rate).

2. Classification of Supply as 'Works Contract' or 'Composite Supply':
The applicant's activities include manufacturing telecom products, laying optic fiber cables, constructing buildings, installing equipment, and setting up a network. These activities were previously classified as a 'composite supply of works contract' under Section 2(119) of the CGST Act, attracting GST at 18% as per the earlier Advance Ruling Order No. GST-ARA-106/2018-19/B-34 dated 28.03.2019.

3. Applicability of Amended Notification No. 11/2017-CT (Rate):
The applicant argued that post the deletion of Entry No. 3(ii) by Notification No. 3/2019-CT (Rate) dated 29.03.2019, their activities should be taxed at 12% under Entry No. 3(vi)(a) of the Notification. However, the Authority found that the activities which were earlier covered under Entry 3(ii) would now fall under the residual Entry No. 3(xii) of the Notification No. 11/2017-CT (Rate), as amended, and thus attract an 18% GST rate.

Observations and Findings:
- The applicant's activities, including construction, installation, and commissioning of network infrastructure, were previously classified under Entry No. 3(ii) and taxed at 18%.
- The deletion of Entry No. 3(ii) necessitated reclassification under the amended Notification. The Authority determined that the activities now fall under Entry No. 3(xii), which also attracts an 18% GST rate.
- The applicant's contention that their activities should be taxed at 12% under Entry No. 3(vi)(a) was not accepted, as the Authority concluded that the nature of the activities remained unchanged and continued to fall under the higher tax bracket.

Conclusion:
The supplies made by the applicant under the contract are classified under sub-clause (xii) of Entry No. 3 of Notification No. 11/2017-CT (Rate) as amended, and are taxable at 18% GST. The Authority upheld the previous classification and tax rate, despite the deletion of Entry No. 3(ii), reaffirming that the applicant's activities do not qualify for the reduced 12% rate under Entry No. 3(vi)(a).