2022 (5) TMI 632 - AAR - GST

Benefit of lower rate of tax - item wise billing for every product in the Air Handling units independently, can be done or not - naturally bundled supply or not - procurement of higher rate items i.e. 28% from different company and rest of the system (less than 28%) from other company is agreeable? - Section 8 of GST Act - HELD THAT - As per the application at box 12(b) the nature of the activity undertaken by the applicant involves supply, installation and commissioning of the clean room HVAC project. As seen from the literature pertaining to Cleanrooms, they are specially constructed, environmentally controlled enclosed spaces where the concentration of airborne particles (contaminants) is kept within specified limits. In industry, cleanrooms are used in the manufacturing of electronic hardware such as integrated circuits (ICs) and hard drives. In biotechnology and medicine, cleanrooms are used when it is necessary to ensure an environment free of bacteria, viruses, or other pathogens. Further it is the contention of the applicant that they are bifurcating the purchase order for the components and installation contract. The crux of the issue boils down to whether the contract for installation HVAC clean room system is divisible into one for supply of material and other for service or not. Further whether it is a composite supply or a mixed supply. And in case it is composite supply, then what is the principle supply. In order to answer these questions which are related to the issues raised by the applicant they are requested to produce copies of purchase orders of material and orders for erection contracts - However, they have not produced the copies of purchase order and erection order as promised during the personal hearing till date. In the absence of the key elements to discern the nature of the contract as to whether it is a naturally bundled supply or not their application stands rejected.

Summary

Issues:
1. Whether item-wise billing for products in Air Handling units independently for lower tax rate is permissible.
2. Whether procurement of higher rate items from one company and rest from another is acceptable under Section 8 of the Act.

Issue 1: Item-wise billing for products in Air Handling units

The applicant, engaged in supplying and installing HVAC clean room projects, sought clarification on charging item-wise tax on customers due to the divisible nature of the contract. During the personal hearing, it was highlighted that the applicant bifurcates purchase orders for components and installation contracts. The Authority noted the importance of understanding whether the contract is divisible into supply of material and service or constitutes a composite supply. The key elements of Cleanroom Design were discussed, emphasizing the significance of Cleanroom Architecture and the HVAC System in maintaining controlled environments. However, the applicant failed to provide copies of purchase orders and erection contracts as promised during the hearing, leading to the rejection of the application due to insufficient information to determine the nature of the contract.

Issue 2: Procurement of items at different tax rates

The applicant inquired about the possibility of procuring higher rate items from one company and the rest from another, questioning the application of Section 8 of the Act. The Authority highlighted the need to establish whether the contract is a naturally bundled supply or not, and whether it constitutes a composite or mixed supply. The absence of crucial documents, such as purchase orders and erection contracts, hindered the Authority's ability to analyze the nature of the contract effectively. Consequently, the application was rejected due to the lack of essential information required to determine the tax implications of the procurement process.

In conclusion, the Authority for Advance Ruling, Telangana, addressed the queries raised by the applicant regarding item-wise billing for products in Air Handling units and the procurement of items at different tax rates. The decision to reject the application was primarily influenced by the applicant's failure to provide essential documents during the personal hearing, resulting in an inability to ascertain the nature of the contract and make informed judgments on the tax implications of the transactions.