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2023 (2) TMI 758 - AAAR - GSTWorks Contract or not - supplies of goods or services for 'selling up of network' - composite supply/principal supply - If supplies contemplated as per the contract with BSNL are not treated as works contract, can these continue to qualify as composite supply? - what is the principle supply? - rate of tax applicable to the supplies made under the contract - applicability of Entry No. 3(vi) (a) of Notification No 11/2017-Central Tax (Rate) (as amended from time to time). - two ruling of the AAR - first one was accepted but second one was appealed against. HELD THAT - The supply of material and services for setting up of network, supply of satellite connectivity vehicle and training service being made in pursuance of setting up and effective operation of the network as a turnkey contract where contractor undertakes holistic responsibility of all the activities relating to the contract. The activities of Applicant inter-alia involve manufacture of telecom products such as optic liber, optic fiber cable, etc. and services in relation to laying these optic fiber cables (either underground or hung overhead) to create a network, setting up of control centres, installation of equipment, commissioning of network and other ancillary activities that may be necessary for creation of network infrastructure for its customers in the telecom industry. The scope of these activities is contractually stipulated and are typically recognized as a 'turnkey contract'. Therefore, it is clear that supply under consideration meets criteria of civil structure or any other original works . As the network is intended to be used for war fighting operations of Indian Navy, the works contract required therefore is set up with the predominant purpose of defence. In such a case, said works contract is undertaken for a predominant purpose other than commerce, industry, business or profession. The Navy (under the Ministry of Defence, a central government ministry) has entrusted the BSNL. by agreement, works contract to supply, install, commission next generation network along with all materials, civil structure, equipment, satellite connectivity, routers, switches and services to make entire setup to establish network for Indian Navy. BSNL has procured these services in relation to work entrusted by the Indian Navy (central government) - It may be noted that the Notification No 11/2017 has been further amended vide Notification No. 22/2021-CENTRAL TAX (RATE) dated 31.12.2021 (w.e.f. 1.1.2022) by which concessional rate of 12% for specific works contract services provided to Government authority and Government entity have been withdrawn. Said principal notification is further amended vide Notification No 3/2022-CENTRAL TAX (RATE) dt 13.7.2022 w.e.f. 18.7.2022 by which, inter-alia. Entry at Sr No 3(vi) is omitted. The supply of services made by appellant to the BSNL is fulfilling all the requirements and conditions of the entry at serial number 3 clause (vi)s(a). Appellant has specifically mentioned (in his AAAR application at para 1.15) the period of application as a 1.4.2019 to 31.12.2021. As per provision of section 103, advanced ruling pronounced shall be binding on the applicant and the jurisdictional officer, if it is not assailed by filling against it. Hence, there is binding effect of the first order of advance ruling till 31st March, 2019. which classified the said supply under entry No 3(ii) taxable at 18%.
Issues Involved:
1. Classification of the supply as 'works contract' under Section 2(119) of the CGST Act. 2. Determination of the applicable GST rate for the supply under the contract. 3. Applicability of Entry No. 3(vi)(a) of Notification No. 11/2017-Central Tax (Rate) for the period from 1.4.2019 to 31.12.2021. 4. Interpretation of the term 'original works' and its applicability to the contract. 5. Binding nature of previous Advance Rulings and their impact on the current appeal. Detailed Analysis: 1. Classification of the Supply as 'Works Contract': The Appellant's supply involves the creation of a network infrastructure for the Indian Navy, which includes the construction of buildings, installation of equipment, and other ancillary activities. The Maharashtra Authority for Advance Ruling (MAAR) had previously ruled that these activities qualify as a composite supply of 'works contract' as defined in Section 2(119) of the CGST Act. This classification was not disputed in the current appeal. 2. Determination of the Applicable GST Rate: The key issue was whether the supply falls under Entry No. 3(vi)(a) of Notification No. 11/2017-Central Tax (Rate), which prescribes a concessional GST rate of 12%. The Appellant argued that their supply should be taxed at this rate, while the MAAR had ruled that the supply falls under the residual Entry No. 3(xii), attracting a GST rate of 18%. 3. Applicability of Entry No. 3(vi)(a) of Notification No. 11/2017-Central Tax (Rate): The Appellant contended that their supply meets all the conditions stipulated under Entry No. 3(vi)(a) of the Notification, which includes: - The supply must be a composite supply of works contract. - It must be provided to a Government Entity (BSNL in this case). - The contract should involve construction, erection, commissioning, installation, etc., of a civil structure or any other original works. - The civil structure or original works must be predominantly for use other than commerce, industry, or any other business or profession. - The services should be procured by the Government Entity in relation to a work entrusted to it by the Central Government or State Government. The Appellate Authority found that the Appellant's supply met all these conditions and thus should be classified under Entry No. 3(vi)(a), attracting a GST rate of 12%. 4. Interpretation of the Term 'Original Works': The term 'original works' was defined by referring to Notification No. 12/2017-Central Tax (Rate) and the Service Tax (Determination of Value) Rules, 2006. The Appellate Authority agreed with the Appellant's interpretation that their activities, which include the erection, commissioning, and installation of plant, machinery, and structures, qualify as 'original works'. This interpretation was supported by various Advance Rulings and judicial precedents cited by the Appellant. 5. Binding Nature of Previous Advance Rulings: The Appellant argued that the previous ruling was not binding due to changes in the Rate Notification and cited various judgments to support their claim that non-filing of an appeal does not imply acceptance of the decision. The Appellate Authority acknowledged this argument and agreed that each Advance Ruling application should be considered independently on its merits. Conclusion: The Appellate Authority allowed the appeal, modifying the second order of the MAAR. It held that the supply under the contract from 1.4.2019 to 31.12.2021 falls under Entry No. 3(vi)(a) of Notification No. 11/2017-Central Tax (Rate) and is taxable at 6% under CGST and 6% under SGST or 12% under IGST. The first order of the Advance Ruling, which classified the supply under Entry No. 3(ii) taxable at 18%, was binding only until 31.03.2019.
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