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2018 (11) TMI 1349 - AAR - GSTSupply of goods or supply of services - activity of O & M of Fluoride control project on ESCO Model and O & M work - rate of GST - composite supply - Works contract or not. Held that - The given work is a contract for improvement of the pumping system under the Fluoride control project, wherein transfer of property in goods in the form of new pumping machinery and mechanical/ electrical equipment shall be involved in the execution of such contract - That Works contract in itself is a composite supply in which construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning etc are involved along with transfer or property in goods. The water supply for domestic, industrial and commercial purposes is responsibility of Municipality. It is pertinent to note that given activity of ESCO plant redevelopment is in relation to clean drinking water facility to the citizens. Thus, it is easily ascertained that the applicant is engaged in a Work Contract (Composite supply) to a Governmental Authority - The rate of tax in given service shall be determined in accordance with the Notification No 11/2017-CT (Rate) dated 28.06.2017, as amended from time to time. In the given contract if the value of supplied goods is below 25% of the total value of the composite supply, then the rate of tax would be Nil as per entry number 3A of Notification No 12/2017-CT (Rate) dated 28.06.2018. Further, if in the duration of contract the applicant crosses the benchmark of 25% value of goods then the rate of tax will shift from Nil to 12% as per Notification No 11/2017-CT (Rate) dated 28.06.2017 as amended from time to time. Ruling - In the given contract, the activity of O & M of Fluoride Control Project on ESCO Model and O &M work by the applicant is being undertaken for a Government Department. If the value of supplied goods under this contract is below 25% of the total value of the composite supply, then the rate of tax would be Nil. Further, if in the duration of contract the applicant crosses the benchmark of 25% value of goods then the rate of tax will shift from Nil to 12%.
Issues Involved:
1. Classification of goods or services. 2. Determination of tax liability on goods or services. 3. Whether the activity constitutes a composite supply and the applicable GST rate. Issue-Wise Detailed Analysis: 1. Classification of Goods or Services: The applicant is engaged in providing comprehensive water services, including designing, installation, commissioning, operation, and maintenance of solar-based bore well water pumping systems and reverse osmosis plants. The contract combines ESCO Model and O&M work, forming a single indivisible supply. The activities under the ESCO model and O&M contract are so closely linked that they form a composite supply, as defined under Schedule II, Entry 6, which includes works contracts as a supply of services. 2. Determination of Tax Liability: The scope of work involves extensive activities such as refurbishment, repair, and installation of pumping machinery, maintenance of electrical and mechanical instruments, and upkeep of the pumping station and surrounding areas. These activities are considered works contract services, which are composite supplies involving both goods and services. The classification of the contract as a works contract depends on whether the property involved is movable or immovable. The General Clauses Act 1897 defines immovable property as land, benefits arising out of land, and things attached to the earth or permanently fastened to anything attached to the earth. The contract's activities involve improvements to immovable property, making it a works contract under GST. 3. Composite Supply and Applicable GST Rate: The contract is a composite supply as it meets all the conditions for such classification. According to Notification No. 12/2017-CT (Rate) dated 28.06.2018, entry number 3A provides an exemption from GST for composite supplies where the value of goods does not exceed 25% of the total value of the supply, provided the supply is to a government entity and pertains to functions entrusted to a Municipality under Article 243W of the Constitution. The activities under the contract, such as water supply for domestic, industrial, and commercial purposes, fall under the responsibilities of a Municipality. Therefore, if the value of supplied goods is below 25% of the total value of the composite supply, the GST rate would be Nil. If the value exceeds 25%, the GST rate would be 12% as per Notification No. 11/2017-CT (Rate) dated 28.06.2017. Conclusion: The contract for the O&M of the Fluoride Control Project on the ESCO Model and O&M work is classified as a composite supply of works contract services. If the value of supplied goods is below 25% of the total value, the GST rate is Nil. If the value exceeds 25%, the GST rate is 12%. This ruling is based on the provisions of the relevant notifications and the classification of the contract as a works contract involving immovable property.
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