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2019 (7) TMI 759 - AAR - GSTClassification of transaction - Composite supply or Mixed supply - contract for supply, Installation, testing commissioning Air-Conditioners (involving indoor units, outdoor units, insulation, drain pipes, cabling, additional refrigerant and associated electrical works etc.) - whether covered under schedule IV, Sr. no 119 of notification No 1/2017 (Central tax rate) dated 28/06/2017 and taxable at 14%? - whether in the subject case there is supply of Works Contract or Composite Supply? - HELD THAT - As per Section 2(119) of the CGST Act, 2017, unless the context otherwise requires, the term works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract In case of supply of air-conditioning plant, what is done by the contractor is to install a complete unit by itself, which is functional in all respects. Central Air-Conditioning Plant erected at the site of the client and by using different refrigeration equipments are not bought and sold like room/window machines or even splits or package unit and cannot be installed like room/split air-conditioners. In the air-conditioning industry, these are undertaken as projects or AC jobs or works contract - the applicant has installed/combined various equipments are treating the entire units, components as one air-conditioning plant, which cannot be bought or sold as such. This understanding of the applicant is flawed. They themselves have submitted that their agreement dated 21 Aug., 2018, is for supply, installation, testing commissioning of VRF Indoor Outdoor Units suitable for R-410 Gas, refrigerant piping with insulation, drain piping with insulation, MS stands, Cabling, Additional Refrigerant associated electrical works etc. now they also are saying that the entire equipments must be treated as one plant, which is not acceptable. We find that every Indoor and Outdoor units, cabling, electrical works can be removed as such and therefore cannot be considered as immovable property. Naturally bundled services or not - HELD THAT - In the contract submitted by the applicant the major part of the contract is supply of goods. i.e. VRF Indoor Outdoor Units, refrigerant piping with insulation, drain piping with insulation, MS stands, Cabling, Additional Refrigerant and associated electrical works etc. These goods are delivered to the client by the applicant and such goods that are supplied are used by the applicant to provide services of installation, testing and commissioning of the substations. Without these goods the services cannot be supplied by the applicant and therefore we find that the goods and services are supplied as a combination and in conjunction and in the course of their business where the principal supply is supply of goods - there is a composite supply in the subject case. Whether their transaction is Composite supply liable to 14% being principal goods involved is Air-Conditioner which falls to cover under Schedule IV, Sr. no 119 of Notification No 1/2017 (Central tax rate) dated 28/06/2017? - HELD THAT - The principal supply in this case is a supply of goods and therefore the GST will have to be paid on the goods at the appropriate rate after classification under the appropriate heading. The principal goods in the subject case is Air-conditioner units which are most important for the applicant to render supply as per the contract. We find that the final deliverable is nothing but ready to operate Air-conditioning System, which can control/cool the temperature of the rooms in the buildings/site. Air Conditioner units falling under Chapter 8415 are taxable @28% and covered under Schedule IV, Sr. no 119 of notification No 1/2017 (C.T. Rate) dated 28/06/2017.Hence the principal supply in their composite supply being goods as described under heading 8537, the applicant is liable to pay GST on the whole contract @ 28% - Thus also the subject supply cannot be considered as a mixed supply because no individual supplies are made in the instant case.
Issues Involved:
1. Whether the transaction is classifiable as a "works contract" under GST. 2. Whether the transaction constitutes a "composite supply" under GST. 3. Determination of the applicable GST rate for the transaction. Issue-Wise Detailed Analysis: 1. Whether the transaction is classifiable as a "works contract" under GST: The applicant, a partnership firm, entered into an agreement with a government corporation for the execution of additional air-conditioning work for a new building. The scope of work included the supply, installation, testing, and commissioning of various air-conditioning units and associated electrical works. Legal Definition and Analysis: - As per Section 2(119) of the CGST Act, a "works contract" involves the construction, fabrication, installation, or commissioning of any immovable property wherein the transfer of property in goods is involved. - The applicant argued that the air-conditioning system, once installed, becomes an immovable property as it is fixed to the building and cannot be moved without dismantling. - However, the ruling observed that each component (indoor and outdoor units, cabling, etc.) can be removed as such and does not constitute an immovable property. - Citing various judgments, including the Supreme Court's decision in the case of Triveni Engineering and Industries Ltd., it was emphasized that the test of permanency and marketability must be satisfied to classify something as immovable property. Conclusion: The transaction does not qualify as a "works contract" because the components involved do not become immovable property. 2. Whether the transaction constitutes a "composite supply" under GST: The applicant's contract involved supplying various air-conditioning units and associated electrical works, followed by their installation, testing, and commissioning. Legal Definition and Analysis: - As per Section 2(30) of the CGST Act, a "composite supply" consists of two or more taxable supplies of goods or services that are naturally bundled and supplied in conjunction with each other, one of which is the principal supply. - The ruling found that the applicant’s supply of goods (air-conditioning units and associated materials) and services (installation, testing, commissioning) are naturally bundled and provided in the course of business. - The principal supply in this case is the supply of goods, specifically the air-conditioning units. Conclusion: The transaction is a "composite supply" with the principal supply being the air-conditioning units. 3. Determination of the applicable GST rate for the transaction: Given that the transaction is classified as a composite supply with the principal supply being air-conditioning units, the applicable GST rate needs to be determined. Legal Definition and Analysis: - Air-conditioning units fall under Chapter 8415 of the GST Tariff and are taxable at 28%, as covered under Schedule IV, Sr. No 119 of Notification No 1/2017 (Central Tax Rate) dated 28/06/2017. - Therefore, the entire composite supply is subject to GST at the rate applicable to air-conditioning units, which is 28%. Conclusion: The transaction is liable to GST at the rate of 28% as the principal supply is the air-conditioning units. Order: 1. Question 1: The transaction is not classifiable under the definition of "works contract" liable to CGST/SGST/IGST. 2. Question 2: The transaction is a composite supply liable to tax at the rate applicable to air-conditioning units, which are the principal goods involved in the transaction, i.e., 28%. This comprehensive analysis ensures that the legal terminology and significant phrases from the original text are preserved while providing a clear and detailed understanding of the judgment.
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