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2020 (6) TMI 451 - AAR - GSTWorks Contract - Composite Supply - supply made by NEC under the Automatic Fare Collection (AFC) project - original works meant predominantly for use other than for commerce, industry, or any other business or profession - applicability of GST rate of 12% provided in the Notification 24/2017-Central Tax (Rate) dated 21 September 2017 - HSN classification of supply made by NEC would fall under 8470 or 9954 ? - maintenance and management services post implementation. HELD THAT - The proposed contract is for supply of the AFC system comprising supply of multiple hardware and software and commissioning, installation and integration of the same. Under said contracts, the hardware and software to be provided by the applicant consists of POS machines, ETMs, flap gates, validators, station servers, communication components, control centre hardware, manual swing gates for disabled etc.. All the supplies i.e. hardware, software, installation and integration etc. are integral part of the AFC system - The term works contract has been restricted to contract for building construction, fabrication etc. of any immovable property only. Any such composite supply undertaken on goods say for example a fabrication or paint job done in automotive body shop will not fall within the definition of term works contract per se under GST. Such contracts would continue to remain composite supplies, but will not be treated as a Works Contract for the purposes of GST. As per Para 6 (a) of the Schedule II to the CGST Act, 2017, works contracts as defined in Section 2(119) of the CGST Act, 2017 shall be treated as a supply of services. Thus, there is a clear demarcation of a works contract as a supply of service under GST. Hence, Works contract will be treated as service and tax would be charged accordingly. The applicant s contention that the contract for supply of the AFC system to the local authority does not qualify as a Works contract under Section 2(119) of the CGST Act, 2017, since the installed AFC system cannot be said to result in the emergence of an immovable property is agreed upon - the AFC system is not an immovable property as it can be dismantled and moved to a different location without any damage. Further, it is found from their submissions and agreement that the contract is considering a clear demarcation of goods services to be provided by the applicant. The goods (hardware) and services (software, installation and integration etc.) 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. Classification of supply - Rate of Tax - to be treated as original works or not - HELD THAT - In this case, the proposed contract is for supply of the AFC system comprising supply of multiple hardware and software and commissioning, installation and integration of the same. All the supplies i.e. hardware, software, installation and integration etc. are integral part of the AFC system and any of such individual supply is not the principal supply. The principal supply would be the goods i.e. the AFC system as a whole. Thus, the services of commissioning and installation cannot be said to be a principal or main supply under the contract - the supply of the AFC system would not qualify as original works . Thus, the rate of 6% as provided in entry number (vi) of the Notification No.11/2017 Central Tax (Rate) as amended by the Notification No. 24/2017 - Central Tax (Rate) should not be applied in case of the AFC system. Whether the HSN classification of supply made by the applicant would fall under 8470 or 9954 ? - HELD THAT - The supply to be made under proposed Contract by the applicant does not qualify as a Works contract . Since, the supply by the applicant does not qualify as works contract, such supply should not get classified under 9954 - Considering that the main purpose of the AFC system is to compute the fare automatically and issue tickets along with integration of the system with the banks, the most appropriate HSN classification is to be 8470 . Considering the rate of GST prescribed for HSN 8470 is 18%, the same should be applicable in this case. Whether the maintenance and management services post implementation would qualify as composite supply as defined under section 2(30) of the CGST Act, 2017? - whether such supply would be eligible for exemption under Notification No.12/2017-Central Tax (Rate) dated 28 June 2017 in case value of supply of goods constitutes not more than 25% of the value of the said composite supply? - HELD THAT - The supply of the maintenance and management services to be provided post implementation of the AFC system under proposed contract would also qualify as a composite supply with the AFC system, being the principle supply. Whether supply of the maintenance and management services post implementation of the AFC system would be eligible for exemption under Notification No.12/2017-Central Tax (Rate) dated 28 June 2017 in case value of supply of goods constitutes not more than 25% of the value of the said composite supply? - HELD THAT - The Notification No. 12/2017 Central Tax (Rate), dated 28th June, 2017, as amended by the Notification No.02/2018 Central Tax (Rate) dated 25th January, 2018 provides that composite supply of goods and services in which the value of supply of goods constitutes not more than 25 percent of the value of the said composite supply provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution would be exempted from levy of GST - the said contract would be awarded for supply of the AFC system along with maintenance and management of the all hardware and software forming part of the AFC system. The supply of the AFC system comprises supply of goods (multiple hardware) and services (software, installation, commissioning, integration of the same). Further, the maintenance and management would also include supply of spares etc. for undertaking repairs of the AFC system. The proposed contract, thus, comprises composite supply of goods and services. M/s SSCDL is a company incorporated under the Companies Act, 2013 and, hence, does not fall under the definition of the local authority or a Governmental authority or a Government Entity. As such, supply of the maintenance and management services to be provided post implementation of the AFC system does not eligible for said exemption.
Issues Involved:
1. Classification of the supply under the Automatic Fare Collection (AFC) project as 'works contract' or 'composite supply'. 2. Qualification of the supply under the AFC project as 'original works' for GST rate applicability. 3. HSN classification of the supply made by the applicant. 4. Qualification of maintenance and management services post-implementation as 'composite supply' and eligibility for GST exemption. Detailed Analysis: Issue 1: Classification as 'Works Contract' or 'Composite Supply' - Applicant’s Argument: The applicant contended that the AFC system does not qualify as immovable property since components like flap gates can be easily removed and reattached. Thus, it should not be considered a 'works contract' under Section 2(119) of the CGST Act, 2017. Instead, it should be classified as a 'composite supply' under Section 2(30) of the CGST Act, 2017, as it involves the supply of multiple goods and services naturally bundled together. - Authority’s Observation: The supply of the AFC system, which includes hardware and software, does not result in immovable property. The contract involves more than two supplies of goods and services, naturally bundled and supplied in conjunction with each other, with the principal supply being the AFC system. - Ruling: The supply under the AFC project qualifies as a 'composite supply' as defined under Section 2(30) of the CGST Act, 2017. Issue 2: Qualification as 'Original Works' for GST Rate Applicability - Applicant’s Argument: The applicant argued that the supply should not qualify as 'original works' since the principal supply is the AFC system as a whole, and commissioning and installation are not the main supply. The price of the AFC system includes installation and commissioning charges, which cannot be separately identified. - Authority’s Observation: The supply of the AFC system, comprising multiple hardware and software, does not qualify as 'original works' under the Notification No. 24/2017-Central Tax (Rate) dated 21st September 2017. The principal supply is the AFC system, and commissioning and installation services are not separately priced. - Ruling: The supply under the AFC project does not qualify as 'original works' meant predominantly for use other than for commerce, industry, or any other business or profession. Therefore, the GST rate of 12% is not applicable. Issue 3: HSN Classification - Applicant’s Argument: The applicant suggested that the supply should be classified under HSN code '8470', which pertains to calculating machines and similar devices, rather than '9954', which is for works contracts. - Authority’s Observation: Given that the supply does not qualify as a works contract, it should not be classified under '9954'. The AFC system’s primary function is to compute fares and issue tickets, making '8470' the appropriate classification. - Ruling: The HSN classification of the supply is '8470', with a GST rate of 18%. Issue 4: Maintenance and Management Services Post-Implementation - Applicant’s Argument: The applicant argued that the maintenance and management services post-implementation should qualify as a 'composite supply' with maintenance services as the principal supply. They also contended that such supply should be eligible for exemption under Notification No. 12/2017-Central Tax (Rate) if the value of goods does not exceed 25% of the composite supply. - Authority’s Observation: The maintenance and management services are naturally bundled with the AFC system and are perceived as a composite supply. However, the value of goods in the composite supply exceeds 25%, and the supply is made to a company (SSCDL) that does not qualify as a local authority or governmental entity. - Ruling: The maintenance and management services qualify as a 'composite supply' with the AFC system as the principal supply. However, the supply is not eligible for exemption under Notification No. 12/2017-Central Tax (Rate) as the value of goods exceeds 25% and SSCDL is not a local authority or governmental entity. Final Ruling: 1. The supply under the AFC project qualifies as 'composite supply'. 2. The supply does not qualify as 'original works' for a reduced GST rate. 3. The HSN classification is '8470' with an 18% GST rate. 4. Maintenance and management services post-implementation qualify as 'composite supply' but are not eligible for GST exemption.
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