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2022 (11) TMI 784 - AAR - GSTClassification of supply - works contract - pure supply of goods or pure supply of services or composite supply of goods and services - activity of operation and maintenance of Mansi Wakai dam - PHED, a unit of Government of Rajasthan - benefit of exemption under entry 3 A of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017 - HELD THAT - The nature of contract is such that initial activities under ESCO model is the main service and the other services under O M contact combined with such service are in the nature of ancillary services which help in better operation of main activities under ESCO model and make the model successful. As per contract agreement, stipulated date of start is 11.02.2022 and stipulated date of completion of project/ work order No. SE(proj)/BSW/2021-22/1405-09 dated 11.02.2022 is 10.02.2025 - 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. Whether a supply is a works contract or not is dependent on whether the plant or device or property is a movable or immovable property? - HELD THAT - Under the General Clauses Act 1897 the term immovable property has been defined under Section 3(26) as immovable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth - According to definition of works contract under GST regime, the supply of goods and services are done by the supplier simultaneously which is for immovable property. Hence in works contract supply of goods and services together is compulsory. The activities to be undertaken by the applicant in respect of Operation Maintenance of Mansi Wakai dam is a single supply and cannot be treated as distinct supplies, the given work is a contract for improvement of the pumping system under the Mansi Wakai 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. It is understood that the properties for which improvement works has been assigned like pump houses, DAM, campus etc. cannot be moved from one site to another - The activities to be undertaken by the applicant in respect of Operation Maintenance is for an immovable property i.e. Mansi Wakai dam and thus the given work is held as works contract. Further, since all the conditions of composite supply are satisfied, therefore it is a composite supply of works contract - the applicant is eligible for exemption under entry No. 3 A of Notification No. 12/2017-CT (R) dated 28.06.2017. In this activity of Composite supply of goods and services if supply of goods is below 25% out of total value of supply then GST will be NIL in consonance with entry No. 3A of Notification No.12/2017-CT (R) dated 28.06.2017 (as amended) and if more than 25% of the total value of supply then GST will be @12% in consonance with entry No. 3(iii) of Notification No. 11/2017-CT (R) dated 28.06.2017(as amended).
Issues Involved:
1. Classification of the activity of operation and maintenance as supply of goods or services. 2. Eligibility for exemption under entry 3A of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017. 3. Applicable rate of tax if exemption is not available. Detailed Analysis: 1. Classification of the Activity: The applicant, M/s Secure Meter Limited, is engaged in providing comprehensive water services and is bidding for a tender floated by the PHED, Government of Rajasthan, for the operation and maintenance of the Mansi Wakai dam. The contract combines ESCO Model and O&M work, which are closely linked, making it a single indivisible supply. The activities include replacing old pump sets, maintaining average energy consumption, repairing pipelines, and maintaining the dam and its accessories. The applicant argues that these activities form a composite supply and should be classified as a works contract, which is inherently a composite supply involving both goods and services. The Authority concluded that the nature of the contract, which includes initial activities under the ESCO model as the main service and other ancillary services under the O&M contract, qualifies as a works contract. This is because the activities involve improvement, repair, and maintenance of immovable property, which cannot be moved without substantial damage, thus fitting the definition of works contract under the GST Act. 2. Eligibility for Exemption: The applicant seeks exemption under entry 3A of Notification No. 12/2017-CT (Rate), which provides for nil GST on composite supplies to government entities if the value of goods does not exceed 25% of the total value of the supply. The activities listed under Article 243W of the Constitution, including water supply for domestic, industrial, and commercial purposes, fall under the responsibilities of municipalities. The Authority verified that the applicant's activities, which include maintaining the water supply system, fall under the functions entrusted to municipalities under Article 243W. The applicant provided a breakdown showing that the value of goods supplied is 11.50% of the total value, which is below the 25% threshold. Therefore, the applicant is eligible for the exemption. 3. Applicable Rate of Tax: If the value of goods supplied exceeds 25% of the total value, the applicable GST rate will be 12% (6% SGST + 6% CGST). However, if the value of goods is below 25%, the supply will be exempt from GST. Conclusion: The Authority ruled that the activity of operation and maintenance of the Mansi Wakai dam, including mechanical, electrical, and instrumentation works, constitutes a composite supply of works contract. Since the value of goods supplied is below 25% of the total value, the applicant is eligible for the exemption under entry 3A of Notification No. 12/2017-CT (Rate). If the value of goods exceeds 25%, the applicable GST rate will be 12%. Ruling: The activity of O&M of the Mansi Wakai dam project on the ESCO Model and O&M work by the applicant for a Government Department is classified as a composite supply of goods and services. The applicability of GST is as follows: - If the supply of goods is below 25% of the total value, GST will be nil. - If the supply of goods exceeds 25% of the total value, GST will be 12% (6% SGST + 6% CGST).
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