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TMI Blog2019 (7) TMI 759X X X X Extracts X X X X X X X X Extracts X X X X ..... t, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean CGST Act and MGST Act. 2. FACTS AND CONTENTION - AS PER THE APPLICANT "(A) BRIEF HISTORY OF THE CASE M/s. Nikhil Comforts, a Partnership Firm, registered under the Indian Partnership Act, 1932 is having its registered office at 1003,Sampada, Arunodaya Nagar, Mulund (East) Mumbai 400 081 and sales office at Ground & 1st floor, Mulund Utkarsha CHS Ltd., Sajjan Wadi, Mithagar Road, Mulund (East), Mumbai 400 081. The firm is registered under the GST Act having GSTIN No. 27AAAFN0812H1ZP. M/s Nikhil Comforts (short the firm) entered into an agreement with Goa State Infrastructure Development Corporation Ltd.(in short GSIDC) for execution of' Additional Air-conditioning work for the New building of Director of Education at Porvorim, Goa." GSIDC desires to get air-cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire for earthling, (C) DOCUMENTS SUPPLIED FOR CONSIDERATION: 1. Agreement entered between GSIDC and Nikhil Comforts Dated 21st Aug.,2018 for supply, Installation, testing & commissioning of VRF Indoor and Outdoor Units suitable for R-410 Gas, refrigerant piping with insulation, drain piping with insulation, MS stands, Cabling, Additional Refrigerant and associated electrical works etc. 2. Letter of acceptance dated 24th May 201 8 (D) RATE OF TAX ON THE TANSACTION: Whether as 'WORKS CONTRACT' or as 'COMPOSITE SUPPLY' or as 'MIXED SUPPLY The Question for advance ruling is whether the applicant requires to pay GST considering the transaction as 'Works Contract' or 'Composite supply or 'Mixed supply: (a) WORKS CONTRACT: If the transaction is Works Contract the rate of tax would be 6% CGST covered under Sr. no 3 item no 3 of notification No. 24/2017 (Central tax rate) dated 21/09/2017. (b) COMPOSITE SUPPLY: If the transaction is composite supply the rate of tax would be CGST @ 14% being principal goods involved is Air Conditioner which falls to cover under schedule IV, Sr. no 119 of notification No 1/201 7 (Central tax rate) dated 28/06/2017. (C) MIXED SUPPLY: if the transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titute a composite supply. Illustration: A supply of a package consisting of canned foods, sweets, chocolates; cakes, dry fruits aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately." The contracts involving supply of goods and services in relation to movable property would also fall in the definition of composite contracts. 1. WHETHER WORKS CONTRACT'? Section 2(119) defines "works contract" to mean a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration on commissioning of any immovable property wherein the transfer of property in goods (whether as goods or in some other forms) is involved in execution of such contract. To know whether this is works contract the goods involved in the contract property in which requires to be transferred in immovable property. (b) Blue Star Ltd. vs Commissioner of Central Excise [2002 (143) ELT 391 Tri Del] = 2002 (5) TMI 83 - CEGAT, COURT NO. II, N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hold that that the CAP installed at sight is the movable property of the customers. The Member (J) relied on the decision of the Apex Court in the case of Sirpur Paper Mills reported in 1998 (97) E.L.T. Page 3 (S.C.) = 1997 (12) TMI 109 - SUPREME COURT, wherein the Apex Court considered the leviability of excise duty on paper making machine which was erected by the appellant-company by using duty paid components purchased from the market and also by fabricating certain parts of the machines in their factory. The Hon'ble Apex Court held that just because plant and machinery are fixed in the earth for better functioning, it does not automatically become an immovable property. Thus as per the decision of the majority the transaction is of the nature which may fall to cover under the definition of 'works Contract [section 2 sub-section (119)] (c) Government of India Ministry of Finance Department of Revenue Central Board of Excise & Customs through its order no 37B Order 58/1/2002-CX dated 15th January 2002 has issued instructions at para 5.(iii) that "Refrigeration/Air conditioning plants. These are basically systems comprising of compressors, ducting, pipings, insulators and some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is composite supply liable to CGST @ 14% being principal goods involved is Air-Conditioner which falls to cover under schedule IV, Sr. no 1 19 of notification No 1/2017 (Central tax rate) dated 28/06/2017 In continuation of our submission dated 26th March 2019 it is submitted that- 1. The applicant- Company pursuant to the acceptance of its tender, entered into an agreement with GSIDC for design, supply, Installation, testing & commissioning of VRF Indoor and Outdoor Units suitable for R-410 Gas, refrigerant piping with insulation, drain piping with insulation, MS stands, Cabling, Additional Refrigerant and associated electrical works etc. at the site of GSlDC, 2. For supply/installation/erection and assembly of complete Air Conditioning plants were procured by the company and various equipments/components/material/ parts and accessories were brought to the site of the customers GSIDC. The plant is installed (assembled mainly comprising of VRF 4 way Cassette units, VRF Hi wall units, VRF Outdoor units, Drain pump, interconnecting soft & hard copper pipes, cable tray, sheet metal ducts are fabricated at site and installed along with grills and diffusers. The ducts & piping is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (25) of the General Clauses Act, it is evident that in an immovable property there is neither mobility nor marketability as understood in the Excise Law. Whether an article is permanently fastened to anything attached to the earth require determination of both the intention as well as the factum of fastening to anything attached to the earth. It also required to see that the test of permanency; if the chattel was movable to another place of use in the same position or liable to be dismantled and re-erected at the later place, if the answer to the former is in the positive it must be a movable property but if the answer to the latter part is in the positive then it would be treated as permanently attached to the earth. Thus test of "marketability" and test of "permanency" is the twin tests laid down by the Court to determine whether assembly/ erection would result in immovable property or not. Reference can be made to following judgments- a. Court in Municipal Corporation of Greater Bombay & Ors. Vs. The Indian Oil Corporation Ltd. (1991) Supp. (2) SCC 18 = 1990 (11) TMI 407 - SUPREME COURT; and held that the twin tests laid down by the Court to determine whether assembly/ erection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court, therefore, concluded that mono vertical crystallisers are not "goods" within the meaning of the Act and, therefore, not exigible to excise duty. d. In Triveni Engg. & Industries [2000 (120) E.L.T. 273 (S.C.)] = 2000 (8) TMI 86 - SUPREME COURT, the question was whether a Turbo-Alternator was excisable or not. The Tribunal had held the item to be excisable. The Apex Court set aside the Tribunal's decision, observing that the Tribunal's conclusion was not justified by its own finding. The Apex Court held that the marketability test required that the goods should be in a position to be taken to the market and sold. In that as found by the Tribunal, the Turbo-Alternator had to be separated into its components viz. Turbine and Alternator for being taken to the market. The Apex Court, therefore, held that the marketability test was erroneously applied by the Tribunal. In the instant case, the factual position is analogous to that of Triveni Engg. & Industries. Even the Revenue has no case that the CAP was capable of being taken as such to the market for sale. It required to be disassembled or dismantled into its components for the purpose of removal from its site, but then, cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent evidence. In the instant case, the department has not been able to establish that the CAPs were capable of being taken as such to the market for being sold. Thus the majority has held that Central Air conditioner plant fixed in the contract is immovable. Thus as per the decision of the majority the transaction is of the nature which may fall to cover under the definition of 'works Contract' [section 2 sub-section (119)] 6. It submitted that the Air conditioning plant in the present case emerges by assemblage of various components procured from open market and erection and installation of the system in the customer's premises as per the specifications of the customer. The contract is relating to commissioning of air-conditioning plants as per terms and conditions of the contract and such plants are commonly known as air-conditioning system or facility or plant. It undertakes air conditioning contracts where the contracts cover the design, supply, installation, testing and commissioning of the entire air-conditioning plants and such plants are extended a guarantee for the performance of satisfactory functioning. The air-conditioning plant is supposed to deliver certain desired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducting, pipings, insulators and sometimes cooling towers etc. They are in the nature of systems and are not machines as a whole. They come into existence only by assembly and connection of various components and parts. Though each component is dutiable, the refrigeration/air conditioning system as a whole cannot be considered to be excisable goods. Air conditioning units, however, would continue to remain dutiable as per the Central Excise Tariff." The Department had issued these directions treating Refrigeration/Air conditioning plants are immovable. The taxing authorities under excise Act, following these directions have treaded Air conditioning plants as immovable since 2002. It is therefore submitted that there would not be any different view as is followed continuously for years together under Excise Act. Keeping in view the principles laid down in the judgments and authority noticed above, and having regard to the facts of this case, it is submitted that the Air Conditioning Plant brought into existence is immovable property which could not be shifted without first dismantling it and then re-erecting it at another site and satisfies the test of permanency and non marketab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill not be suitable at the new site and will need to be replaced with components of different capacity and size. Hence, this qualifies as a plant and cannot be compared with a simple split air-conditioner. * This is 60 TR (72HP) AC plant as per tender BOQ which includes outdoor units and multiple indoor units with specific copper pipe sizes and predetermined pipe route. This system is efficient replacement of Chiller, Air handling units, chilled water piping and ducting etc. With the advent of new technology, Chiller plant is being replaced by VRF system / plant. * FOLLOWING IS THE SEQUENCE OF ACTIVITIES IN A CHRONOLOGICAL ORDER DURING EXECUTION OR COMPLETION OF AN AIR-CONDITIONING PROJECT - * STUDY OF TENDER DOCUMENTS AND SITE SURVEY - Tender documents and drawings are thoroughly studied by HVAC design and planning engineer. The physical site survey is done by the design engineer and draftsman team and taking all the site details like area to be air conditioned, Orientation of building, exposed glasses, walls and its area, beam locations and its height beam, drain locations, outdoor unit locations etc. * HEAT LOAD ESTIMATION - Based on tender Design Basis Report and actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication and quantity at the time of delivery. * INSTALLATION - Before commencement of any installation work, the project manager, engineer and site supervisor study the approved shop drawing thoroughly. * The markings are done for indoor unit locations, outdoor unit locations, copper pipes, cable trays and cabling as shown in approved shop drawings. * As per marking, the respective supports are installed for indoor unit, copper pipes, cable trays and drain piping. These supports are permanently fastened to the slab by means of female anchor fasteners, full threaded rod and angles. The supporting activity involves the drilling work in slabs / walls, fabrication works like cutting, welding angles/ full threaded rods. Since supports vary in sizes as well as the entity to be supported. * The back plate of hi-wall unit is properly / rigidly fixed to the wall. Similarly, cassette units are fixed from slab with the help of female anchor fastener and full threaded rod. * Outdoor units are installed on MS Platform / stand which permanently fastened to Concrete foundation with the use Male Anchor Fastners. * In VRF systems multiple indoor units are connected to bank of outdoor un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Installation of the machines/Units and before closing of ceiling, pressure testing of the copper piping, Intermediate connections, Y- branching joints is carried out by using Nitrogen gas. * Apply test pressure in the system as per the OEM Requirement. * Pressure testing is done by holding the pressure for 24 hours and doing soap bubble test for any leakage at the joints. Removal of the insulation at the location of leakage detection. Post which brazing and other process is follow. * Vacumization of entire VRF Refrigeration system. * Start Commissioning procedure for VRF unit as per OEM guidelines * Check for visual damage to the external casing of the unit or damage to the internal parts. * Confirm room is in a condition fit for commissioning to commence. Room cleaned and free of dust, secure with doors installed. * Start Commissioning procedure for VRF unit as per OEM guidelines * Release Refrigerant gas from outdoor unit. Charge additional refrigerant gas as per the copper pipe sizes and overall length. * Room wise temperature reading is prepared on hourly basis. It is summarised that supply/installation/erection and assembly of complete Air Conditioning p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictionary, meanings of the words 'air-conditioner', 'air-conditioning' etc. 9.2. As per the Webster's Encyclopedic Unabridged Dictionary of the English Language, the word 'air-condition' means (1) to furnish with an air-Page 1979 conditioning system; (2) to treat (air) with such a system; the word 'air-conditioner' means an air-conditioning device and the word 'air-conditioning' means (I) a system or process for controlling the temperature, humidity and sometimes the purity of the air in an interior, as of an office, theatre, laboratory, house, or the like; (2) an air-conditioning system or unit. As per The New Shorter oxford English Dictionary on Historical Principles, edited by Lesley Brown, Volume 1 A-M, 1993, the word 'air-conditioned' means having air-conditioning. The word 'air-conditioner' means an apparatus for air-conditioning. The word 'air-conditioning' means the process of cleaning air and controlling its temperature and humidity before it enters a room, building, etc. 9.3 Again, as per The Free Encyclopedia Wikipedia, the 'air-conditioner' is an appliance, system or mechanism designed to extract heat from an area using a refrigeration cycle. The construction of a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uivalent citations: 1989 (24) ECR 219 Tri Delhi, 1989 (43) ELT 543 Tri Del = 1989 (6) TMI 140 - CEGAT, NEW DELHI at para 23 Customs and Central excise Tribunal Delhi has given distinction between "Air Conditioner Plant" and " window Air condition machine or Split Air conditioner. "23. Before we come to any conclusion we would like to refer to McGraw-Hill Encyclopaedia of Science and Technology Vol. I, 5th Division. Relevant extracts from pages 201 and 202 arc reproduced below :- "Air conditioning systems. - A complete air-conditioning system is capable of adding and removing heat and moisture and of filtering dust and odorants from the space or spaces it serves. Systems that heat, humidify, and filter only, for control of comfort in winter, are called winter air-conditioning systems; those that cool, dehumidify, and filter only are called summer air-conditioning systems, provided they are fitted with proper controls to maintain design levels of temperature relative humidity, and air purity. "Design conditions maybe maintained by multiple independent sub-systems tied together by a single control system. Such arrangements, called split systems, might consist, for example, of ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to control humidity and air purity and in most systems for controlling air temperature, a portion of the air in the space is withdrawn, processed, and returned to the space to mix with the remaining air. In the language of the entineer, a portion of the room air is returned (to an air-handling unit) and, after being conditioned, is supplied to the space. A portion of the return air is spilled (exhausted to the outdoors) while an equal quantity (of outdoor air) is brought into the system and mixed with the remaining return air before entering the air handler." "Typically, the air-handling unit contains a filter, a cooling coil, a heating coil, and a fan in a suitable casing (Fig. 3). The filter removes duets from both return and outside air. The cooling coil, either containing recirculating chilled water or boiling refrigerant, lowers air temperature sufficiently to dehumidify it to the required degree. The heating coil, in winter, serves a straightforward heating function, but when the cooling coil is functioning, it serves to raise the temperature of the dehumidifed air (to reheat it) to the exact temperature required to perform its function, in micro-cosm, in room units in ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that- "These buyers are job workers engaged in erection/ installation of air-conditioning systems, air-cooling systems, heating systems and air ventilation systems etc. These grills bought from the petitioner are fixed in the immovable properties like various rooms, industrial sheds, car parking, toilets, kitchens, etc. for ventilation or for covering the opening of ducts of the air-conditioning systems. After fixing the grills on the buildings they become a part of the building. Many grills are fixed on the walls as dummy grills for beautification and interior decoration of the rooms, which are not used even for passing of the air either in the ventilation system or in the air-conditioning system. It is alleged that air-conditioning systems/projects are different from the air-conditioning machines. The grills manufactured by the petitioner are not part of air-conditioning machines but are accessories of the air-conditioning systems/projects as these are fixed on the ceilings or walls of the building. Hence they are not classifiable under Chapter 8415 of the Central Excise Tariff Act, as they are not attached with any machine nor do they form integral and inseparable part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, testing and commissioning of VRF indoor and outdoor Units (Air-conditioning). I have gone through the scope of work as mentioned by the applicant it is observed that the applicant used to supply VRF 4-way Cassette Units, VRF Hi Wall Units, VRF outdoor Units, soft and hard drain pipes and MCB's. The applicant also undertakes installation, testing and commissioning of all these units and execute Additional Air-condition work for the new buildings of Director of Education, at Porvorim, Goa. The issue of taxability and availability of input credit on goods/ services involved where supply and installation activity is involved are discussed by various courts but I want to discuss the following case; - Vodafone Mobile Services Limited Vs. Commissioner of Service Tax, Delhi (2018 VIL-506-DEL-CE), dated 31 October 2018 = 2018 (11) TMI 713 - DELHI HIGH COURT. The petitioners are telecom operators. They availed CENVAT credit of central excise duty paid on telecom towers, parts thereof, and shelters/ pre-fabricated buildings which house transmission equipment used for providing cellular telephone services. The revenue authorities disputed the availment of the credit on the ground th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant can be moved and is indeed moved after the road construction or repair project for which it is set up is completed. 38. A machine or apparatus annexed to the earth without its assimilation by fixing with nuts and holts on a foundation to provide for stability and wobble free operation cannot be said to be one permanently attached to the earth and therefore, would not constitute an immovable property. Thus, the tribunal erred in relying on the Bombay High Court in Bharti Airtel Ltd (supra). It is also important to understand that when the matter was carried out in the Bombay High Court and the judgment was delivered, the whole case proceeded on the presumption that these are immovable properties. The tribunal failed to appreciate the permanency test as laid down by the Supreme Court in Solid and Correct Engineering (supra). In present case also the test of permanency is required to be applied to see whether the machinery or equipment after installation is permanently fastened or embedded to the earth, so that the activity would be treated as "works contract "under GST. The applicant carries out activity of supply/installation/erection and assembly of complete Air Conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs first i.e. at the time of fixing of different goods used by the applicant in the activity of installation and the activity of dismantling comes only at the time of removing or destroying the Plant. The principle of permanency is required to be followed as at the time of transfer of property the incidence of tax is occurred and the activity of dismantling could not prove the test of fixation. As the activities carried out by the applicant does not involve assimilation with the property and the work carried out by the applicant is only making the plant for a 'wobble free operation'. And thus activity undertaken by the applicant cannot be considered as an immovable property by applying permanency test'. The issue is permanency is already decided by Hon'ble Supreme Court in case of Commissioner of Central Excise, Ahmedabad v Solid and Correct Engineering Works & Ors (2010 (5) SCC 122) = 2010 (4) TMI 15 - SUPREME COURT. Therefore, it is requested to follow the same ratio in present case. If the ratio of Commissioner of Central Excise, Ahmedabad v Solid and Correct Engineering Works & Ors (2010 (5) SCC 122) = 2010 (4) TMI 15 - SUPREME COURT is followed the activity of the applicant w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, b. works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. Hence Works contract will be treated as service and tax would be charged accordingly. 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" Thus what we need to find out is whether the applicant in the subject case is dealing in any immovable property which is transferred in the execution of the contract. The applicant has submitted that the good involved in the contract are mainly 5 Nos. of 18 HP VRF outdoor units, 12 Nos. of VRF cassette units and 29 Nos. of VRF Hi-wall units of Voltas make and 29 drain pumps of aspen make, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w for the laying of communication and power cable and attaching of drain pipe is done. 6. After completion of Installation of the machines/Units and before closing of ceiling, pressure testing of the copper piping, Intermediate connections, Y- branching joints is carried out by using Nitrogen gas to check leakages. Vacumization of entire VRF Refrigeration system is done, start Commissioning procedure for VRF unit as per OEM guidelines, confirm that rooms are free of dust, secure with doors installed and then release Refrigerant gas from outdoor unit. Charge additional refrigerant gas as per the copper pipe sizes and overall length. In view of the above the applicant has submitted that the equipment are fixed/ attached to earth or fixed/attached to something which is further fixed/attached to earth and therefore the equipments, etc. in question are nothing but immovable property. According to their contention, the said system when in place, becomes an Air-conditioning plant which cannot be taken from one place to another and is therefore immovable property. They have submitted that their central air-conditioning system should be treated differently from room air-conditioner or wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssociated 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. Thus we find that there is a composite supply in the subject case. Now that we have found that there is no works contract involved in the subject case and the supply is nothing but a composite supply with supply of goods being the principal supply, we come to the second question raised by the applicant which is, 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. The principal supply as mentioned above 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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