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TMI Blog2025 (2) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... e view that permanently installed machineries to BIPPL lost nature of movable properties and cannot be considered as 'goods' in GST. Section 12 the IGST Act, 2017 deals with place of supply of services where location of supplier and recipient is in India. On the other hand, section 13 of the IGST Act deals with place of supply of services where location of supplier or location of recipient is outside India - in the case in hand, the issue is not to determine the place of supply rather we are dealing with the classification of services. Further, the fact of the case in the Circular No. 232/26/2024 dated 10.09.2024 is that the cloud computing service providers generally enter into contract with data hosting service providers to use their data centres for hosting cloud computing services and there appears to be no contact between data hosting service provider and the end users/ consumers/ subscribers of the overseas cloud computing service provider. In the instant case, the supply of services as provided by the applicant would be regarded as leasing or rental services and each of the supplies would attract tax @ 18% under serial number 17 (viii) of the Notification No. 11/2017- Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd BIP Developers Private Limited (BIPDPL), subsidiaries of the applicant in India and providing related consultancy services. TCG Urban Infrastructure Holdings Private Limited wishes to understand the appropriate classification of services for hiring of fitted assets and corresponding rate of GST to be charged on such provision of services. Hiring of fitted assets inter-alia includes air-conditioning system, fire sprinkler system, DG Sets, electric installations etc. 1.3 The applicant has made this application under sub section (1) of section 97 of the GST Act and the rules made there under seeking an advance ruling in respect of following questions: What would be the proper classification of the services being provided by the applicant by way of supplying fitted assets on hire basis and the corresponding rate of GST from the below options: (a) Whether the said services will be covered by serial no 17 (iii) of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 under SAC 997314, attracting a GST Rate of 28% which the Applicant has been following since inception of GST; or (b) Whether the said service will be covered by serial no 17 (viii) of the Notification N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to WEBEL to renew the sub-lease before it's expiry for two further terms of 90 years each, provided BIPPL did not breach the covenants of the sub-lease. 2.4 Under the deed of sub-lease, BIPPL has also been authorized and permitted by WEBEL to grant further sub-leases/ licenses in the proposed building or buildings constructed or buildings to be constructed on the sub demised land provided the intending sub lessees/ tenants etc. shall use the said built up space for setting up of electronics industries exclusively and for no other purpose. 2.5 In terms of the deed of sub-lease, BIPPL inter alia constructed and completed diverse buildings which are collectively known as "Bengal Intelligent Park". BIPPL decided to sub-lease the building units on a bare shell condition to its licensees. 2.6 The applicant states that BIPPL has made certain arrangements with the applicant to provide assets and fit outs on hire basis to the licensees and sub-lessees of the said building. For this purpose, the applicant (erstwhile BSPL) entered into an agreement with BIPPL on 16th November 2005 for the purpose of providing infrastructure support and facilities of a high standard of various spheres f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings within its premises. On expiry of the sub-lease agreement between the tenant and BIPPL, the tenant has an option to remove such fixtures and fittings which were originally installed by them and restore the said premise to its original bare condition. Otherwise, the tenant can also hand over the said fixtures and fittings to the applicant against a consideration. In that case, the applicant will become the owner of such assets within the premise which the applicant will give it on hire to the next tenant. 2.9 Accordingly, the applicant generally provides three types of fitted assets: a. Assets provided in common areas since the commercial operation was started in the building; b. Assets up to the entry point of the tenant's bare shell premise since the commercial operation was started in the building; and c. Sometimes, when the tenant vacates the premise, they hand over various assets located within the premise to the applicant. 2.10 In this regard, a reference can be drawn from a recent agreement entered into by the applicant with Sun Knowledge Private Limited on 09th November 2022. The relevant extract from the aforesaid agreement is produced below: 1.1 Grant of Hir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, admittedly the tenant takes on hire multiple assets for a single price from the applicant as is evident from the relevant extracts from the agreement with Sun Knowledge Private Limited dated 09th November 2022 as mentioned in para 11 hereinabove. In terms of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.201 the following rates are notified for different services related to the hiring of goods: SI.No Description of taxable service Rate Conditions 17. Heading 9973 (Leasing or rental services, with or without operator) (iii) Transfer of the right to use any goods for any purpose (whether or not for a specific period) for cash, deferred payment or other valuable consideration. Same rate of central tax as an supply of like goods involving transfer of tile in goods - (viii) Leasing or renting services, without operator, other that (i),(ii),(iii),(iv) (vi) and (viia) above 9 - 2.13 In light of the above, serial no 17 (iii) of the Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 states that the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as a supply of that particular supply which attracts the highest rate of tax". In the instant case, the air-conditioning system attracts the highest GST rate of 28%. Therefore, the GST rate in respect of the entire supply of hiring of assets would be 28%. 2.14 Advance Ruling sought by one of the tenants - Sun Knowledge Private Limited The applicant asserts that recently one of their tenants namely, Sun Knowledge Private Limited ('Sun Knowledge'), has raised concerns about the applicability of 28% GST rate on "Hire of Assets" arguing that the service should be classified as "leasing or rental services concerning office machinery and equipment (except computers) with or without operator" under SAC 997314, attracting a GST Rate of 18%. For determination of the correct rate to be charged on hiring of assets, Sun Knowledge has sought an advance ruling before the West Bengal Authority for Advance Ruling (WBAAR) on the applicable rate of tax to be charged by the applicant. Vide the order number 29/WBAAR/2023-24 dated 31.01.2024, the WBAAR held as follows: "1.23 It thus appears that hiring of air conditioning machine and fire extinguisher would attract tax @ 28% and @ 18% re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the BIPPL to engage the applicant to provide the assets becomes apparent from the agreement dated 16th November 2005 as mentioned in Para 11 above. Para G of the said agreement makes it clear that the intention and purpose of BIPPL is to provide and ensure infrastructure and facilities of a high standard of various spheres for the benefit of the occupants at Bengal Intelligent Park. For this purpose, BIPPL engaged the applicant to provide assets in the building. The applicant submits that the applicant is responsible to provide proper infrastructure in the building including common areas so that the building can properly function. BIPPL is giving the units in the building on lease to its tenants on a bare shell condition. Without proper infrastructure and facilities as stipulated in Schedule II to the agreement dated 16th November 2005 [refer para 11 of Annexure B], the building cannot even properly function. The applicant further submits that the Second Schedule to the agreement entered into with Sun Knowledge Private Limited dated 9th November 2022 stipulates the natures of assets provided by the applicant to the Sun Knowledge Private Limited for which the applicant recov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otective devices, wiring systems, other accessories and equipment designed for the purpose of providing electrical energy. In the existing system, the transformer is positioned in a particular place of the premises. It is linked to an electrical panel that channels the primary power input to the wired circuits and tap-off points distributed throughout the building. These tap-off points are strategically located on each floor of the building, accessible to the respective tenants on that floor. Subsequently, it is the responsibility of each tenant to manage the internal wiring within their premises from the tap-off points. In essence, individual electrical installations are not provided to each tenant. Instead, the applicant has established a unified system that serves all tenants within the building. Sprinkler system comprising fire detectors for true ceiling only. Fire detectors, alarm panel, false ceiling, sprinkler pipes will be arranged by the sub-lessee: A fire sprinkler system is an active fire protection method, consisting of a water supply system providing adequate pressure and flowrate to a water distribution piping system, to which fire sprinklers are connected. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted has never offered any independent assets or fit outs separately to tenants. Instead, they create a cohesive set of infrastructure elements that are essential for the overall functioning of the building. 2.20 The applicant emphasizes that they are obligated to provide with comprehensive infrastructure support to their tenants. This infrastructure includes essential components such as electrical installations, backup DG sets, a centralized air-conditioning system, and fixed installations that are integral to building's operation and functionality. Without this foundational infrastructure, the building would not be able to operate effectively or efficiently. 2.21 The applicant submits that provision of the infrastructure support and facilities in Bengal Intelligent Park by the applicant and recovers consideration for the same from the tenants should be classified as support service under Heading 9985. It is to be noted the term 'Support Service' has not been defined in GST Law. In this regard, the applicant submits that the reference can be taken from the definition of 'Support Service' from the erstwhile service tax regime. Section 65B (49) of the Finance Act 1994 defines 'Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should be classified as support under SAC 998599 i.e., other support services nowhere else classified and the GST rate is 18%. Additional Submission on 17.09.2024 2.23 The applicant seeks an advance ruling on whether the services provided by TCGUIHPL should be classified as comprehensive support service rather than leasing or renting services. This argument is supported by drawing an analogy from a recent circular (Circular No 232/26/2024-GST dated 10 September 2024) issued regarding data hosting services provided by data centers. Recent Circular on Data Hosting Services (Circular No 232/26/2024-GST dated 10 September 2024) A recent circular clarified the classification of data hosting services provided by data centers. The key points from the circular are: 1. Comprehensive Service Nature (Para 3.3.3): Data hosting services involves a range of activities including operating data centers, ensuring uninterrupted power supplies, backup generators, network connectivity, firewall services, and monitoring and surveillance services. 2. Not Directly Related to Immovable Property (Para 3.3.4): The circular clarified that data hosting services are not directly related to immovable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support services under SAC 998599, the applicable GST rate would be 18%, which aligns with the nature of the comprehensive service provided. 2.25 Decision provided in Advance Ruling by Sun Knowledge Private Limited * Air conditioning and the fire extinguishing systems which have been installed in the building have lost its character of a movable property and thereby cannot be regarded as goods * Tax on supply of hiring services of air conditioning system and fire extinguishing system would not be determined vide serial number 17 (iii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 Supply would attract tax @18% under serial number 17 (viii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as leasing or rental services. By upholding the rationale provided in the Circular, specifically Para 3.2.2 and Para 3.2.3, it is understood that TCGUIH operates as an independent entity, that provides comprehensive support services to the BIPPL. This includes a range of infrastructure and fit outs such as air-conditioning systems, fire sprinkler systems, DG sets, electrical installations to tenants. 2.26 In the instant case, TCGUIH independently handles, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services Private ltd-BSPL) entered into an agreement with BIPPL for setting up of exquisite infrastructure and provide space and facilities to several hi-tech firms, companies, corporations etc., where the permission was granted to the applicant to provide assets on lease/hire to BIPPL's lessees at the said demised space/plots and common areas of that park. 4.3 The applicant raises questions regarding the classification of its activities/services of providing assets on lease/hire to BIPPL's lessees at the said demised space/plots and common areas of that park. With a view to appreciate the submissions made before us, it would be relevant to have a look at the description of assets, which are agreed to be provided by the applicant to the tenants of BIPPL. Schedule II of the agreement enumerates scope of assets to be provided by the applicant as follows: * Basement and service area ventilation systems * HVAC systems to tenant premises upto predetermined delivery points * Hard and soft landscaping including fountains, plantations, lighting etc * Suspended ceiling and floor raceways for common areas only * Sub mains, cables and distribution systems for common areas and bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt Ltd failed to feature as composite supply but can be regarded as mixed supply. Since the instant case deals with the same fact and the applicant in its application has also referred to the aforesaid case of Sun Knowledge Pvt Ltd, we find it relevant to reproduce following observations as made in the said order: "1.19 In the instant case, admittedly the applicant receives multiple supplies for a single price. We therefore proceed to analyze whether the supply may be classified as a composite supply as defined in clause (30) of section 2 or as a mixed supply as defined in clause (74) of section 2 of the GST Act or as a 'leasing or rental services' as contended by the applicant. We find that the applicant has entered into an agreement with TCGUIH to receive supplies in respect of hiring of certain goods e,g., electrical equipment, air conditioning system, sprinkler system comprising fire detectors, DG set with accessories. To qualify such supplies to be a composite supply, there must be only one principal supply. The term 'principal supply' has been defined in clause (90) of section 2 of the GST Act as 'the supply of goods or services which constitutes the predominant element of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion No. 01/2017-Central Tax (Rate) dated 28.06.2017, as amended (corresponding West Bengal State Notification No. 1125 F.T. dated 28.06.2017), 'Air-conditioning machines, comprising a motor-driven fan and elements for changing the temperature and humidity, including those machines in which the humidity cannot be separately regulated' under tariff heading 8415 attracts tax @ 28%. Further, 'Mechanical appliances (whether or not hand-operated) for projecting, dispersing or spraying liquids or powders; fire extinguishers, whether or not charged; spray guns and similar appliances; steam or sand blasting machines and similar jet projecting machines [other than and Nozzles for drip irrigation equipment or nozzles for sprinklers] under tariff heading 8424 attracts tax @ 18% vide serial number 325 of Schedule III of the said notification. In this context, Note 4 and 5 of Section XVI of the Customs Tariff Act may be referred to which reads as follows: 4. Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice Code (Tariff) Description of Services Rate (per cent.) Condition 17 Heading 9973 (Leasing or rental services, without operator) (i) omitted (ii) Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right. 9 (iii) Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. § (iv) Any transfer of right in goods or of undivided share in goods without the transfer of title thereof. § § Same rate of State tax as on supply of like goods involving transfer of title in goods (v) omitted (vi) Leasing of motor vehicles purchased and leased prior to 1st July 2017; Ω. (vii) omitted (viia) Leasing or renting of goods § (viii) Leasing or rental services, without operator, other than (i), (ii), (iii), (iv), (vi), and (viia) above. 9 Ω 65 per cent. of the rate of State tax as applicable on supply of like goods involving transfer of title in goods. Note:- Nothing contained in this entry shall apply on or after 1st July, 2020 4.8 The applicant has enquired whether their supplies can be regarded as 'supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtains the right to use the asset in return for regular rental payments. The lessee also agrees to abide by various conditions regarding their use of the property or equipment. Point no 1.1, and 3.1.1 of 'Agreement for hire of fitted assets" made between the applicant and one of the tenants namely Sun Knowledge Pvt Ltd speaks about hire charges from tenants for right to use the asset in return for regular rental consideration. Legal possession of asset lies with the applicant. 4.10 The term "renting" as defined under clause (41) of section 65B of the Finance Act, 1994 (erstwhile service tax) means allowing, permitting, granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possessions or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property. It thus transpires that the phrase 'renting' is wide in its ambit and covers all the type of transactions that the trade and business enter in day to day business. The activities/ services being undertaken by the applicant fall squarely with the definition of renting, as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th place of supply of services where location of supplier or location of recipient is outside India. The above-referred circular has been issued only to clarify place of supply issues and that too under section 13 of the IGST Act where either the location of the supplier of services or the location of the recipient of services is outside India. However, in the case in our hand, the issue is not to determine the place of supply rather we are dealing with the classification of services. Further, the fact of the case in the said circular is that the cloud computing service providers generally enter into contract with data hosting service providers to use their data centres for hosting cloud computing services and there appears to be no contact between data hosting service provider and the end users/ consumers/ subscribers of the overseas cloud computing service provider. We find that the nature of activities involved in the case we are dealing now also differs from the supply of data hosting services. As a result, we are unable to accept the argument as advanced by the applicant in this regard. 4.14 In the light of foregoing discussions, we are of the opinion that in the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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