Classification of Contracts under GST: Composite vs. Works Contracts and Relevant GST Rates

The case involved determining the classification of contracts under GST law. The ruling stated that a contract qualifies as a Composite Contract under GST if it involves the supply of goods and services that are inter-connected, regardless of separate values in the Bill of Quantities. Pre-GST contracts can be treated as Composite Contracts under GST if they meet the conditions of Composite Supply. Additionally, a contract for an Automatic Fare Collection System was classified as a Works Contract. The GST rate for the project was set at 12% based on specific notifications related to composite services provided to a Government entity for work entrusted by Central and State Governments.

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Issues Involved:
1. Whether a contract can be treated as Composite Contract under GST if it involves making of supply of goods and services which are inter-connected and inter-dependent on each other even though BOQ mentions separate value of goods and services.
2. Whether a pre-GST Period Contract can be treated as Composite Contract in GST even though there was separate Sale and Service Billing in Pre-GST period.
3. Whether contract for designing, installation, and setting up of Automatic Fare Collection System for Lucknow Metro Project shall amount to a Composite Contract with Principal Supply being Supply of Service or Work Contract.
4. GST rate to be charged on LMRC Project i.e., Whether 18% or 12% to be charged after considering Rate Change Notification No. 1/2018- Integrated Tax (Rate) dated 25/01/2018 and all other provisions of GST Laws.

Detailed Analysis:

1. Composite Contract under GST:
- Applicant's View: The applicant argued that as per the definition of “Composite Supply and Mixed Supply” under GST law, where all the goods and services are required to work together in an inter-connected and inter-dependent manner, it naturally results in a 'composite supply' fully covered under the definition contained in Section 2(30) irrespective of item-wise values specified in BOQ.
- Department's View: The Authority referred to Section 2 of the Central Goods and Service Tax Act, 2017, defining 'composite supply' as a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. The Authority concluded that if the goods and services are naturally required to work together in an inter-connected and inter-dependent manner, they fall under the category of 'Composite Supply'.

2. Pre-GST Period Contract as Composite Contract in GST:
- Applicant's View: The applicant contended that the GST law differs significantly from pre-GST taxation laws, where taxation on sales was under the state list and services under the central list. Therefore, classification of goods/services should be done as per GST provisions for post-GST taxation purposes.
- Department's View: The Authority observed that in the pre-GST period, there were separate taxation systems for sales (VAT) and services (Central Excise & Service Tax). Under GST, both sales and services are covered, and both state and center have taxation authority. If the conditions for 'Composite Supply' are met, contracts from the pre-GST era would be treated as Composite Contracts under GST.

3. Contract for Automatic Fare Collection System as Work Contract:
- Applicant's View: The applicant argued that the Automatic Fare Collection System installed at LMRC stations is movable property, with the service portion being the essential element. Therefore, the principal supply under the contract should be the supply of service, and tax should be levied at the rate applicable for services.
- Department's View: The Authority referred to the definition of 'Works Contract' under the Central Goods and Services Act, 2017, which includes contracts for installation of any immovable property involving the transfer of property in goods. The Authority concluded that the Automatic Fare Collection System, though movable, is fixed permanently to the building and meant for permanent beneficial enjoyment of the LMRC station building. Therefore, it qualifies as a 'Works Contract'.

4. GST Rate for LMRC Project:
- Applicant's View: The applicant submitted that GST should be charged at 12% as it is a composite service supplied to a government entity in relation to work entrusted by the Central and State Government.
- Department's View: The Authority referred to Notification No. 1/2018-Integrated Tax (Rate) dated 25.01.2018, which amended the previous notification to include composite supply of works contract provided by a sub-contractor to the main contractor (a Government Authority) under the 12% tax rate. Since the composite supply of work contract is provided by a sub-contractor to a Government Authority, it attracts a 12% duty rate.

Ruling:
1. A contract shall be treated as a Composite Contract under GST if it involves making of supply of goods and services which are inter-connected and inter-dependent on each other even though BOQ mentions separate value of goods and services.
2. A pre-GST period contract shall be treated as a Composite Contract in GST if it satisfies the condition of Composite Supply.
3. A contract for designing, installation, and setting up of Automatic Fare Collection System for Lucknow Metro Project will amount to a Work Contract.
4. GST will be charged at 12% in terms of Notification No. 01/2018-Integrated Tax (Rate) dated 25.01.2018, being composite services supplied to a Government entity procured by the said entity in relation to work entrusted to it by the Central and State Government.

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