2018 (12) TMI 844 - AAR - GST

GST Rate for MEP Activities in Housing Projects: Authority Defines Supply as Works Contract

The Authority affirmed that the MEP activities undertaken by the applicant fall within the definition of a composite supply of works contract under ... Classification of services - Rate of GST - Composite supply of works contract - MEP activities (Mechanical, Electrical & Plumbing Works) undertaken by the Applicant - whether taxable at 12% or otherwise? - benefit of Central Tax (Rate) Notification No. 01/2018 dated 25th January 2018 - supplies are in relation to an housing project enjoying Infra status - F No 13/6/2009-INF dated 30th March 2017 of Government of India - compete installation testing and commissioning and satisfactory handing order of substation electrical works, HT & LT cabling works, DG and cabling works, street light and cabling. Held that:- The contract like the one at hand which includes Design, engineering, work laying of RCC Hume pipe/GI pipe etc. for storm waterline and construction of chambers involves more than two taxable supplies in the nature of resources, material and machinery - large number of service receivers of such bundle of services mostly expect plumbing work to be provided as a package in the ordinary course of business. In the light of above observation the plumbing contract constitute a composite supply as defined u/s 2(30) of the GST Act. Works Contract as is essentially a contract of service which may also involve supply of goods in the execution of the contract. It is basically a composite supply of both goods and services. In a general sense, a contract of works, may relate to both immovable and movable property - it can be seen that the term works contract has been restricted to contract for building, construction, fabrication, repair etc. of any immovable property only. The draft contract for plumbing work is a composite supply of works contract as defined in S. 2(119) of the GST Act. The acts to be committed by the applicant cannot be divided into two parts, namely supply of goods and services which are in fact inseparable - thus, the plumbing contract is indivisible works contract pertaining to immovable property within the scope of section 2(119) of the GST Act. Compete installation testing and commissioning and satisfactory handing order of substation electrical works, HT & LT cabling works, DG and cabling works, street light and cabling - Held that:- The applicant would be required to do various acts which includes design, supply, installation and commissioning of substation that is electrical infrastructure. This is also a turnkey project contract like plumbing contract discussed in the earlier part of this ruling - electrical contract which involves supply of taxable goods and services is a composite supply as defined u/ s 2(30) of the GST Act and the said composite supply is works contract as defined u/ 2(119) Of the CST Act. Rate of GST - MEP (Mechanical, Electrical & Plumbing Works) activities by availing the benefit of Central Tax (Rate) Notification No 01/2018 dated 25th January 2018 - taxable at 12% or not? - Held that:- The applicant has not submitted any details / evidence such as agreement entered into with a developer/ builder for the provisions Of MEP services to an affordable housing project. Therefore in the absence of detailed information in relation to housing project it is not possible for this authority to reach at definite conclusion. Ruling:- MEP activities (Mechanical, Electrical & Plumbing Works) undertaken by the applicant falls within the definition of composite supply of works contract as defined under Section 2(119) of CGST Act. Issues Involved:1. Whether MEP activities (Mechanical, Electrical & Plumbing Works) undertaken by the applicant fall within the definition of composite supply of works contract as defined under Section 2(119) of the CGST Act.2. Whether the applicant can charge a GST rate of 12% on MEP activities by availing the benefit of Central Tax (Rate) Notification No. 01/2018 dated 25th January 2018, if the said supplies are in relation to a housing project enjoying Infra status.Detailed Analysis:Issue 1: Definition of Composite Supply of Works ContractThe applicant, a construction company engaged in Mechanical, Electrical, and Plumbing (MEP) turnkey project contracting and engineering, sought clarity on whether their MEP activities fall within the definition of a composite supply of works contract under Section 2(119) of the CGST Act.- Applicant's Contention: The applicant argued that the MEP activities include design, engineering, supply, installation, and commissioning of plumbing, firefighting, and electrical infrastructure systems. These activities are naturally bundled and supplied in conjunction with each other in the ordinary course of business, thus forming a composite supply within the meaning of Section 2(30) of the CGST Act. They also contended that these activities result in the creation of immovable property, satisfying the definition of works contract under Section 2(119) of the CGST Act.- Department's Contention: The department initially did not provide a concrete reply. However, they later argued that the services of design and engineering might not be covered under the definition of works contract. They also suggested that the activities might not qualify as a composite supply since the customer controls both the quality and quantity of the goods and services.- Authority's Observations: The Authority examined the draft contracts and noted that the MEP activities involve more than two taxable supplies that are naturally bundled and supplied in conjunction with each other in the ordinary course of business. The activities lead to the creation of immovable property and thus satisfy the definition of works contract. The Authority disagreed with the jurisdictional officer's contention that the goods and services are supplied separately. It was observed that the acts to be performed by the applicant are integral parts of the contractual obligation and cannot be divided into separate supplies of goods and services.- Conclusion: The Authority concluded that the MEP activities undertaken by the applicant fall within the definition of composite supply of works contract as defined under Section 2(119) of the CGST Act.Issue 2: GST Rate of 12% on MEP ActivitiesThe applicant sought clarification on whether they could charge a GST rate of 12% on MEP activities by availing the benefit of Central Tax (Rate) Notification No. 01/2018 dated 25th January 2018, for supplies related to a housing project with Infra status.- Applicant's Contention: The applicant argued that the housing project satisfies the definition of affordable housing described in the relevant notification and thus should attract a GST rate of 12%.- Department's Contention: The department contended that the exemption of GST to the composite supply of works contract is applicable to original works, which include all new constructions, additions, and alterations to abandoned or damaged structures, and erection, commissioning, or installation of plant, machinery, or equipment. They argued that the applicant's activities might not qualify as original works.- Authority's Observations: The Authority noted that the applicant did not submit detailed information or evidence such as agreements, total area, and area per dwelling related to the housing project. Without these details, it was not possible to reach a definitive conclusion on whether the applicant could charge a GST rate of 12%.- Conclusion: The Authority did not answer this question due to the non-submission of requisite details by the applicant.Order:1. Composite Supply of Works Contract: Affirmative. The MEP activities undertaken by the applicant fall within the definition of composite supply of works contract as defined under Section 2(119) of the CGST Act.2. GST Rate of 12%: Not answered due to non-submission of requisite details.