2019 (3) TMI 1408 - AAR - GST

Repairing transformers for another entity is a composite supply under GST Act, with repair service as principal supply.

The Authority ruled that repairing and servicing transformers owned by another entity is classified as a composite supply under the GST Act, with the ... Job work as defined under the GST Act - treatment or process on goods belonging to another - composite supply - principal supply determined by dominant element of contract - works contract as composite supply - service of repair of transformers - ancillary supply of spare partsJob work as defined under the GST Act - treatment or process on goods belonging to another - Repairing and servicing of transformers owned by another person is job work as defined under the GST Act or not. - HELD THAT: - Job work under the GST Act contemplates a treatment or process undertaken on goods belonging to another where the job-worker's contribution is essentially labour/processing without transfer of property in goods. The Applicant's activity involves replacement of worn or burnt materials and transfer of property in goods; the supply of goods constitutes a major portion of the value of the transaction. Therefore the Applicant's contribution is not limited to labour and skill alone and the activity does not fall within the definition of job work.Repairing and servicing of transformers owned by another person is not job work as defined under the GST Act.Composite supply - principal supply determined by dominant element of contract - works contract as composite supply - service of repair of transformers - ancillary supply of spare parts - Whether the activity of repairing and servicing of transformers is a composite supply and, if so, what is the principal supply and its classification and taxability. - HELD THAT: - Repairing/servicing involves both supply of goods (spare parts embedded in the existing transformer) and supply of services (treatment/process to remove defects). Such activity is therefore a composite supply where goods and services are naturally bundled unless the contract stipulates separate charging. The dominant element is the service of repair and maintenance rather than transfer of title to the spare parts, because the contract is for treatment/process on the transformer's existing structure and not primarily for supply of parts. Consequently the supply is a composite supply with the principal supply being the repair service, classifiable as repair of transformers under SAC 998719 and taxable under the relevant entry in Notification No. 11/2017 - CT (Rate) (as amended).The activity is a composite supply; the principal supply is the service of repair of transformers, classifiable under SAC 998719 and taxable under Sl No. 25(ii) of Notification No. 11/2017 - CT (Rate) (as amended).Final Conclusion: The Authority rules that repairing and servicing of transformers owned by another is not job work but is a composite supply whose principal element is the repair service (SAC 998719) taxable under the cited rate notification; the application on documentation for transportation was not a matter for the Authority and was not ruled upon. Issues:1. Admissibility of the Application2. Submissions of the Applicant3. Observations & Findings of the AuthorityAdmissibility of the Application:The Applicant sought a ruling on whether repairing and servicing transformers owned by WBSEDCL constitutes job work under the GST Act, and if it is a composite or mixed supply. The Authority found the questions admissible for advance ruling under section 97 (a) & (b) of the GST Act, as they involved classification of supply for tax rate purposes. The Application was admitted as the questions were not decided by any authority and no objections were raised.Submissions of the Applicant:The Applicant argued that repairing transformers is job work under section 2(68) of the GST Act and should be treated as a supply of service. Referring to a West Bengal government notification, the Applicant contended that repair/servicing of transformers is a composite supply, with the principal supply being the service of repair, taxable under specific notifications.Observations & Findings of the Authority:The Authority determined that repairing transformers involves transfer of property in goods, making it more than just job work. While acknowledging the composite nature of the activity, the Authority noted that the principal supply depends on the dominant element of the composite supply. Citing a Maharashtra AAR order, the Authority emphasized that the dominant intention in such contracts is crucial in determining the principal supply. Ultimately, the Authority ruled that repairing and servicing transformers is a composite supply, with the principal supply being the service of repair, taxable under specific notifications.This detailed judgment clarified that repairing and servicing transformers owned by another entity is not considered job work under the GST Act. Instead, it is classified as a composite supply, with the principal supply being the service of repair, subject to specific tax rates outlined in relevant notifications.