2019 (7) TMI 809 - AAR - GST

Dairy machinery repair services with materials supply taxed at 18% GST as composite supply under section 97(2)

In Re: RAJENDRABABU AMBIKA (Proprietrix of M/s. Sri Dhanalakshmi Welding Works)

AAR Tamil Nadu ruled on dairy machinery classification and composite supply issues. For dairy machinery classification under HSN 8434 (12% GST) versus HSN ... Classification of goods - dairy machinery - whether the dairy machinery works is liable to tax at 12% (HSN 8434) or (HSN 8413)? - HELD THAT:- The Jurisdictional Authority has remarked that the goods are classified under CTH 8434 attracting 12% GST. However, the applicant has not furnished the details of the said contract, such as purchase order, Work Order etc to consider and clarify - therefore no ruling is furnished. In Diary machinery works, they have taken milk processing, Milk chilling Refrigeration system, milk handling equipment's and milk packing equipment's and milk allied product making machinery. For such supply and erection of diary machinery it involves service charges also - what will be the tax rate of service charges component? - composite supply or otherwise? - HELD THAT:- In both the works, the applicant undertakes Repair/replacement services related to the Cooling Structures (Ice Bank Tanks) in the diary units of the Coop. Milk Producers Union Ltd. The materials which are to be replaced/required are also included in the work order but the amount/quote is for the entire repairing/replacement work. Thus, it is clear that the supply made is 'Composite Supply'. The applicable rate of tax is 9% GCST under Sl. No. 25(ii) of Notification No. 11/2017-C.T. (Rate) dated 28-06-2017 as amended and at 9% SGST under Sl. No. 25(ii) of Notifiation No. II (2)/CTR/532(d-14)/2017 vide G.O. (Ms) No. 72 dated 29-06-2017 as amended. Nature of activity - Works Contract or not - rate of tax and HSN code - details of entries to be made in monthly return GSTR1? - HELD THAT:- It is seen from the work order submitted by the applicant that the work undertaken by the applicant is related to repair/replacement/installation of pipelines, alteration in the liquid separator by using necessary pipelines and fittings and also maintenance and repair services for the ice bank liquid separator in pipeline which are part of machinery used in dairy industry. The work undertaken by the applicant is not relating to any immovable property - the activity undertaken by the applicant does not fall under the category of Works contract. Details of entries to be made in monthly return GSTR1 - HELD THAT:- The issue involving details of entries to be made in the monthly return are procedural and do not come under the purview of Advance Ruling as per section 97(2) of CGST Act - the question hence not answered. Applicability of e-way bill procedures for business activities - HELD THAT:- The issue is procedural and do not come under the purview of Advance Ruling as per section 97(2) of CGST Act - the question hence not answered. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:1. Whether the dairy machinery works are liable to tax at 12% under HSN Code 8434 or at 18% under HSN Code 8413.2. The applicable rate of tax on service charges for the supply and erection of dairy machinery.3. Whether the applicant's activities fall under the category of works contract, and if so, the applicable rate of tax and its HSN code.4. The applicability of E-way bill procedures for the applicant's business activities.ISSUE-WISE DETAILED ANALYSIS1. Classification and Tax Rate of Dairy Machinery WorksThe applicant sought clarification on whether their dairy machinery works should be classified under HSN Code 8434 with a tax rate of 12% or under HSN Code 8413 with a tax rate of 18%. The jurisdictional authority commented that milking and dairy machineries are classifiable under HSN 8434, attracting a 12% tax rate. However, the applicant did not provide sufficient details, such as purchase orders or work orders, to enable a ruling on this issue. Consequently, the Authority could not furnish a ruling on the classification and tax rate of the dairy machinery works.2. Tax Rate on Service Charges for Supply and Erection of Dairy MachineryThe applicant's activities involve supply and erection of dairy machinery, which includes service charges. The jurisdictional authority stated that the erection of dairy machinery falls under the service category of 'Commissioning, erection, and installation services' with SAC code 998732, attracting a tax rate of 18% (9% CGST and 9% SGST). The Authority examined the activities undertaken, which include maintenance and repair services for existing machinery, and classified these activities under SAC 998717 for maintenance and repair services of commercial and industrial machinery. The applicable tax rate is 18% (9% CGST and 9% SGST) under the relevant notifications.3. Determination of Works Contract StatusThe applicant questioned whether their activities fall under the definition of a works contract as per Section 2(119) of the CGST Act, which pertains to contracts involving immovable property. The Authority determined that the applicant's activities, which involve repair, replacement, and installation of machinery parts, do not relate to immovable property and therefore do not qualify as works contracts. Instead, these activities are considered composite supplies of goods and services, with the principal supply being the repair and replacement service. The applicable tax rate for these services is 18% (9% CGST and 9% SGST) under SAC 998717.4. Applicability of E-way Bill ProceduresThe applicant sought clarification on the applicability of E-way bill procedures for their business activities. However, the Authority determined that this question is procedural and falls outside the purview of Advance Ruling as per Section 97(2) of the CGST Act. Therefore, the Authority did not provide an answer to this question.SIGNIFICANT HOLDINGSThe Authority for Advance Ruling made the following significant determinations:1. The classification of dairy machinery under HSN codes 8434 or 8413 could not be determined due to insufficient details provided by the applicant.2. The supply and erection of dairy machinery involving service charges are classified under SAC 998717 for maintenance and repair services, with an applicable tax rate of 18% (9% CGST and 9% SGST).3. The applicant's activities do not qualify as works contracts under Section 2(119) of the CGST Act, as they do not involve immovable property. Instead, they are considered composite supplies with a principal supply of repair and replacement services.4. The applicability of E-way bill procedures and the details to be filled in GSTR-1 are procedural matters not covered under the purview of Advance Ruling, and thus no ruling was provided on these issues.