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

AAR Tamil Nadu ruled on dairy machinery classification and composite supply issues. For dairy machinery classification under HSN 8434 (12% GST) versus HSN 8413, no ruling was provided due to insufficient contract details. Repair/replacement services for cooling structures in dairy units involving materials supply constituted composite supply taxable at 18% GST (9% CGST + 9% SGST). The activity was determined not to be a works contract as it involved movable machinery components rather than immovable property. Questions regarding GSTR1 return entries and e-way bill procedures were deemed procedural matters outside AAR's purview under section 97(2) CGST Act.

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ISSUES PRESENTED and CONSIDERED

The 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 ANALYSIS

1. Classification and Tax Rate of Dairy Machinery Works

The 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 Machinery

The 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 Status

The 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 Procedures

The 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 HOLDINGS

The 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.

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