2019 (8) TMI 412 - AAR - GST

GST Ruling: Composite Supply of Submersible Pump Sets, Applicable Tax Rate

In Re: United Engineering Works

The ruling determined that the supply in question qualifies as a 'Composite Supply' with the principal supply being the submersible pump sets. As such, ... Classification of goods - Rate of GST - submersible pump sets and accessories - Works contract or not - classifiable under SAC 9954 or otherwise? - Composite supply/principal supply - the supply of submersible pump sets and accessories done with installation, electrification and energisation under Ganga Kalyana scheme to Social Welfare departments of Government of Karnataka meant for various beneficiaries farmers) as notified by the departments and they also provide guarantee and maintenance of installed submersible pump sets till 2 years which is used for irrigational purposes. HELD THAT:- In the instant case, the Applicant's supply involves goods i.e. submersible pump sets and the installation etc, of the same as service. Therefore, the Applicant supplies goods as well as services which are taxable supplies. The contractual agreement between the applicant and the said Corporation requires the applicant to supply the pumps and also install and energise the same. The applicant is, therefore, engaged in two taxable supplies, that of goods and also the service of installation. The service of installation is possible only when the goods (submersible pump sets) are supplied and hence the pre-dominant supply is that of “Submersible Pump Sets” and hence the principal supply in this case is supply of goods i.e. Submersible Pump Sets - Therefore the instant supply squarely falls under the definition of “Composite Supply”. Works Contract or not - HELD THAT:- The recipient (Corporation) prepares the bore wells on their own account. The applicant is not concerned with the same. Bore well is a hole dug in the ground, which enables the underground water to be brought to the surface by means of a pump, The applicant has obligation to supply, install, electrify & energise the submersible pump sets and thereby makes the pump sets functional. The obligation on the applicant is in relation to the effective installation and functioning of the goods supplied by them. The contract governing their supplies does not relate to building, construction, fabrication etc of any immovable property, as envisaged in the definition of works contract. Their supplies (the submersible pumps) are in the nature of movable property. Hence the said activity is not related to the immovable property at any point of the time and hence the said activity does not qualify to be a “Works Contract”. Composite supply - HELD THAT:- In the instant case though the supply is a composite one, it is not a works contract as the said supply is not related to the immovable property. This shows that the first requirement of the Notification is not satisfied. The supplies undertaken by the applicant do not qualify to be considered as works contract. As a result the provisions of the Notification No.11/2017 -Central Tax (Rate) dated 28-06-2017, as amended, are not applicable. Since the first condition/ requirement is not fulfilled compliance with the second condition/ requirement becomes infructuous. The supplies made by the applicant qualify to be treated as a composite supply. The tax liability on a composite supply is governed by Section 8 of the CGST Act 2017. Accordingly the composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply and the applicable GST rate on the composite supply would be the rate of GST applicable to the principal supply. The Applicant's supply does not qualify as “Works Contract”. It is a composite supply wherein the principal supply is that of the supply of goods i.e submersible pumps. The applicable GST rate to the applicant's supply would be the rate applicable on the Principal supply i.e. submersible pump sets. Issues Involved:1. Determination of the applicable GST rate for the manufacture and supply of submersible pump sets and accessories with installation, electrification, and energisation under the Ganga Kalyana scheme.2. Classification of the supply as a 'Works Contract' under Section 2(119) of the CGST Act 2017.3. Determination of whether the supply qualifies as a 'Composite Supply' under Section 2(30) of the CGST Act 2017.4. Identification of the recipient entities as 'Government Entities' under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.Detailed Analysis:1. Determination of the Applicable GST Rate:The applicant, a proprietary concern registered under the GST Act, sought an advance ruling on the applicable GST rate for the manufacture and supply of submersible pump sets and accessories along with installation, electrification, and energisation under the Ganga Kalyana scheme. The applicant contended that their supply falls under 'Works Contract' as per Section 2(119) of the CGST Act 2017, classifiable under SAC 9954, and attracts a GST rate of 12% (6% CGST + 6% SGST) as per Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017. The applicant relied on a ruling by the Advance Ruling Authority, Jaipur, Rajasthan in the case of M/s. Kailash Chandra, which confirmed a 12% tax rate on a composite contract involving the supply, design, installation, commissioning, and testing of solar-based water pump systems to government entities.2. Classification as a 'Works Contract':The term 'Works Contract' under Section 2(119) of the CGST Act 2017 involves a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of any immovable property wherein transfer of property in goods is involved. The applicant's contract involved the supply of submersible pump sets and accessories, along with installation, electrification, and energisation in already drilled bore wells, which are used for agricultural purposes by small and marginal landowners. The ruling examined whether the supply qualifies as a 'Works Contract' and concluded that the contract does not relate to immovable property, as the bore wells are not constructed by the applicant, and the submersible pumps are movable property. Therefore, the supply does not qualify as a 'Works Contract.'3. Qualification as a 'Composite Supply':'Composite Supply' is defined under Section 2(30) of the CGST Act 2017 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, with one being the principal supply. The applicant's supply involves goods (submersible pump sets) and services (installation, electrification, and energisation). The principal supply in this case is the supply of goods (submersible pump sets), making the supply a 'Composite Supply.' The tax liability on a composite supply is governed by Section 8 of the CGST Act 2017, where the applicable GST rate is that of the principal supply.4. Identification as 'Government Entities':The entities receiving the supply, such as M/s. Dr. B.R. Ambedkar Development Corporation Limited and others, were established by the Government of Karnataka with 100% share capital and control to carry out public welfare functions. These entities are covered under the definition of 'Government Entity' as per Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended by Notification No. 31/2017-Central Tax (Rate) dated 13-10-2017, which defines a 'Government Entity' as an authority, board, or body set up by an Act of Parliament or State Legislature, or established by any Government with 90% or more participation by way of equity or control, to carry out functions entrusted by the Central Government, State Government, Union Territory, or local authority.Conclusion:The applicant's supply does not qualify as a 'Works Contract' but as a 'Composite Supply' with the principal supply being the submersible pump sets. The applicable GST rate is that of the principal supply, i.e., the submersible pump sets. The ruling emphasized that the provisions of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017, as amended, are not applicable as the supply is not related to immovable property.Ruling:The applicant's supply is a composite supply wherein the principal supply is the supply of goods (submersible pumps). The applicable GST rate is the rate applicable to the principal supply, i.e., submersible pump sets.