Court rules AFC project supply as 'composite supply' not 'works contract' under GST law.

The court ruled that the supply under the Automatic Fare Collection (AFC) project qualifies as a 'composite supply' rather than a 'works contract'. It was determined that the supply does not qualify as 'original works' for a reduced GST rate, and the HSN classification is '8470' with an 18% GST rate. Additionally, maintenance and management services post-implementation were considered a 'composite supply' but were not eligible for GST exemption due to the value of goods exceeding 25% and the recipient not being a local authority or governmental entity.

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Issues Involved:
1. Classification of the supply under the Automatic Fare Collection (AFC) project as 'works contract' or 'composite supply'.
2. Qualification of the supply under the AFC project as 'original works' for GST rate applicability.
3. HSN classification of the supply made by the applicant.
4. Qualification of maintenance and management services post-implementation as 'composite supply' and eligibility for GST exemption.

Detailed Analysis:

Issue 1: Classification as 'Works Contract' or 'Composite Supply'
- Applicant’s Argument: The applicant contended that the AFC system does not qualify as immovable property since components like flap gates can be easily removed and reattached. Thus, it should not be considered a 'works contract' under Section 2(119) of the CGST Act, 2017. Instead, it should be classified as a 'composite supply' under Section 2(30) of the CGST Act, 2017, as it involves the supply of multiple goods and services naturally bundled together.
- Authority’s Observation: The supply of the AFC system, which includes hardware and software, does not result in immovable property. The contract involves more than two supplies of goods and services, naturally bundled and supplied in conjunction with each other, with the principal supply being the AFC system.
- Ruling: The supply under the AFC project qualifies as a 'composite supply' as defined under Section 2(30) of the CGST Act, 2017.

Issue 2: Qualification as 'Original Works' for GST Rate Applicability
- Applicant’s Argument: The applicant argued that the supply should not qualify as 'original works' since the principal supply is the AFC system as a whole, and commissioning and installation are not the main supply. The price of the AFC system includes installation and commissioning charges, which cannot be separately identified.
- Authority’s Observation: The supply of the AFC system, comprising multiple hardware and software, does not qualify as 'original works' under the Notification No. 24/2017-Central Tax (Rate) dated 21st September 2017. The principal supply is the AFC system, and commissioning and installation services are not separately priced.
- Ruling: The supply under the AFC project does not qualify as 'original works' meant predominantly for use other than for commerce, industry, or any other business or profession. Therefore, the GST rate of 12% is not applicable.

Issue 3: HSN Classification
- Applicant’s Argument: The applicant suggested that the supply should be classified under HSN code '8470', which pertains to calculating machines and similar devices, rather than '9954', which is for works contracts.
- Authority’s Observation: Given that the supply does not qualify as a works contract, it should not be classified under '9954'. The AFC system’s primary function is to compute fares and issue tickets, making '8470' the appropriate classification.
- Ruling: The HSN classification of the supply is '8470', with a GST rate of 18%.

Issue 4: Maintenance and Management Services Post-Implementation
- Applicant’s Argument: The applicant argued that the maintenance and management services post-implementation should qualify as a 'composite supply' with maintenance services as the principal supply. They also contended that such supply should be eligible for exemption under Notification No. 12/2017-Central Tax (Rate) if the value of goods does not exceed 25% of the composite supply.
- Authority’s Observation: The maintenance and management services are naturally bundled with the AFC system and are perceived as a composite supply. However, the value of goods in the composite supply exceeds 25%, and the supply is made to a company (SSCDL) that does not qualify as a local authority or governmental entity.
- Ruling: The maintenance and management services qualify as a 'composite supply' with the AFC system as the principal supply. However, the supply is not eligible for exemption under Notification No. 12/2017-Central Tax (Rate) as the value of goods exceeds 25% and SSCDL is not a local authority or governmental entity.

Final Ruling:
1. The supply under the AFC project qualifies as 'composite supply'.
2. The supply does not qualify as 'original works' for a reduced GST rate.
3. The HSN classification is '8470' with an 18% GST rate.
4. Maintenance and management services post-implementation qualify as 'composite supply' but are not eligible for GST exemption.

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