2020 (6) TMI 486 - AAR - GST

Supplies for dairy plant not eligible for lower GST rate

In Re: M/s. Magnam Netlink Private Limited,

The authority ruled that the supplies made or to be made by the applicant do not qualify for the lower GST rate of 12% under the specified notification. ... Composite supply of Works Contract - installation & commissioning of plant and machinery - supply by way of construction, erection, commissioning, or installation of original works - whether Such work should pertain to mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages - applicability of notification no. 20/2017-Central Tax (Rate) dated 22.08.2017. HELD THAT:- It is observed that Civil work comprises of civil construction of Dairy plant building, service block, processing, administrative block, workers amenities, godown, time keeping office, boundary wall, roads, water tank, E.T.P. (only civil work) water supply/sanitary & plumbing, hard park, internal/external electrification and all complete works as per the drawing and specification on turn-key basis. This civil work nowhere involves any supply of machinery or equipment. In absence of the same it will not fall under Entry No. (v)(f) of Sr. No. 3 of the table under Notification No. 11/2017-Central Tax (Rate) as amended by Notification No. 20/2017-Central Tax (Rate) - all the supplies of other parts are out of the purview of machinery or equipment for units under Entry No. (v)(f) of Sr. No. 3 of the table under Notification No. 11/2017-Central Tax (Rate) as amended by Notification No. 20/2017-Central Tax (Rate). Supply of Pouch Filling Machine with online pouch coding machine of Make-Domino - HELD THAT:- To be eligible under Entry No. (v)(f) of Sr. No. 3 of the table under Notification No. 11/2017-Central Tax (Rate) as amended by Notification No. 20/2017-Central Tax (Rate), the said supply must be a ‘Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, or installation of original works pertaining to,- (f) mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages’. Therefore the said supply of Pouch Filling Machine has to pass following tests to be eligible for inclusion under Entry No. (v)(f) of Sr. No. 3 of the table under Notification No. 11/2017-Central Tax (Rate) as amended by Notification No. 20/2017-Central Tax (Rate). The work order itself separately mentions under Part B- Electromechanical work, for goods supply portion under sub-part (a) Supply Part for ₹ 13.51 crore and for services supply portion under sub-part (b) Installation Part for ₹ 1.18 crore. Further, as per point (c) at page 1 of the above said work order, the applicant was required to submit to the Managing Director of the Bihar State Milk Co-operative Federation Limited, Patna, the detailed item-wise price break-up based on supply of individual equipment with GST rate applicable as per individual HSN code. Therefore the individual supply of the above said Pouch Filling Machine does not fall under ‘Composite supply’. Also, supply of Pouch Filling Machine with online pouch coding machine of Make-Domino, is not an immovable property and hence supply of the same cannot be termed as supply of ‘works contract’. The supply of Pouch Filling Machine with online pouch coding machine of Make-Domino, as well as other supplies of civil work and electro-mechanical work will NOT fall under Entry No. (v)(f) of Sr. No. 3 of the table under Notification No. 11/2017-Central Tax (Rate) as amended by Notification No. 20/2017-Central Tax (Rate). Issues Involved:1. Applicability of Notification No. 20/2017-Central Tax (Rate) dated 22nd August 2017.2. Definition and scope of 'agricultural produce' under the CGST Act, 2017.3. Classification of the contract as a 'composite supply of works contract.'4. Eligibility of the dairy plant setup under the specified notification.Issue-wise Detailed Analysis:1. Applicability of Notification No. 20/2017-Central Tax (Rate):The applicant sought clarification on whether the composite supply of works contract for setting up a dairy plant falls under the purview of Notification No. 20/2017-Central Tax (Rate), which amends Notification No. 11/2017-Central Tax (Rate). This notification pertains to the construction, erection, commissioning, or installation of original works related to mechanized food grains handling systems, machinery, or equipment for units processing agricultural produce as foodstuff, excluding alcoholic beverages.2. Definition and Scope of 'Agricultural Produce':The applicant argued that 'agricultural produce' includes milk, as it is a product of rearing animals for food. The definition under Notification No. 12/2017-Central Tax (Rate) was cited, which includes produce from the rearing of animals for food, provided no further processing is done that alters its essential characteristics. The applicant contended that since raw milk is obtained from farmers and processed into pasteurized milk and milk products, it should be considered agricultural produce.3. Classification of the Contract as a 'Composite Supply of Works Contract':The applicant claimed that the contract is a composite supply of works contract, encompassing both civil and electro-mechanical works. The civil work involves constructing the dairy plant building and related structures, while the electro-mechanical work includes designing, supplying, installing, and commissioning dairy equipment. The applicant argued that both parts of the contract meet the definition of 'works contract' under Section 2(119) of the CGST Act, 2017, as they involve constructing immovable property and transferring property in goods.4. Eligibility of the Dairy Plant Setup under the Specified Notification:The applicant contended that the dairy plant setup meets the conditions specified in Entry No. 3(v)(f) of Notification No. 11/2017-Central Tax (Rate), as amended by Notification No. 20/2017-Central Tax (Rate). They argued that:- The contract is a composite supply of works contract.- The supply involves constructing, erecting, commissioning, or installing original works.- The dairy plant processes agricultural produce (milk) into foodstuff.Discussion and Findings:The authority examined the submissions and found that the civil work component does not involve supplying machinery or equipment, thus not falling under Entry No. 3(v)(f) of Notification No. 11/2017-Central Tax (Rate). The electro-mechanical work includes the supply and installation of various dairy equipment, with the primary product being pouch milk. However, the authority noted that the supply of the Pouch Filling Machine with online pouch coding machine does not constitute a composite supply of works contract, as it is a movable item and not an immovable property.The authority also observed that the definition of 'agricultural produce' excludes further processed products unless the processing is done by a cultivator or producer without altering the essential characteristics. Since the milk undergoes various processes before being packed, it does not qualify as agricultural produce under the specified notification.Conclusion:The authority ruled that the supplies made or to be made by the applicant under the work order issued by the Bihar State Milk Cooperative Federation Ltd. do not fall under Entry No. 3(v)(f) of Notification No. 11/2017-Central Tax (Rate), as amended by Notification No. 20/2017-Central Tax (Rate). Therefore, the lower GST rate of 12% is not applicable to the works contracts pertaining to the dairy industry in this case.