2020 (8) TMI 54 - AAR - GST

AAR Maharashtra rules data centre installation and commissioning is composite supply, not works contract under Section 2(119)

In Re: M/s. Prasa Infocom & Power Solutions Private Limited

AAR Maharashtra ruled that supply of goods and services by an applicant to a client for data centre installation, testing and commissioning does not ... Classification of supply - Works Contract or not - supply of goods and service by Prasa Infocom & Power Solutions Private Limited to Cray Inc. (Cray) - Section 2(119) of the Central Goods and Services Tax Act, 2017 - whether the applicant in the subject case is dealing in any immovable property which is transferred in the execution of the contract? - HELD THAT:- As per the subject agreement and documents submitted by the applicant, the major part of the contract is supply of goods. These goods are sold to the client by the applicant and they receive separate payment for such goods sold. Further, the goods that are supplied are used by the applicant to provide services of installation, testing and commissioning of the Data Centre. Without these goods the services cannot be supplied by the applicant and therefore we find that the goods and services are supplied as a combination and in conjunction and in the course of their business where the principal supply is supply of goods. Thus there is a composite supply in the subject case but there is no 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 (whether as goods or in some other form) is involved in the execution of the contract. Therefore there is no works contract involved in the subject case. The items are in nature of machine/instruments/equipment and are all replaceable and hence cannot he said to be of ‘immovable’ nature - answered in negative. 1. ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this judgment was whether the supply of goods and services by Prasa Infocom & Power Solutions Private Limited to Cray Inc. qualifies as a 'works contract' as defined under Section 2(119) of the Central Goods and Services Tax Act, 2017 (CGST Act).2. ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe definition of 'works contract' under Section 2(119) of the CGST Act was central to this case. According to this section, a 'works contract' involves 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.Court's Interpretation and ReasoningThe Court examined whether the activities undertaken by the applicant resulted in the creation of an immovable property, which is essential for classifying a contract as a 'works contract'. The Court also considered whether the supply of goods and services was naturally bundled and supplied in conjunction with each other, which would qualify it as a composite supply.Key Evidence and FindingsThe Court analyzed the contractual documents, including the Service and Development Agreement and its amendments, which detailed the scope of work, including the design, supply, installation, testing, and commissioning of a data center. The Court noted that the contract pricing was clearly bifurcated into supply of goods and services, with a significant portion of the contract value attributed to the supply of goods.Application of Law to FactsThe Court applied the definition of 'composite supply' under Section 2(30) of the CGST Act, which involves two or more taxable supplies naturally bundled and supplied in conjunction with each other. The Court found that the principal supply in this case was the supply of goods, not services related to immovable property.Treatment of Competing ArgumentsThe applicant argued that the data center constituted an immovable property, as it could not be shifted without dismantling. The jurisdictional officer countered that the value of goods and services was distinct and that the equipment was replaceable, thus not constituting an immovable property. The Court agreed with the jurisdictional officer's view that the supply was not a 'works contract'.ConclusionsThe Court concluded that the supply of goods and services by the applicant did not qualify as a 'works contract' under Section 2(119) of the CGST Act, as the major portion of the contract was the supply of goods, and there was no construction or creation of immovable property involved.3. SIGNIFICANT HOLDINGSCore Principles EstablishedThe judgment established that for a supply to qualify as a 'works contract' under the CGST Act, it must involve the creation of immovable property and the supply of goods and services must not be distinctly priced.Final Determinations on Each IssueThe Court determined that the supply of goods and services by Prasa Infocom & Power Solutions Private Limited to Cray Inc. does not qualify as a 'works contract' as defined under Section 2(119) of the CGST Act, as the principal supply was the supply of goods, and the services did not result in the creation of immovable property.