2020 (8) TMI 54 - AAR - GST

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

AAR Maharashtra ruled that supply of goods and services by an applicant to a client for data centre installation, testing and commissioning does not ... Works contract - immovable property - composite supply - principal supply - classification under construction services - distinctness of value of goods and servicesWorks contract - immovable property - distinctness of value of goods and services - Supply of goods and services by the applicant to Cray Inc. does not qualify as a works contract as defined under Section 2(119) of the CGST Act. - HELD THAT: - The Authority examined the contract documents, statements of work and cost summaries and found that the agreement separately itemises and prices goods, installation and maintenance; the value of goods constitutes the major part (over 85%) of the contract. Although the supplies are naturally bundled and supplied in conjunction, the arrangement constitutes a composite supply where the principal supply is supply of goods. There is no construction, fabrication or other activity resulting in the creation of an immovable property as required for a works contract to apply. The Data Centre in this transaction is a space/room where mainly replaceable equipment and machinery are installed; civil works are insignificant compared to the value of goods. The documentation therefore indicates distinctness of goods and services rather than a single inseparable works contract. The Authority also noted that maintenance continued but this did not alter the nature of the original supply which is predominantly of goods. For these reasons the transaction cannot be classified under construction services or treated as a works contract under the GST provisions. [Paras 5]The supply does not qualify as a works contract; it is a composite supply with principal supply being goods and hence not covered by Section 2(119) as a works contract.Final Conclusion: Advance ruling: the supply of goods and services by M/s Prasa Infocom & Power Solutions Pvt. Ltd. to Cray Inc. is not a works contract under Section 2(119) of the CGST Act; answered in the 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.