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 constitute a works contract under Section 2(119) of CGST Act, 2017. The authority determined this was composite supply with goods as principal supply, since supplied items were machines/instruments/equipment that are replaceable and movable in nature. No immovable property transfer was involved in contract execution, therefore works contract classification was ruled out.

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1. ISSUES PRESENTED and CONSIDERED

The 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 ANALYSIS

Relevant Legal Framework and Precedents

The 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 Reasoning

The 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 Findings

The 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 Facts

The 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 Arguments

The 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'.

Conclusions

The 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 HOLDINGS

Core Principles Established

The 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 Issue

The 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.

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