2020 (10) TMI 47 - AAAR - GST

Appellate Authority reclassifies supply of UPS systems & services as separate, subject to 18% GST.

The Appellate Authority set aside the ruling that the supply of UPS systems and related services constituted a composite supply. The Authority determined ... Levy of GST - Works Contract - contract entered into with DMRC for supply, erection, installation, commissioning and testing of UPS system qualifies as supply of works contract under Section 2(119) of the Central Goods and Services Tax Act, 2017 - whether such supply made to DMRC would be taxable at the rate of 12% in terms of Sr. No. 3(v) of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended w.e.f. 25.01.2018? HELD THAT:- The appellant is of the view that the supply of UPS system made from the state of Maharashtra would be leviable to GST at the rate of 18% as supply of goods and the supply of erection, installation and commissioning of UPS system made from Delhi GSTIN would be leviable to GST at the rate of 18% as supply of services separately. The supply of UPS system and erection and installation services is not dependent on each other and both the aforesaid supplies are capable of being made independently. The appellant submit that activity of erection and installation of UPS is a significant portion of the contract and not merely ancillary to the supply of UPS system. Hence, in the present case the supply of UPS system cannot be said to be a 'principal supply' to which the supply of erection and installation services is merely ancillary - the findings of the Ld. AAR that without supply of goods i.e. UPS system, the services of erection, installation and commissioning cannot be supplied by the appellant is incorrect. Circular No. 47/21/2018-GST dated 08.06.2018 issued by the CBIC, states that in case where a supply involves supply of goods and services and the value of each such supplies is shown separately, such supplied would be liable to GST separately as supply of goods and services. Thus, even in the present case, the supply of UPS system and erection and installation services supplied by appellant would be treated as separate individual supplies. The supply of UPS System and erection and installation services are provided by two distinct persons viz. Maharashtra GTIN and Delhi GSTIN. Thus, the said supplies cannot be clubbed together to make them a “composite supply”. Composite Supply or not - HELD THAT:- Section 2(30) of the CGST Act defines composite supply to mean a supply made by a taxable person, comprising of two or more supplies of goods or services, which are naturally bundled and supplied in conjunction with each other, wherein one of the supplies is a principal supply. Thus, in order to qualify as a 'composite supply, it is essential that all the supplies under a contract are made by a single registered person - In the present case, the supply of UPS system and erection and installation services are made by two distinct persons i.e. Maharashtra GSTIN and Delhi GSTIN respectively. The appellant submits that finding of the Ld. AAR that supply made by the appellant under the said contract qualifies as a composite supply is incorrect in law. Thus, the impugned ruling given by the Ld. AAR, to the extent it considers the supply of goods and services under the said contract as one composite supply, is liable to be set aside. The AAR ruling modified to the extent that the supplies under question would not be considered as “Composite Supply” in terms of section 2(30) read with section 2(90) of the CGST Act, 2017. Issues Involved:1. Whether the contract entered into with DMRC for supply, erection, installation, commissioning, and testing of UPS system qualifies as a supply of works contract under Section 2(119) of the CGST Act, 2017.2. Whether such supply made to DMRC would be taxable at the rate of 12% in terms of Sr. No. 3(v) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended w.e.f. 25.01.2018.3. Whether the supply made by the appellant amounts to a composite supply, wherein the principal supply is the supply of UPS, and thus subject to GST at the rate of 18%.Detailed Analysis:1. Contract as Supply of Works Contract:The appellant entered into a contract with DMRC for the supply, erection, installation, commissioning, and testing of UPS systems. The appellant sought an advance ruling on whether this contract qualifies as a supply of works contract under Section 2(119) of the CGST Act, 2017. The Advance Ruling Authority (AAR) held that the supply of UPS systems made by the appellant to DMRC does not qualify as works contract service. The appellant accepted this ruling.2. Taxability at the Rate of 12%:Given that the supply does not qualify as a works contract service, the benefit of a concessional rate of 12% under Sr. No. 3(v) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 (as amended) would not be available to the appellant. The appellant did not dispute this aspect of the ruling.3. Composite Supply:The AAR further held that the supply made by the appellant qualifies as a composite supply, with the principal supply being the UPS systems, thus subjecting the entire contract to GST at the rate of 18%. The appellant contested this finding, arguing that:- The supply of UPS systems and the supply of services (erection, installation, commissioning, testing) are provided by two distinct persons (Maharashtra GSTIN and Delhi GSTIN).- The supplies are not naturally bundled and supplied in conjunction with each other in the ordinary course of business.- The contract specifies separate consideration for goods and services, and separate invoices are raised for each.The appellant contended that the supplies should be treated as independent supplies of goods and services, each leviable to GST separately at the rate of 18%.Appellate Authority's Findings:The Appellate Authority examined the definition of 'composite supply' under Section 2(30) of the CGST Act, 2017, which requires:- The supply to be made by a single taxable person.- The supplies to be naturally bundled and supplied in conjunction with each other.- One of the supplies to be the principal supply.The Appellate Authority agreed with the appellant's contention that:- The presence of two distinct taxable persons (Maharashtra GSTIN and Delhi GSTIN) precludes the supplies from being considered a composite supply.- The supplies are not made in conjunction with each other, as the services are provided only after the goods have been supplied and inspected.- Both supplies (goods and services) are equally important and indispensable, and neither can be considered ancillary to the other.The Appellate Authority concluded that the supplies under question do not satisfy the conditions for a composite supply and thus modified the AAR ruling to state that the supplies should be treated as independent supplies of goods and services, each subject to GST at the applicable rate of 18%.Order:The Appellate Authority set aside the AAR ruling to the extent that it considered the supplies as a composite supply. The supplies under question are to be treated as independent supplies of goods and services, each leviable to GST separately.