Composite works contract treatment applies to turnkey wastewater plant supply with maintenance as the principal service

A turnkey supply involving erection, commissioning, installation and operation and maintenance of a wastewater pretreatment plant was treated as a composite works contract because the plant was fixed to earth and the goods and services were naturally bundled, with maintenance as the principal element. The spares, consumables and speciality chemicals used in O&M were incidental to the maintenance service rather than a separate supply of goods. As the recipient was a Government Entity and the plant was for water treatment, the supply satisfied the concessional entry in the rate notification and was taxable as works contract service under SAC 9954.

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Issues: Whether the supply, erection, commissioning and installation of a waste-water pretreatment plant together with its operation and maintenance constituted a composite supply of works contract taxable under Entry 3(iii) of Notification No. 11/2017-Central Tax (Rate).

Analysis: The activity involved supply of goods along with erection, commissioning and installation of a plant fixed to earth, which brought it within the statutory concept of works contract under section 2(119) of the Central Goods and Services Tax Act, 2017, and such composite supply is treated as a supply of service under Schedule II. The O&M arrangement was not a standalone supply of spares; the spares, consumables and speciality chemicals were incidental to maintenance, and the maintenance element was the predominant supply. The recipient was a Government Entity, and the plant related to water treatment, satisfying the rate notification conditions for the concessional entry.

Conclusion: The bundled supply was a composite supply of works contract classifiable under SAC 9954 and taxable at 6% under CGST and 6% under KGST.

Final Conclusion: The applicant's turnkey plant setup contract and connected O&M services were held to fall within the concessional works-contract entry for water treatment plants supplied to a Government Entity.

Ratio Decidendi: A contract for erection, installation, commissioning and maintenance of a plant permanently fastened to earth, when supplied as a naturally bundled package with maintenance as the principal element, is a composite supply of works contract eligible for the concessional rate applicable to water-treatment works supplied to a Government Entity.

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