Separate construction and O&M services for an FGD plant are taxed independently, not as a composite supply.

A contract for setting up a Wet Limestone FGD plant and later operation and maintenance was not treated as a composite supply because the two activities were separately identified, had separate payment schedules, distinct performance obligations, and O&M began only after completion and handover. The plant-setting activity was classified as a works contract for construction and installation of an immovable pollution control plant under heading 995429, falling within entry 3(iv)(e) of Notification No. 11/2017-Central Tax (Rate) and taxable at 12%. The separate O&M activity was classified under SAC 998599 as business support services and taxed at 18% under entry 23(iii).

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Issues: (i) Whether the combined service of setting up of Wet Limestone FGD plant and operation & maintenance of the said plant constitutes a composite supply. (ii) If the supplies are separate, how the setting up activity and the operation & maintenance activity are to be classified and taxed under the GST notification.

Issue (i): Whether the combined service of setting up of Wet Limestone FGD plant and operation & maintenance of the said plant constitutes a composite supply.

Analysis: A composite supply under section 2(30) of the CGST Act, 2017 requires two or more taxable supplies that are naturally bundled, supplied in conjunction with each other in the ordinary course of business, and having one principal supply. On the contract terms, the setting up of the plant and the post-completion O&M were separately identified, with separate payment schedules, separate performance obligations, and O&M commencing only after the plant was completed and handed over. The activities were therefore not treated as supplies made in conjunction with each other in the ordinary course of business.

Conclusion: The combined service is not a composite supply.

Issue (ii): If the supplies are separate, how the setting up activity and the operation & maintenance activity are to be classified and taxed under the GST notification.

Analysis: The setting up of the FGD plant was treated as a works contract for construction and installation of an immovable pollution control plant, falling under heading 995429 and covered by entry 3(iv)(e) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. The plant was held to be a pollution control plant and not located as part of a factory, because the thermal power activity did not amount to manufacture. The O&M activity was held to be a separate service supporting the owner's business, classifiable under SAC 998599 as business support services, and not as part of the works contract supply.

Conclusion: Setting up of the FGD plant is taxable at 12% under entry 3(iv)(e), while the O&M activity is taxable at 18% under entry 23(iii).

Final Conclusion: The ruling separates the EPC construction element from the later O&M element, grants the concessional works-contract rate to the former, and denies composite-supply treatment for the bundle as a whole.

Ratio Decidendi: Where a contract separately demarcates construction and post-completion operation and maintenance, with independent commercial terms and separate commencement of obligations, the supplies are not naturally bundled and must be classified and taxed separately according to their individual nature.

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