Cattle feed plant equipment with installation services deemed works contract service under permanency test attracting 18% GST

The AAR Gujarat held that supply of cattle feed plant equipment with erection, installation, and commissioning services constitutes a works contract service, not a composite supply. The authority applied the permanency test established by the SC, finding that once assembled and commissioned, the plant becomes immovable property as it cannot be relocated without complete dismantling. The integrated equipment, cabling, and foundation fastening create a functional unit that loses individual component identity. Since the supply involves transfer of immovable property through installation services, it qualifies as works contract service under SAC998732, attracting 18% GST rather than equipment supply rates.

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Issues Involved:

1. Classification of supply of cattle feed plant without civil work.
2. Classification of supply of cattle feed plant with civil work.
3. Determination of applicable tax rate for both scenarios.

Issue-wise Detailed Analysis:

1. Classification of Supply of Cattle Feed Plant Without Civil Work:

IDMC Limited supplies cattle feed plants, including equipment and machinery, along with erection, installation, and commissioning services without civil work. The applicant argues that these supplies should be classified as composite supplies under the GST regime. They cite the definition of "composite supply" from Section 2 of the CGST Act, which requires the supply to consist of two or more taxable supplies that are naturally bundled and supplied in conjunction with each other. IDMC asserts that the supply of various machinery and services for the cattle feed plant meets these criteria, as all components are essential for the plant's operation and are naturally bundled. They further argue that the principal supply in this case is the cattle feed plant itself, as the customer's ultimate intention is to procure a fully functional plant. IDMC also references several legal precedents and rulings, including Gujarat AAR's decision in the case of Silcher Technologies Ltd., to support their claim that the supply should be classified under Heading 8436 of the Customs Tariff Act, attracting a GST rate of 12%.

2. Classification of Supply of Cattle Feed Plant With Civil Work:

In cases where the supply of the cattle feed plant involves civil work, IDMC acknowledges that the supply would result in the creation of immovable property and should be classified as a works contract. They reference the definition of "works contract" from the CGST Act, which involves the erection, installation, or commissioning of immovable property. IDMC submits that the involvement of civil work in the supply of the cattle feed plant qualifies it as an immovable property, and therefore, the supply should be treated as a works contract service. They also refer to the CBEC Order No. 58/1/2002-Cx and various judicial rulings, including the Supreme Court's decision in the case of M/s. Kone Elevator India Pvt. Ltd., to support their argument that the supply should be classified as works contract service, attracting a GST rate of 18%.

3. Determination of Applicable Tax Rate:

For the supply of cattle feed plants without civil work, IDMC argues that the supply should be classified under Heading 8436 of the Customs Tariff Act, which covers machinery for preparing animal feeding stuffs and attracts a GST rate of 12%. However, for supplies involving civil work, IDMC acknowledges that the supply should be classified as a works contract service, falling under SAC 998732, and attracting a GST rate of 18%.

Findings:

The Authority for Advance Ruling (AAR) examined the submissions and found that the supply of cattle feed plants, whether with or without civil work, involves the creation of immovable property. The AAR applied the "test of permanency" as enunciated by the Supreme Court in the case of Municipal Corporation of Greater Bombay v. Indian Oil Corporation Ltd., which states that if an item is permanently fastened to the earth and cannot be moved without substantial damage, it is considered immovable property. The AAR found that the cattle feed plant, once installed and commissioned, cannot be moved without dismantling and is therefore immovable property.

Ruling:

The AAR ruled that the supply of a functional cattle feed plant, inclusive of its erection, installation, and commissioning, constitutes a works contract service. This classification applies to both scenarios, with or without civil work. The supply falls under SAC 998732 and attracts a GST rate of 18%.

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