EPABX system supply with installation to Railways classified as works contract service taxable at 12% GST under Entry 3(v) Notification 11/2017

The AAR Gujarat ruled that supply of EPABX system with installation and commissioning to Railways constitutes a works contract service taxable at 12% GST. The Authority determined that once installed, the EPABX system becomes immovable property as it cannot be marketed in assembled condition and requires dismantling that may damage components. The supply falls under Entry 3(v) of Notification 11/2017-Central Tax (Rate) as it pertains to railway infrastructure, with Railways Act 1989 defining railway to include all offices and works constructed for railway purposes.

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Issues Involved:
1. Whether the supply, installation, and commissioning of EPABX systems by Intellicon qualify as a works contract under Section 2(119) of the CGST Act.
2. Whether the EPABX system becomes an immovable property upon installation.
3. Applicability of Entry No. 3(v) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 to Intellicon's contracts with Railways.
4. Whether the supplies by Intellicon to Railways are subjected to a concessional GST rate of 12%.

Issue-wise Detailed Analysis:

1. Qualification as Works Contract:
Intellicon argued that the supply, installation, and commissioning of EPABX systems constitute a works contract as defined under Section 2(119) of the CGST Act, which includes contracts involving the transfer of property in goods in the execution of such contracts. The EPABX system involves various components and equipment that are installed and commissioned at the customer's premises, making it an integral part of the immovable property. The Authority agreed with Intellicon, noting that the EPABX system, once installed, cannot be moved without dismantling and damaging some components, thereby qualifying as a works contract.

2. Immovable Property:
Intellicon contended that the EPABX system becomes an integral part of the immovable property once installed, as it involves laying cables through walls, ducts, and conduits, and connecting various components. The Authority referred to several judicial precedents, including the Supreme Court's ruling in the case of Kone Elevator India Pvt. Ltd. and the Bombay High Court's decision in Otis Elevator Company (India) Ltd., which held that installations like elevators and EPABX systems become part of the immovable property. The Authority concluded that the EPABX system, once installed, becomes immovable property.

3. Applicability of Entry No. 3(v) of Notification No. 11/2017-Central Tax (Rate):
Intellicon argued that their supplies to Railways fall under Entry No. 3(v) of the Notification, which pertains to composite supplies of works contract for construction, erection, commissioning, or installation of original works related to railways. The Authority examined the conditions specified in the Notification and found that Intellicon's contracts with Railways meet these conditions. The contracts involve the supply, installation, and commissioning of EPABX systems, which are considered original works as they involve the erection, commissioning, and installation of machinery and equipment. The Authority also noted that the supplies are made to Railways, fulfilling the requirement of being related to railways.

4. Concessional GST Rate of 12%:
Intellicon submitted that their supplies to Railways qualify for a concessional GST rate of 12% as per the Notification. The Authority agreed, noting that the contracts with Railways involve the supply, installation, and commissioning of EPABX systems, which fall under Entry No. 3(v) of the Notification. The Authority also referred to the CBEC Order No. 58/1/2002-Cx and the Supreme Court's decision in the case of Municipal Corporation of Greater Bombay & Ors. v. Indian Oil Corporation Ltd., which supported the view that installations like EPABX systems become immovable property and qualify for the concessional GST rate.

Ruling:
The Authority ruled that the supply, installation, and commissioning of EPABX systems by Intellicon for Railways are covered under Entry No. 3(v) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended, and are liable to a concessional GST rate of 12%.

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