2022 (11) TMI 80 - AAAR - GST

Supply and installation of plant machinery for Electric Loco Shed qualifies as works contract under Section 2(119) CGST Act

The AAAR, Uttar Pradesh ruled that a contract for supply, installation and commissioning of plant and machinery for an Electric Loco Shed constituted a ... Works contract - Composite supply - Immovable property / attachment to earth - Intention of the parties - Plant and machinery affixed permanently to earth - Eligibility for concessional rate under Notification No. 11/2017 (SI No. 3(v)(a))Works contract - Composite supply - Immovable property / attachment to earth - Intention of the parties - Plant and machinery affixed permanently to earth - Work awarded to the appellant qualifies as a composite supply covered by the definition of works contract. - HELD THAT: - The Authority examined whether the supplies of goods and services by the appellant amounted to a works contract under Section 2(119) of the CGST Act or merely a composite supply. Applying the tests of 'immovable property' drawn from the General Clauses Act and Transfer of Property Act - in particular attachment to earth or permanent fastening for beneficial enjoyment - and having regard to judicial precedents on machinery embedded or affixed at site, the Authority found that the supply comprised transfer of property in goods coupled with erection, installation and commissioning forming an integral, permanent system tailored to the site. The scope of work, the nature of foundations, civil and electrical integration, the parties' intention as evidenced by the contract documents and the permanent character of the installations led to the conclusion that the works were not merely removable goods but formed immovable property. Consequently, the activities constituted a works contract (and thus a composite supply of works contract service) rather than only a composite supply of movable goods and services. [Paras 14, 15, 16, 17, 18]Yes; the work is a composite supply of works contract service.Eligibility for concessional rate under Notification No. 11/2017 (SI No. 3(v)(a)) - Works contract - Plant and machinery affixed permanently to earth - Whether the appellant is entitled to the benefit of SI No. 3(v)(a) of Notification No. 11/2017-Central Tax (Rate) as amended. - HELD THAT: - Having held that the project work constitutes a works contract in respect of immovable property and noting the CBIC clarification that plant and machinery affixed permanently to the earth can be treated as immovable for works contract purposes, the Authority concluded that the subject works fall within the scope of the relevant entry in Notification No. 11/2017 (as amended). On that basis the appellant is eligible for the benefit specified at SI No. 3(v)(a) for the subject work. [Paras 15, 18]Yes; the appellant is eligible to take the benefit of SI No. 3(v)(a) of Notification No. 11/2017 as amended for the subject work.Final Conclusion: The Appellate Authority reversed the Authority for Advance Ruling and held that the appellant's supply of goods and services in relation to setting up the Electric Loco Shed constitutes a works contract (a composite supply of works contract service) and that the appellant is entitled to the concessional benefit under SI No. 3(v)(a) of Notification No. 11/2017 (as amended). Issues Involved:1. Whether the work awarded to the appellant is a composite supply of works contract service.2. Whether the benefit of SI No. 3(v)(a) of the Notification No. 11/2017-Central Tax (Rate), as amended vide Notification No. 20/2017-Central Tax (Rate) is applicable to the subject works.Issue-Wise Detailed Analysis:1. Composite Supply of Works Contract Service:The appellant entered into a joint venture (JV) with M/s Indwell Constructions Private Limited to execute work related to the construction of an electric loco shed, including various infrastructural and electrical works. The appellant sought an advance ruling on whether the work awarded is a composite supply of works contract service. The Authority for Advance Ruling (AAR) initially ruled negatively, stating that the activities performed by the appellant did not relate to immovable property and thus did not qualify as a works contract.Upon appeal, the appellate authority examined the nature of the property involved. The authority referred to Section 2(119) of the CGST Act, 2017, which defines a 'works contract' as a contract for building, construction, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of any immovable property involving the transfer of property in goods. The authority also considered the definition of 'immovable property' under Section 3(26) of the General Clauses Act, 1897, and Section 3 of the Transfer of Property Act, 1882, which includes things attached to the earth or permanently fastened to anything attached to the earth.The appellate authority observed that the machinery and structures installed by the appellant, such as Under Floor Wheel Lathes and EOT Cranes, were permanently affixed to the site, making them immovable. The authority cited various Supreme Court judgments, including Duncans Industries Ltd. v. State of U.P. and M/s. T.T.G. Industries Ltd. v. Collector of Central Excise, which emphasized that the intention of permanent attachment to the earth determines the immovable nature of the property.The authority concluded that the project involved the transfer of property in goods coupled with the supply of services, leading to the conclusion that it was a works contract. The project covered a large area and involved substantial civil, mechanical, and electrical work, making it immovable in nature. Therefore, the appellate authority ruled that the work awarded to the appellant is a composite supply of works contract service.2. Benefit of SI No. 3(v)(a) of Notification No. 11/2017-Central Tax (Rate):The appellant also sought clarification on whether the benefit of SI No. 3(v)(a) of Notification No. 11/2017-Central Tax (Rate), as amended by Notification No. 20/2017-Central Tax (Rate), is applicable to the subject works. The AAR had initially ruled negatively on this issue as well.The appellate authority noted that the notification provides a reduced GST rate for certain works contracts, specifically those involving the construction of a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession. Given that the project involved setting up an electric loco shed for the Indian Railways, which is a public utility service, the authority found that the project met the criteria specified in the notification.Therefore, the appellate authority ruled that the appellant is eligible to take the benefit of SI No. 3(v)(a) of Notification No. 11/2017-Central Tax (Rate), as amended, for the subject works.Ruling:1. The work awarded to the appellant is a composite supply of works contract service.2. The appellant is eligible to take the benefit of SI No. 3(v)(a) of Notification No. 11/2017-Central Tax (Rate), as amended, for the subject works.