Composite works contract treatment secures GST exemption for dam operation and maintenance when goods remain below the prescribed threshold.

Operation and maintenance of the Mansi Wakai dam project, including machinery, electrical and mechanical equipment, repair work and connected installations, was treated as a naturally bundled works contract for GST purposes and therefore as a composite supply, not a mixed supply. The supply was also held to satisfy Entry 3A of Notification No. 12/2017-Central Tax (Rate) because it related to a Government Department function connected with water supply and the value of goods on the material before the Authority remained below 25% of the composite supply. Where that threshold is exceeded, the ruling stated that GST applies at 12% under the relevant concessional entry.

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Issues: (i) Whether the activity of operation and maintenance of the Mansi Wakai dam project on ESCO and O&M terms constituted a composite supply of works contract or a mixed supply. (ii) Whether the supply was eligible for exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate), and failing that, what rate of tax applied.

Issue (i): Whether the activity of operation and maintenance of the Mansi Wakai dam project on ESCO and O&M terms constituted a composite supply of works contract or a mixed supply.

Analysis: The activity was found to involve improvement and maintenance of an immovable property, namely the dam project, pumping stations, pipelines, tunnel and connected installations. The supply of machinery, electrical and mechanical equipment and repair works was held to be integrally linked with the overall execution of the project and not separate, distinct supplies. The works fell within the statutory concept of works contract under the GST framework, and the supply was treated as a composite supply rather than a mixed supply.

Conclusion: The activity was held to be a composite supply of works contract, not a mixed supply.

Issue (ii): Whether the supply was eligible for exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate), and failing that, what rate of tax applied.

Analysis: The project was undertaken for a Government Department and related to water supply, a function entrusted to municipalities under Article 243W of the Constitution of India. The value of goods in the composite supply was found to be below 25% of the total value of supply on the material placed before the Authority. On that basis, the supply satisfied the conditions of Entry 3A. The ruling also stated that where the value of goods exceeds 25%, the applicable rate would be 12% under the relevant concessional entry for composite works contract supplies.

Conclusion: Exemption under Entry 3A was where the value of goods remained below 25% of the total composite supply, and otherwise the applicable GST rate was 12%.

Final Conclusion: The project was treated as a composite works contract supply for a Government Department, with concessional or nil GST depending on the proportion of goods in the composite supply.

Ratio Decidendi: A supply involving improvement and maintenance of an immovable project, with goods and services naturally bundled in execution of the contract, is a composite works contract supply; where the value of goods does not exceed the prescribed threshold, the supply can qualify for the notified exemption.

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