2025 (2) TMI 337 - AAR - GST

Permanently installed machinery on hire basis classified as leasing services, not goods supply under GST

In Re: M/s. TCG Urban Infrastructure Holdings Private Limited

AAR West Bengal ruled that applicant's supply of fitted assets on hire basis constitutes leasing or rental services under serial no 17(viii) of ... Classification of the services being provided by the applicant by way of supplying fitted assets on hire basis - rate of GST - said services will be covered by serial no 17 (iii) of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 under SAC 997314, attracting a GST Rate of 28% or under SAC 997314, attracting a GST Rate of 18%? - HELD THAT:- The applicant’s scope of supply is restricted up to tap off points and applicant is not responsible for quality of input power supply. It is clear that the applicant gives leasing services of benefit of those machineries for smooth functioning of lessees. The individual machinery as “goods” is not leased out to those lessees. This authority has referred to the cases of Solid and Correct Engineering Works [2010 (4) TMI 15 - SUPREME COURT], and Varachha Co-op. Bank Ltd [2023 (10) TMI 473 - APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARAT] to express the view that permanently installed machineries to BIPPL lost nature of movable properties and cannot be considered as ‘goods’ in GST. Section 12 the IGST Act, 2017 deals with place of supply of services where location of supplier and recipient is in India. On the other hand, section 13 of the IGST Act deals with place of supply of services where location of supplier or location of recipient is outside India - in the case in hand, the issue is not to determine the place of supply rather we are dealing with the classification of services. Further, the fact of the case in the Circular No. 232/26/2024 dated 10.09.2024 is that the cloud computing service providers generally enter into contract with data hosting service providers to use their data centres for hosting cloud computing services and there appears to be no contact between data hosting service provider and the end users/ consumers/ subscribers of the overseas cloud computing service provider. In the instant case, the supply of services as provided by the applicant would be regarded as leasing or rental services and each of the supplies would attract tax @ 18% under serial number 17 (viii) of the Notification No. 11/2017– Central Tax (Rate) dated 28.06.2017, as amended, as leasing or rental services and therefore, supplies provided by the applicant, being a mixed supply, would also be taxable @ 18% i.e., supply which attracts the highest rate of tax. Conclusion - Supply of services as provided by the applicant would be covered by serial no 17 (viii) of the Notification No. 11/2017– Central Tax (Rate) dated 28.06.2017 as leasing or rental services and as a mixed supply, would attract tax @ 18%. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this judgment is the appropriate classification of services provided by the applicant, TCG Urban Infrastructure Holdings Private Limited, in terms of the Goods and Services Tax (GST) rate applicable to the hiring of fitted assets. The specific questions addressed are:Whether the services fall under serial no 17 (iii) of Notification No. 11/2017-Central Tax (Rate), attracting a GST rate of 28%.Whether the services should be classified under serial no 17 (viii) of the same notification, attracting a GST rate of 18%.Whether the services can be classified under SAC 998599 as 'Support Service', attracting a GST rate of 18%.Any other classification deemed appropriate by the authority.ISSUE-WISE DETAILED ANALYSIS1. Classification under Notification No. 11/2017-Central Tax (Rate)Relevant legal framework and precedents: The classification of services under the GST regime is guided by Notification No. 11/2017-Central Tax (Rate), which outlines specific service codes (SAC) and corresponding tax rates. The applicant initially classified the services under SAC 997314, attracting a 28% GST rate, based on the premise that the services constituted a mixed supply.Court's interpretation and reasoning: The Court examined whether the services provided could be classified as a composite or mixed supply. It was determined that the services did not meet the criteria for a composite supply, as there was no predominant element or principal supply. Instead, the services were deemed a mixed supply, consisting of multiple independent supplies provided for a single price.Key evidence and findings: The applicant provided assets such as electrical equipment, sprinkler systems, air conditioning systems, and DG sets. These assets were installed in both common areas and sub-leased spaces within the Bengal Intelligent Park. The Court found that these installations had lost their character as movable property, thus not qualifying as goods.Application of law to facts: The Court applied Section 8(b) of the CGST Act, which states that a mixed supply should be taxed at the rate applicable to the supply with the highest tax rate. Since the air-conditioning system attracted the highest GST rate of 28%, the applicant initially applied this rate to the entire supply.Treatment of competing arguments: The applicant argued for a reclassification under SAC 998599, contending that the services constituted comprehensive support services rather than leasing or renting. The Court considered this argument but ultimately found that the services aligned more closely with leasing or rental services.Conclusions: The Court concluded that the services provided by the applicant should be classified under serial no 17 (viii) of Notification No. 11/2017-Central Tax (Rate), attracting an 18% GST rate as leasing or rental services.2. Classification as Support Services under SAC 998599Relevant legal framework and precedents: The applicant sought classification under SAC 998599, which pertains to 'Other support services not elsewhere classified'. The applicant drew parallels to a recent circular on data hosting services, arguing for a comprehensive service classification.Court's interpretation and reasoning: The Court examined the explanatory notes for SAC 998599 and found that the description of services did not align with the services provided by the applicant. The Court noted that the applicant's services were more akin to leasing or renting, given the nature of the assets and their use.Key evidence and findings: The applicant provided infrastructure elements essential for the building's operation, such as air-conditioning systems and fire sprinkler systems. However, these were not standalone services but part of the leasing arrangement.Application of law to facts: The Court determined that the applicant's services did not fit within the scope of SAC 998599, as they were not business support services or infrastructural support services as defined in the explanatory notes.Treatment of competing arguments: The applicant's argument for classification under SAC 998599 was considered but ultimately rejected. The Court found that the services were more accurately described as leasing or rental services.Conclusions: The Court concluded that the applicant's services could not be classified under SAC 998599 and should instead be classified as leasing or rental services under serial no 17 (viii) of Notification No. 11/2017-Central Tax (Rate).SIGNIFICANT HOLDINGSCore principles established: The judgment reinforced the principle that the classification of services under GST should be based on the nature of the supply and the applicable legal framework. The distinction between composite and mixed supplies was crucial in determining the appropriate tax rate.Final determinations on each issue: The Court ruled that the services provided by the applicant fall under serial no 17 (viii) of Notification No. 11/2017-Central Tax (Rate) as leasing or rental services, attracting an 18% GST rate. The Court rejected the classification under SAC 998599 as support services.Preserve verbatim quotes of crucial legal reasoning: 'In the instant case, the supply of services as provided by the applicant would be regarded as leasing or rental services and each of the supplies would attract tax @ 18% under serial number 17 (viii) of the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017, as amended, as leasing or rental services and therefore, supplies provided by the applicant, being a mixed supply, would also be taxable @ 18% i.e., supply which attracts the highest rate of tax.'