Utility access via fitted assets treated as mixed supply, taxed at 18% under Notification 11/2017 Sr.17(viii)

The AAR held that the applicant, as legal owner of fitted assets installed in a building, provides leasing or renting services by granting access to utilities without transferring possession of the assets. The assets, once attached to the building, lose their character as movable goods, so the activity is not leasing or renting of goods. The various services are charged under a single per sq. ft. rate, but no principal supply or naturally bundled supplies could be identified; therefore, the arrangement constitutes a mixed supply. Consequently, the services fall under serial no. 17(viii) of Notification No. 11/2017-Central Tax (Rate) and are liable to GST at 18%.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the activity of furnishing fitted assets and related infrastructure (HVAC, DG sets, sprinkler systems, electrical installations, etc.) on hire to tenants constitutes leasing/renting of goods or provision of "support services" under SAC 998599.

2. Whether the assets supplied on hire retain the character of movable "goods" or, after installation as integrated systems, become part of immovable property (thereby ceasing to be "goods" for GST classification).

3. Whether the supply of multiple installed assets for a single price constitutes a composite supply or a mixed supply, and the consequent method for determining applicable GST rate.

4. The applicable GST rate and notification entry for the supply: whether entry for "transfer of right to use goods" (serial 17(iii)), the residual leasing entry (serial 17(viii)), or "other support services" (SAC 998599) governs taxation.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Nature of supply: leasing/renting versus support services

Legal framework: Supply definitions (Section 7), leasing/renting concepts (commercial understanding; legal possession remains with lessor), headings in Notification No.11/2017 (Heading 9973 - leasing/rental services) and SAC 998599 (support services).

Precedent treatment: Prior Advance Ruling (Sun Knowledge) treated the supply as leasing/rental under serial 17(viii) @18% (i.e., residual leasing entry). Applicant urged classification as "support services" (SAC 998599) relying on erstwhile service-tax definitions and an analogy to a GST circular on data hosting services.

Interpretation and reasoning: The agreements show the applicant (lessor) retains legal possession of assets, installs and maintains integrated infrastructure for common areas and sub-leased spaces, charges a single hire consideration per sq. ft., procures insurance and manages maintenance. The Tribunal observes that these arrangements embody classic leasing/renting features: legal ownership with provision of right to use, recurrent hire charges, and centralized provision/operation of systems for tenant benefit.

Ratio vs. Obiter: Ratio - the services qualify as leasing/renting under Heading 9973. Obiter - analogy to data hosting circular and reliance on erstwhile service-tax "support services" definition is considered but not determinative.

Conclusion: The supply qualifies as leasing or renting services (leasing/rental services without operator) under Heading 9973 rather than as SAC 998599 "support services."

Issue 2 - Whether installed assets are "goods" or form part of immovable property

Legal framework: Definitions of immovable property (General Clauses Act, Transfer of Property Act), tests applied by courts (nature/degree of annexation, object of annexation, intendment of parties, functionality, permanency, marketability) as applied in higher court jurisprudence.

Precedent treatment: The Authority relies on Supreme Court guidance (applied principles from cases such as Solid & Correct Engineering Works and Bharti Airtel) and other AAR/AAAR decisions (cited for similar factual matrices) to determine when installed equipment loses character as "goods."

Interpretation and reasoning: The installed systems (HVAC plant rooms, chillers, centralized cooling towers, DG rooms, sprinkler and water systems, power back-up, sub-mains/distribution systems) involve extensive design, civil works, fixed installation in specified rooms/locations, integration of many components into functioning systems, insurance and managed maintenance, and charging on built-up area basis. Applying the annexation, object, intendment, functionality, permanency and marketability tests, the Authority finds that these systems are permanently affixed for the beneficial enjoyment of the building and cannot be removed or marketed as independent goods without substantial dismantling or damage.

Ratio vs. Obiter: Ratio - the installed integrated systems become part of the immovable building and therefore cease to be "goods" for purposes of the GST classification issue at hand. Obiter - observations on individual components that might be detachable in some circumstances.

Conclusion: The relevant fitted assets, taken in their integrated installed form as provided under the agreements, have lost their character as movable goods and are to be treated as part of the immovable structure for classification purposes.

Issue 3 - Composite supply versus mixed supply and impact on rate determination

Legal framework: Definitions of composite supply (Section 2(30)) and mixed supply (Section 2(74)); liability rule for mixed supplies (Section 8(b) - tax applicable is that of the supply attracting highest rate).

Precedent treatment: Authorities consider whether supplies are naturally bundled with a principal supply (composite) or are independent supplies provided for a single price (mixed). Applicant argued composite; Authority examined contractual structure and nature of services.

Interpretation and reasoning: The contracts and factual matrix do not disclose a principal supply naturally bundling the others. Multiple services/assets are supplied in conjunction for a single price calculated per sq. ft., but no single element can be identified as principal. Therefore the transaction is a mixed supply (two or more independent supplies provided together for a single price).

Ratio vs. Obiter: Ratio - the supply is a mixed supply. Obiter - discussion on nature of individual supplies within the mix.

Conclusion: The supply constitutes a mixed supply; liability is to be determined by the rate applicable to the component attracting the highest rate within the relevant residual classification.

Issue 4 - Applicable notification entry and GST rate

Legal framework: Notification No.11/2017 entries under Heading 9973 (serial 17(iii), 17(viii) etc.), rule under Section 8(b) for mixed supplies; matching of rates for "transfer of right to use goods" with rate applicable to like goods involving transfer of title.

Precedent treatment: Revenue contended assets remained "goods" and thereby SI.17(iii) (or other goods-based entries) should apply replicating supply-of-goods rates (which could produce higher rates, e.g., 28% for central AC). Prior WBAAR and applicant submissions offered alternative classifications (serial 17(iii) @ same rate as like goods; serial 17(viii) residual leasing entry; SAC 998599 support service @18%).

Interpretation and reasoning: Having held that the installed systems cease to be goods and that the transaction is leasing/renting of benefits of integrated immovable-installed systems, the Authority classifies the supply under Heading 9973 (leasing/rental services, without operator). As the supplies are mixed in nature and fall within the residual leasing/renting category (serial 17(viii) of the Notification), the applicable rate under that entry is 9% CGST + 9% SGST (i.e., aggregate 18%). The Authority therefore does not apply the approach of treating the supply as transfer/right-to-use of distinct goods attracting rates of the like goods (serial 17(iii)), because the assets in installed integrated form are not "goods" for the purpose of the classification.

Ratio vs. Obiter: Ratio - classification under Heading 9973 and charging under serial 17(viii) at 9% CGST + 9% SGST is the operative holding. Obiter - discussion rejecting applicant's "support services" characterization and the applicant's earlier argument that mixed-supply highest-rate rule should produce 28% (since that would rely on treating the installed items as goods).

Conclusion: The supply of fitted assets and related infrastructure services, in the factual matrix and contractual terms, is taxable as leasing/rental services under Heading 9973 and falls within serial no. 17(viii) of Notification No.11/2017; the applicable GST rate is 9% CGST + 9% SGST (aggregate 18%).

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