TaxTMI 
TaxTMI 
2019 (7) TMI 759
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....ral tax rate) dated 28/06/2017 At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean CGST Act and MGST Act. 2. FACTS AND CONTENTION - AS PER THE APPLICANT "(A) BRIEF HISTORY OF THE CASE M/s. Nikhil Comforts, a Partnership Firm, registered under the Indian Partnership Act, 1932 is having its registered office at 1003,Sampada, Arunodaya Nagar, Mulund (East) Mumbai 400 081 and sales office at Ground & 1st floor, Mulund Utkarsha CHS Ltd., Sajjan Wadi, Mithagar Road, Mulund (East), Mumbai 400 081. The firm is registered under the GST Act having GSTIN No. 27AAAFN0812H1ZP. M/s Nikhil Comforts (short the firm) entered into an agreement with Goa State Infrastructure Development Corporation Ltd.(in short GSIDC) for execution of' Additional Air-conditioning work for the New building of Director of Educ....
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..... Supplying and Installing 150mm width x 50mm depth-16G MS perforated type cable tray. 13. Providing and fixing 25 mm x 5 mm GI strip and 8SWG GI wire for earthling, (C) DOCUMENTS SUPPLIED FOR CONSIDERATION: 1. Agreement entered between GSIDC and Nikhil Comforts Dated 21st Aug.,2018 for supply, Installation, testing & commissioning of VRF Indoor and Outdoor Units suitable for R-410 Gas, refrigerant piping with insulation, drain piping with insulation, MS stands, Cabling, Additional Refrigerant and associated electrical works etc. 2. Letter of acceptance dated 24^th May 201 8 (D) RATE OF TAX ON THE TANSACTION: Whether as 'WORKS CONTRACT' or as 'COMPOSITE SUPPLY' or as 'MIXED SUPPLY The Question for advance ruling is whether the applicant requires to pay GST considering the transaction as 'Works Contract' or 'Composite supply or 'Mixed supply: (a) WORKS CONTRACT: If the transaction is Works Contract the rate of tax would be 6% CGST covered under Sr. no 3 item no 3 of notification No. 24/2017 (Central tax rate) dated 21/09/2017. (b) COMPOSITE SUPPLY: If the transaction is composite supply the rate of tax would be CGST @ 14% being principal ....
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....xed Supply" means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. Illustration: A supply of a package consisting of canned foods, sweets, chocolates; cakes, dry fruits aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately." The contracts involving supply of goods and services in relation to movable property would also fall in the definition of composite contracts. 1. WHETHER WORKS CONTRACT'? Section 2(119) defines "works contract" to mean a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration on commissioning of any immovable property wherein the transfer of property in goods (whether as goods or in some other forms) is involved in execution of such contract. To know whether this is works contract the goods in....
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....eld that Central Air conditioner plant fixed in the contract is immovable. The dissenting judgment delivered by Krishna Kumar, Member, however, has taken contrary stand than that of the decision of the majority. He would hold that that the CAP installed at sight is the movable property of the customers. The Member (J) relied on the decision of the Apex Court in the case of Sirpur Paper Mills reported in 1998 (97) E.L.T. Page 3 (S.C.) = 1997 (12) TMI 109 - SUPREME COURT, wherein the Apex Court considered the leviability of excise duty on paper making machine which was erected by the appellant-company by using duty paid components purchased from the market and also by fabricating certain parts of the machines in their factory. The Hon'ble Apex Court held that just because plant and machinery are fixed in the earth for better functioning, it does not automatically become an immovable property. Thus as per the decision of the majority the transaction is of the nature which may fall to cover under the definition of 'works Contract [section 2 sub-section (119)] (c) Government of India Ministry of Finance Department of Revenue Central Board of Excise & Customs through its order n....
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....vorim , Goa." The transaction would be classifiable to cover under the definition of "works contact" liable to CGST/SGST/IGST covered under Sr. no 3 item no 3 of notification No 24/2017 (Central tax rate) dated 21/09/2017. OR The transaction is composite supply liable to CGST @ 14% being principal goods involved is Air-Conditioner which falls to cover under schedule IV, Sr. no 1 19 of notification No 1/2017 (Central tax rate) dated 28/06/2017 In continuation of our submission dated 26th March 2019 it is submitted that- 1. The applicant- Company pursuant to the acceptance of its tender, entered into an agreement with GSIDC for design, supply, Installation, testing & commissioning of VRF Indoor and Outdoor Units suitable for R-410 Gas, refrigerant piping with insulation, drain piping with insulation, MS stands, Cabling, Additional Refrigerant and associated electrical works etc. at the site of GSlDC, 2. For supply/installation/erection and assembly of complete Air Conditioning plants were procured by the company and various equipments/components/material/ parts and accessories were brought to the site of the customers GSIDC. The plant is installed (assembled mainly ....
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....is Court. There can be no doubt that if an article is an immovable property, it cannot be termed as excisable goods for purposes of the Act. From a combined reading of the definition of immovable property in Section 3 of the Transfer of Property Act, Section 3(25) of the General Clauses Act, it is evident that in an immovable property there is neither mobility nor marketability as understood in the Excise Law. Whether an article is permanently fastened to anything attached to the earth require determination of both the intention as well as the factum of fastening to anything attached to the earth. It also required to see that the test of permanency; if the chattel was movable to another place of use in the same position or liable to be dismantled and re-erected at the later place, if the answer to the former is in the positive it must be a movable property but if the answer to the latter part is in the positive then it would be treated as permanently attached to the earth. Thus test of "marketability" and test of "permanency" is the twin tests laid down by the Court to determine whether assembly/ erection would result in immovable property or not. Reference can be made to following....
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....f sugar. After considering the material placed on the record it was held that the mono vertical crystalliser has to be assembled, erected and attached to the earth by a foundation at the site of the sugar factory. It is not capable of being sold as it is, without anything more. This Court, therefore, concluded that mono vertical crystallisers are not "goods" within the meaning of the Act and, therefore, not exigible to excise duty. d. In Triveni Engg. & Industries [2000 (120) E.L.T. 273 (S.C.)] = 2000 (8) TMI 86 - SUPREME COURT, the question was whether a Turbo-Alternator was excisable or not. The Tribunal had held the item to be excisable. The Apex Court set aside the Tribunal's decision, observing that the Tribunal's conclusion was not justified by its own finding. The Apex Court held that the marketability test required that the goods should be in a position to be taken to the market and sold. In that as found by the Tribunal, the Turbo-Alternator had to be separated into its components viz. Turbine and Alternator for being taken to the market. The Apex Court, therefore, held that the marketability test was erroneously applied by the Tribunal. In the instant case, the factual....
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.... case of Triveni Engineering and Industries Ltd. v. CCE [2000 (120) E.L.T. 273 (S.C.) = 2000 (8) TMI 86 - SUPREME COURT, to establish the marketability of any goods before subjecting them to levy of duty of excise and the same has got to be discharged by placing on record independent cogent evidence. In the instant case, the department has not been able to establish that the CAPs were capable of being taken as such to the market for being sold. Thus the majority has held that Central Air conditioner plant fixed in the contract is immovable. Thus as per the decision of the majority the transaction is of the nature which may fall to cover under the definition of 'works Contract' [section 2 sub-section (119)] 6. It submitted that the Air conditioning plant in the present case emerges by assemblage of various components procured from open market and erection and installation of the system in the customer's premises as per the specifications of the customer. The contract is relating to commissioning of air-conditioning plants as per terms and conditions of the contract and such plants are commonly known as air-conditioning system or facility or plant. It undertakes air conditionin....
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....t of India Ministry of Finance Department of Revenue Central Board of Excise & Customs through its order no 37B Order 58/1/2002-Cx dated 15^th January 2002 has issued instructions at para 5 (iii) that- "Refrigeration/Air conditioning plants - These are basically systems comprising of compressors, ducting, pipings, insulators and sometimes cooling towers etc. They are in the nature of systems and are not machines as a whole. They come into existence only by assembly and connection of various components and parts. Though each component is dutiable, the refrigeration/air conditioning system as a whole cannot be considered to be excisable goods. Air conditioning units, however, would continue to remain dutiable as per the Central Excise Tariff." The Department had issued these directions treating Refrigeration/Air conditioning plants are immovable. The taxing authorities under excise Act, following these directions have treaded Air conditioning plants as immovable since 2002. It is therefore submitted that there would not be any different view as is followed continuously for years together under Excise Act. Keeping in view the principles laid down in the judgments and au....
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....d at any other site as it is, since the configuration of the new site will be different in terms of various components of the system. The system will need to be dismantled, de-gassed and modified significantly and re-erected for use at another location. Many of the components of this system will either get damaged during dismantling or will not be suitable at the new site and will need to be replaced with components of different capacity and size. Hence, this qualifies as a plant and cannot be compared with a simple split air-conditioner. • This is 60 TR (72HP) AC plant as per tender BOQ which includes outdoor units and multiple indoor units with specific copper pipe sizes and predetermined pipe route. This system is efficient replacement of Chiller, Air handling units, chilled water piping and ducting etc. With the advent of new technology, Chiller plant is being replaced by VRF system / plant. • FOLLOWING IS THE SEQUENCE OF ACTIVITIES IN A CHRONOLOGICAL ORDER DURING EXECUTION OR COMPLETION OF AN AIR-CONDITIONING PROJECT - • STUDY OF TENDER DOCUMENTS AND SITE SURVEY - Tender documents and drawings are thoroughly studied by HVAC design and pla....
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....rtments and further procurement takes place. • DELIVERY OF MATERIAL AT SITE - Based on the project requirement the material can be delivered in multiple phases. This are typical based on the site development and storage space available at site. For example, supporting media like anchor fasteners, nut-bolt, angles are installed prior to installation of cable tray, copper pipes, machines etc. The site manager verifies the material specification and quantity at the time of delivery. • INSTALLATION - Before commencement of any installation work, the project manager, engineer and site supervisor study the approved shop drawing thoroughly. • The markings are done for indoor unit locations, outdoor unit locations, copper pipes, cable trays and cabling as shown in approved shop drawings. • As per marking, the respective supports are installed for indoor unit, copper pipes, cable trays and drain piping. These supports are permanently fastened to the slab by means of female anchor fasteners, full threaded rod and angles. The supporting activity involves the drilling work in slabs / walls, fabrication works like cutting, welding angles/ full....
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....is decided. Accordingly cutting and bending of the drain pipe is done. Insulation of the drain pipe is done as per approved specification. As per the requirement at site condition, trenching is done in the wall and / or civil opening is made and drain piping is laid. Later they are made concealed. The joining of the drain pipes is done using Adhesive or fusion joint so that there shall not be leakage of water. Once drain line is fixed and joints are concealed it cannot be removed. • TESTING AND COMMISSIONING OF SYSTEM- • After the completion of Installation of the machines/Units and before closing of ceiling, pressure testing of the copper piping, Intermediate connections, Y- branching joints is carried out by using Nitrogen gas. • Apply test pressure in the system as per the OEM Requirement. • Pressure testing is done by holding the pressure for 24 hours and doing soap bubble test for any leakage at the joints. Removal of the insulation at the location of leakage detection. Post which brazing and other process is follow. • Vacumization of entire VRF Refrigeration system. • Start Commissioning procedure f....
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....te of tax on works contract for fabrication and installation of air-conditioning plants falls under Entry 2 and, liable to tax at the rate of 15% or under Entry 5 under which it is taxable at the rate of 5%, of the Schedule to the notification dated 18-10-93 issued under Section 55A of the Gujarat Sales Tax Act, 1969? has observed that - "It would be relevant to ascertain as to what is the meaning of words installation of air-conditioners and A. C. Coolers and for repairs thereof It is well settled that for interpreting the meaning of the words used in entries of taxing statute, trade meanings as well as dictionary meanings are required to be considered. In the light of dictionary, meanings of the words 'air-conditioner', 'air-conditioning' etc. 9.2. As per the Webster's Encyclopedic Unabridged Dictionary of the English Language, the word 'air-condition' means (1) to furnish with an air-Page 1979 conditioning system; (2) to treat (air) with such a system; the word 'air-conditioner' means an air-conditioning device and the word 'air-conditioning' means (I) a system or process for controlling the temperature, humidity and sometimes the purity of the air in an interi....
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.... manner of doubt that by executing the works contract relating to installation of air-conditioning plant, what is provided is central air conditioning system/device. Air-conditioning systems are succinctly explained in paragraph 23 of the decision in Collector of Central Excise v. Subros Ltd. (1989 (6) TMI 140 - CEGAT, NEW DELHI)." The High court has clearly made distinction between "Air conditioner" and "Air conditioning"; 'air-conditioning' means (1) a system or process for controlling the temperature, humidity and sometimes the purity of the air in an interior, as of an office, theatre, laboratory, house, or the like; (B) In the case of Collector Of C. Ex. vs Subros Ltd. on 7 June, 1989 Equivalent citations: 1989 (24) ECR 219 Tri Delhi, 1989 (43) ELT 543 Tri Del = 1989 (6) TMI 140 - CEGAT, NEW DELHI at para 23 Customs and Central excise Tribunal Delhi has given distinction between "Air Conditioner Plant" and " window Air condition machine or Split Air conditioner. "23. Before we come to any conclusion we would like to refer to McGraw-Hill Encyclopaedia of Science and Technology Vol. I, 5th Division. Relevant extracts from pages 201 and 202 arc reproduced below :- ....
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.... packaged systems to serve single-family residences to large, built-up or field-erected systems serving large buildings." "When many buildings, each with its own air-conditioning system which is complete except for a refrigeration and a heating source, are tied to a central plant that distributes chilled water and hot water or steam, the interconnection is referred to as a district heating and cooling system. This system is especially useful for campuses, medical complexes, and office complexes under a single management." "Conditioning of spaces. - Air temperature in a space can be controlled by radiant panels in floor, walls, or ceiling to emit or absorb energy, depending on panel temperature. Such is the radiant panel system. However, to control humidity and air purity and in most systems for controlling air temperature, a portion of the air in the space is withdrawn, processed, and returned to the space to mix with the remaining air. In the language of the entineer, a portion of the room air is returned (to an air-handling unit) and, after being conditioned, is supplied to the space. A portion of the return air is spilled (exhausted to the outdoors) while an eq....
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....dampers, etc. are installed/fixed/erected in with each other to form an air-conditioning system or project and hence becomes immovable property and cannot be called as excisable goods. Even the department has not raised any demand or excise duty on such air-conditioning system to any job worker involved for erection of these systems/projects. The grills manufactured by the petitioner are used in air-conditioning systems, ventilation systems, basements, car parking, kitchens, industrial sheds, evaporative coolers and dummy grills for interior decoration in rooms/buildings. However, they cannot be used in the air-conditioning machines, room/split air-conditioners as these are not designed for use therein." After detailed deliberation court has allowed the petition by observing that- "These buyers are job workers engaged in erection/ installation of air-conditioning systems, air-cooling systems, heating systems and air ventilation systems etc. These grills bought from the petitioner are fixed in the immovable properties like various rooms, industrial sheds, car parking, toilets, kitchens, etc. for ventilation or for covering the opening of ducts of the air-conditioning sys....
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....outdoor Units (Air conditioning). The taxable person has requested that a ruling be pronounced under section 97 of the CGST/SGST Act 201 7 on the following questions: - The transaction would be classifiable to cover under the definition of "works contract" liable to CGST/SGST/IGST covered under serial No 3 item No 3 of the Notification No 20/2017 (Central tax rate) dated 22/08/2017. OR The transaction is composite supply liable to CGST @ 14% being principle goods involved is Air conditioner which falls to cover under schedule IV serial No 119 of Notification No 1/2017 (Central tax rate) dated 28/6/2017. The applicant has submitted a copy of agreement dated 21.08.2018 entered with Goa State Industrial Development Corporation (GSIDC) by which he has undertaken a contract for Supply, installation, testing and commissioning of VRF indoor and outdoor Units (Air-conditioning). I have gone through the scope of work as mentioned by the applicant it is observed that the applicant used to supply VRF 4-way Cassette Units, VRF Hi Wall Units, VRF outdoor Units, soft and hard drain pipes and MCB's. The applicant also undertakes installation, testing and commissioning of all these uni....
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....the equipment to the earth permanently for the beneficial enjoyment of the land owner. Hon'ble Supreme Court in following paras has held, - 37. On an application of the above tests to the cases at hand, this court sees no difficulty in holding that the manufacture of the plants in question do not constitute annexation and hence cannot be termed as immovable property for the following reasons: (i) The plants in question are not per se immovable property, (ii) Such plants cannot be said to be "attached to the earth" within the meaning of that expression as defined in Section 3 of the Transfer of Property Act. (iii) The fixing of the plants to a foundation is meant only to give stability, to the plant and keep its operation vibration free. (iv) The setting up of the plant itself is not intended to be permanent at a given place. The plant can be moved and is indeed moved after the road construction or repair project for which it is set up is completed. 38. A machine or apparatus annexed to the earth without its assimilation by fixing with nuts and holts on a foundation to provide for stability and wobble free operation cannot be ....
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....inition of the said expression. It reads: "Section 3(26): "immovable property" shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth." A plain a reading of Section 3 (26), shows that it defines "immovable property as things attached to the earth or permanently fastened to anything attached to the earth. The term "attached to the earth" has not been defined in the General Clauses Act, 1897, Section 3 of the Transfer of Property Act, however, gives the to the expression "attached to the earth": (a) rooted in the earth, as in the case of trees and shrubs; (b) imbedded in the earth, as in the case of walls and buildings; (c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached. In the activities conducted by the applicant the principle of permanency occurs first i.e. at the time of fixing of different goods used by the applicant in the activity of installation and the activity of dismantling comes only at the time of removing or destroying the Plant. The principle of permanency is required to be followed as ....
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....missioning of VRF Indoor & Outdoor Units suitable for R-410 Gas, refrigerant piping with insulations drain piping with installation, MS stands, Cabling, Additional Refrigerant and associated electrical works etc. Thus we find that they will be supplying various VRF Indoor and Outdoor units, stands, cables, etc, which will be installed by them. After installation of the said equipments, testing will be conducted to see whether the Air conditioning work has been done properly and after successful testing the commissioning would start. On perusing the submissions of both, the applicant & the jurisdictional office, we find that the basic issue before us is whether in the subject case there is supply of Works Contract or Composite Supply. We shall therefore discuss all the provisions relating to Works Contract & Composite Supply. GST Sch.-II clearly mentions that the following are supply of services:- a. construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, b. works contract including transfer of property in goods (whether as goods or in some other form) involved in the....
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.... 5. Then as per markings made in the shop drawings, respective supports are installed for indoor unit, copper pipes, cable trays and drain piping. These supports are permanently fastened to the slab by means of female anchor fasteners, full threaded rod and angles. The back plate of hi-wall unit is fixed to the wall. Similarly, cassette units are fixed from slab with the help of anchor fastener and full threaded rod. Then outdoor units are installed on MS Platform / stand which permanently fastened to Concrete foundation. Then multiple indoor units are connected to back of outdoor units. The interconnection pipe size and Y -Branch sizes are software generated. These software outputs are project specific to the project. The route of the piping to be strictly followed while execution. Then cable trays are fastened to the slab or wall by fastening Female Anchor Fasteners to slab and then joined by using full threaded rods and supported by MS angle. Then there is drilling, fixing of saddle screw for the laying of communication and power cable and attaching of drain pipe is done. 6. After completion of Installation of the machines/Units and before closing of ceiling, pre....
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....ions and agreement that the contract is considering a clear demarcation of goods & services to be provided by the applicant, Now we have to decide whether the supplies are naturally bundled & in conjunction with each other as required by the definition of composite supply. Hence we refer to the definition of 'Composite Supply' as mentioned in sub-section (30) of Section 2 of CGST Act, 2017 which is as under:- 'Composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.' From the discussions made above we find that in the contract submitted by the applicant the major part of the contract is supply of goods. i.e. VRF Indoor & Outdoor Units, refrigerant piping with insulation, drain piping with insulation, MS stands, Cabling, Additional Refrigerant and associated electrical works etc. These goods are delivered to the client by the applicant and such goods that are supplied are used by the applicant to provide service....