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2020 (6) TMI 451
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....erce, industry, or any other business or profession, thereby attracting GST rate of 12% provided in the Notification 24/2017-Central Tax (Rate) dated 21 September 2017? (C) Whether the HSN classification of supply made by NEC would fall under '8470' or '9954'? (D) Whether the maintenance and management services post implementation would qualify as composite supply as defined under section 2(30) of the CGST Act, 2017? Further, whether such supply would be eligible for exemption under Notification No.12/2017-Central Tax (Rate) dated 28 June 2017 in case value of supply of goods constitutes not more than 25% of the value of the said composite supply? 2. The applicant in the Statement of the Facts stated that they have been awarded a comprehensive Contract by the Surat Municipal Corporation ('SMC') (a Municipal body incorporated under the Bombay Provincial Corporation Act, 1949) and the Surat Smart City Development Limited (SSCDL) (a Company incorporated under the Companies Act, 2013) for design, development, implementation, maintenance and management of open loop solution based 'Automatic Fare Collection ('AFC') System' for Bus Rapid Transit System ('BRTS') and Ci....
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.... (ii) Integration of the AFC system with the card host, central clearing house system and smart cards provided by authority appointed bank: The local authority will appoint a bank for implementation of a common payment system for multiple municipal and retail services. The applicant would be required to provide the Application Platform Interface ('API'), Accessory Development Kit ('ADK') and interfacing protocols for the Bank to develop their own system for integration with the AFC System. Further, the applicant is also jointly responsible to integrate the AFC System with the Common Payment System to be developed by the Bank appointed by the local authority. Under this phase, the applicant would not be supplying any hardware. (iii) Commissioning, Management and Operation of Central Control Centre ('CCC'): The responsibility to provide the site/location and furniture and fixture to set up a CCC shall be of the local authority. For setting up of CCC, the applicant would be required to supply hardware, software and install such hardware and software of the AFC System at the given site for the purpose of carrying out central monitoring and supervision of oper....
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....ardware and Software) would result into an immovable property to determine whether such supply would qualify as "Works Contract" under Section 2(119) of the CGST Act, 2017. To qualify as an immovable property, the AFC System supplied by the applicant would need to be permanently fastened to anything attached to the earth. These gates can be easily removed without damaging such gates and re-attached to some other locations. Hence, it cannot be said that such gates are permanently embedded to the bus stations and hence, should be considered as an immovable property. Further, the flap gates are just a part of the AFC system and is not the main equipment of the AFC system. Even if, it is argued that the flap gates are permanently fastened to the earth and form part of the immovable property, it cannot be construed that the whole AFC system would form part of the immovable property. 4.3 Further, in case of city buses, hand held ETM machines with electronic payment integration are provided for AFC system. In certain cases, Pole Validators with AFC system are installed on the buses. Considering that the buses are movable properties, such equipment would not be construed as immovable pr....
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....h are listed below: - • The perception of the consumer or the service receiver. If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package, then such a package could be treated as naturally bundled in the ordinary course of business. • Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines. • The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. For example, service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as se....
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.... need to be permanently fastened to anything to the earth. 6.1 To ascertain whether a particular thing/object is permanently fastened to earth. English and Indian courts have consistently used two fold tests i.e. (i) the extent of annexation; and (ii) the object/intent of annexation. 6.2 The applicant has examined the said two tests in the present case as below: (i) The extent of annexation means by annexing a particular thing to an immovable property, such particular thing ceases to be detachable. To remove such thing, one would need to demolish it. While considering whether the thing/object is permanently annexed, the question is not the loss in value of the underlying thing/object, the question is whether economically, the asset is same as it was before removal i.e. does it retain its commercial character, or the same gets lost in the process of removal. (ii) As per the test of intent/object of annexation, it needs to be determined whether the annexation is for permanent beneficial enjoyment of the immovable property or of the movable property being attached to such immovable property. If the intent of annexation is the beneficial enjoym....
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....erein an element of transportation of passenger by air is combined with an element of provision of catering service on board. (ii) Another example could be of "Rajdhani Express" in which the fare include provision of food served during the journey and the fare is not reduced even if the passenger do not opt for food. This is a naturally bundled supply. (iii) Further, as discussed above in view 2, Flyer issued by CBIC under the GST law for composite and mixed supply have discussed the conditions and factors relevant to determine whether a supply is naturally bundled supply. Such conditions and factors have been discussed above and the same have not been reiterated here for the sake of brevity. Basis these factors, it can be concluded that where the recipient's perception is to receive all the supplies together and as per business practices all the supplies being offered by the supplier are as a bundled supply, the supplies would be considered as naturally bundled supplies. (iv) In the current case, it can be argued that the recipient has an option to avail the supply of goods from one contractor and supply of service from another contract. Hence, the recip....
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....tral Government, State Government, Union Territory, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of - (a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; (b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or (c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017. 6 - (vii) Construction services other than (i), (ii), (iii), (iv), (v) and (vi) above. 9 - 9.1 Further, Original works has been defined in the GST regime, vide Notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017, as under: "(zs) "original works" means- all new constructions; (i) all types of additions and alterations to abandoned or damaged structures on land that are required to make them....
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..... VIEW-2: 10. As discussed above, supply of erection, commissioning and installation services to a local authority for any 'Original Works' meant for use other than business, profession or commerce would be subject to a concessional GST rate of 6%. 10.1 The concept of "original Works" has been discussed above. Since, in the current case, the transaction is of installation of various equipment and structures, the same may qualify as "Original Work". 10.2 Further, the transportation of general public will be one of the duties entrusted to a municipality under the Article 243W of the Constitution. This task has been listed under Sr. No. 17 of the Twelth Schedule as "Public Amenities including Street Lighting, Parking Lots, Bus Stops and Public Conveniences." 10.3 Thus, this being obligatory duties on the part of a municipality, this will be termed as any activity for use other than for commerce, industry, or any other business or profession. 10.4 Basis the above discussion, it can be argued that supply of the AFC system would qualify as "Original works". Thus, the rate of 6% as provided in entry number (vi) of the Notification No. 11/2017-Central Tax (Rate) as amende....
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....tivity would also involve replacement of defective parts with spare parts to ensure smooth functioning of the AFC system. There is no separate consideration for parts to be supplied and consolidated fee for management or maintenance services is charged. Considering that multiple supplies are being provided for a consolidated fee, the concept of composite supply would need to be discussed. 14.2 "Composite supply" is defined as 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. Thus, for a supply to qualify as a composite supply, the following conditions need to be satisfied: * There should be more than two supplies of goods or services or both: In the current case, since management and maintenance would involve both goods and services i.e. more than two supplies, this condition appears to be satisfied. * They should be naturally bundled and supplied in conjunction with each other in the ordinary course of business: ....
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....SONAL HEARING: 15. Shri Amit Agrawal appeared for personal hearing on 12th March, 2020 and reiterated the facts as stated in the Application and mentioned herein above. OBSERVATION AND FINDINGS: 16. We have gone through the facts of the case, documents on records and submissions made by the applicant. 17. The applicant is engaged in providing of solutions and services in multiple areas in public safety, private network, retail, IT, logistics, engineering services etc.. They are registered under GST, vide GSTN Number-24AACCN3496J1Z8. 18. As per the applicant, they have been awarded a comprehensive contract by the Surat Municipal Corporation ('SMC') (a Municipal body incorporated under the Bombay Provincial Corporation Act, 1949) and M/s Surat Smart City Development Limited (SSCDL) (a company incorporated under the companies act, 2013) for design, development, implementation, maintenance and management of open loop solution based Automatic Fare Collection ('AFC') System for Bus Rapid Transit System ('BRTS') and City Bus Operation in Surat City ('the City'). 18.1 The objective of the AFC system is to provide seamless travel with single smart card/ ticket on city's BR....
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....k for implementation of a common payment system for multiple municipal and retail services. The applicant would be required to provide the Application Platform Interface ('API'), Accessory Development Kit ('ADK') and interfacing protocols for the Bank to develop their own system for integration with the AFC System. Further, the applicant is also jointly responsible to integrate the AFC System with the Common Payment System to be developed by the Bank appointed by the local authority. Under this phase, the applicant would not be supplying any hardware. (c) Commissioning, Management and Operation of Central Control Centre ('CCC'): The responsibility to provide the site/location and furniture and fixture to set up a CCC shall be of the local authority. For setting up of CCC, the applicant would be required to supply hardware, software and install such hardware and software of the AFC System at the given site for the purpose of carrying out central monitoring and supervision of operation and functionality of the AFC System. CCC would also be used for handling ticketing and smart card related queries of the computers. Further, the applicant would also be responsible to....
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....en restricted to contract for building construction, fabrication etc. of any immovable property only. Any such composite supply undertaken on goods say for example a fabrication or paint job done in automotive body shop will not fall within the definition of term works contract per se under GST. Such contracts would continue to remain composite supplies, but will not be treated as a Works Contract for the purposes of GST. 23. As per Para 6 (a) of the Schedule II to the CGST Act, 2017, works contracts as defined in Section 2(119) of the CGST Act, 2017 shall be treated as a supply of services. Thus, there is a clear demarcation of a works contract as a supply of service under GST. Hence, Works contract will be treated as service and tax would be charged accordingly. 24. In present case, it would also be relevant to ascertain whether setting up of the AFC System (comprising of Hardware and Software) would result into an immovable property to determine whether such supply would qualify as "Works Contract" under Section 2(119) of the CGST Act, 2017. To qualify as an immovable property, the AFC System supplied by the applicant would need to be permanently fastened to anything attac....
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....finition of "composite supply". Hence, we refer to the definition of 'Composite Supply' as mentioned in subsection (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'. 29. Thus, for a supply to qualify as a 'composite supply', the following needs to be satisfied: (i) There should be more than two supplies of goods or services or both; (ii) They should be naturally bundled and supplied in conjunction with each other in the ordinary course of business; and (iii) There should be one principal supply. 30. The above conditions have been examined in the present case, as under: 30.1 There should be more than two supplies of goods or services or both: In the current case, there are more than two supplies of goods (hardware) and services (software) and commissioning and installation of hardware, software (services). Thus, there ....
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....vailable separately. • The different elements are integral to one overall supply - if one or more is removed, the nature of the supply would be affected. In this case, the applicant would be awarded a consolidated contract for supply of the AFC system which involves supply and installation of hardware and software and integration of the AFC system with the Citywide Common Payment system. The contract would be awarded by the local authority to the applicant for providing the AFC system and not for individual hardware and software. The ownership of the AFC system would only pass on to local authority only once the same is installed, tested and commissioned. Therefore, the supplies are perceived by local authority as a naturally bundled supply. Further, it can be seen from the existing contract that the requirement of local authority is to obtain complete AFC system and not individual hardware and software which form part of the AFC system. Even if one or more of the elements are removed, the functioning of the AFC system would get affected. Further, we find that that while providing, the AFC system is the principal supply, supply of hardware and software would be i....
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....tion .......... "(vi) Services provided to the Central Government, State Government, Union Territory, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of - (d) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; (e) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or (f) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017. 6 - (vii) Construction services other than (i), (ii), (iii), (iv), (v) and (vi) above. 9 - 34. Further, "Original works" has been defined in the GST regime, vide para 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017, as under: "(zs) "original works" means- all new constructions; (i) all types of additions and alterat....
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....ication No. 24/2017 - Central Tax (Rate) should not be applied in case of the AFC system. 37. Now, we come to the third question raised by the applicant which is, whether the HSN classification of supply made by the applicant would fall under '8470' or '9954'? 38. The description of the HSN code '9954' as provided in the Notification No. 11/2017 - Central Tax (Rate) dated 28th June, 2017 is "composite supply of works contract as defined in clause 119 of section 2 of the Central Goods and Services Tax Act, 2017". 38.1 As discussed above, the supply to be made under proposed Contract by the applicant does not qualify as a "Works contract". Since, the supply by the applicant does not qualify as works contract, such supply should not get classified under '9954'. 39. Further, the description of the HSN code '8470' as provided in the Notification No.01/2017-Central Tax (Rate) dated 28th June, 2017 is "calculating machines and pocket-size data recording, reproducing and displaying machines with calculating functions; accounting machines, postage-franking machines, ticket issuing machines and similar machines, incorporating a calculating device; cash registers". 39.1 Conside....
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....ent, implementation, maintenance and management of open loop solution based AFC System for BRTS and City Bus Operation in Surat City. As per the Contract, the applicant is required to maintain and manage all hardware and software forming part of the AFC system during the contract period (this would range from 7-10 years). This would typically include repair and maintenance of hardware and software and ensuring that the AFC system continues to function as per the agreed parameters. This would also include supply of spares etc. for undertaking repairs, in case required. Thus, the said contract would be awarded for supply of the AFC system along with maintenance and management of the all hardware and software forming part of the AFC system. The proposed contract is not for individual supply of service of maintenance and management of the AFC system. Therefore, the supplies are perceived by local authority as a naturally bundled supply. Further, it can be seen from the existing contract that the requirement of local authority is to obtain complete AFC system along with maintenance & management of all hardware and software forming part of the AFC system during the contract period ....
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....ds (multiple hardware) and services (software, installation, commissioning, integration of the same). Further, the maintenance and management would also include supply of spares etc. for undertaking repairs of the AFC system. The proposed contract, thus, comprises composite supply of goods and services. We further note from the contract that the value of the supply of all goods (hardware, spares etc.) under the proposed contract constitutes more than 25% of the value of the said composite supply. Further, the proposed contract is to be awarded by the Surat Municipal Corporation ('SMC') and M/s Surat Smart City Development Limited (SSCDL) to the applicant. We find that M/s SSCDL is a company incorporated under the Companies Act, 2013 and, hence, does not fall under the definition of the local authority or a Governmental authority or a Government Entity. As such, supply of the maintenance and management services to be provided post implementation of the AFC system does not eligible for said exemption. 43. In light of the foregoing, we rule as under - R U L I N G Question 1: Whether the supply made by the applicant under the Automatic Fare Collection (AFC) project would quali....