TaxTMI 
TaxTMI 
2024 (10) TMI 1097
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..../24, Yojna Central Spine, Gyan Vihar, University-Road, Mahal Road; Jagatpura. Jaipur-302017, Rajasthan (hereinafter "the applicant") is fit to pronounce advance ruling as they have deposited prescribed Fee under CGST Act and it falls under the ambit of the Section 97 (2) (a) given as under: (b) applicability of a notification issued under the provisions of the Act (e) determination of the liability to pay tax on any goods or services or both A. SUBMISSION OF THE APPLICANT (in brief):- M/s. Technocraft Construction Private Limited is engaged in Replacement of old and damaged existing sewerage system along with laying of new sewerage system and all ancillary works along with Design, construction, supply, installation, testing and commissioning (Civil, Mechanical, electrical, instrumentation & other necessary works) of Sewage Pumping Station/MWP (if any), Sewage Treatment Plant based on SBR Process with provision for treated waste water reuse including 1 year defect liability and 5 years O&M for towns under package AMRUT-2.0/RAJ/SEWERAGE-13 for Bikaner, Rajasthan. 1.2 That in month of May 2023, Rajasthan Urban Drinking Water Sewerage and Infrastructure Corporation Limited on be....
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....sion the main sewers and laterals within the area under this contract. It is also planned to lay house connection sewer line up to the house boundary connected to the manholes so that they are also covered up so that the man hole/road are not damaged later for making the connections. The project also includes house sewer connections by connecting all the Toilets/WCs, bathrooms and kitchen to sewerage network. The 08M period of all the works under this package shall be 10 years in which the initial first year shall be the defect liability period. 1.8 In view of the above, it appears that the said activity is a composite supply of works contract classifiable under HSN code 9954 and taxable at the rate of Nil under Entry No. 3B of Notification No. 13/2023-Central Tax (Rate) dated 19.10.2023, B. INTERPRETATION AND UNDERSTANDING OF APPLICANT ON QUESTION RAISED (in brief) 2.1 Section 9 of the CGST Act, 2017 empower levy of Central GST on intra state supplies of goods and services, the definition isas under: "9. (1) Subject to the provisions of sub-section (2), there shall be levied a fox caned the central goods and services tax on all intra-State supplies of goods or services or bot....
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.... the predominant element of o composite supply and to which any other supply forming part of that composite supply is ancillary; 2.8 Further, clause 6 of the Schedule II is read as under: The following composite supplies shall be treated as supply of services, namely: - (a) works contract as defined in clause (119) of section 2; and (b).................. 2.9 The term works contract has been defined under Section 2 (119) ibid as (119) "works contract" means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract; The term movable and immovable property has not been defined under the Act. Interpretation of provisions and applicable concepts 2.10 As per definition cited in Para 2-6 above, the essential conditions for a supply to qualify as composite supply can be highlighted as under: (a) Two or more taxable supplies of goods or services or both (b) The taxable supplies should be naturally....
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....t package would be treated as services naturally bundled in the ordinary course of business. Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are- *There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use. *The elements are normally advertised as a package *The different elements are not available separately. *The different elements are integral to one overall supply - if one or more is removed, the nature of the supply would be affected. No straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above. 2.13 Where a supply satisfies all of the above conditions, it qualifies to be a composite supply and tax liability on composite supply 'has to be determined accordingly and the constituent supplies should not be viewed separately as distinct supplies. It is important to understand that a supply which comprises a single supply from an economic point of view sh....
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....point of view, such supply should not be artificially split and should be viewed as a composite supply only. 2.15 However, since composite supply of works contract has been explicitly classified as supply of service under Schedule II, tax liability on works contract service has been expressly prescribed. Therefore, the concept of works contract should to be discussed and settled first. 2.16 Works contract in itself is a composite supply in which construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning etc. are involved along with transfer or property in goods. 2.17 However under GST, there is a monumental shift in concept of Works Contract which was prevalent under erstwhile VAT and Service Tax regime. In GST, as per definition of works contract service if construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning is for immovable property only, then it will classify as works contract. Hence it means that aforesaid activities if they are undertaken for a movable property....
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....s a fact that it can be sold. In view of that finding, we are unable to uphold the contention of the appellant that the machine must be treated as a part of the immovable property of the company. Just because a plant and machinery are fixed in the earth for better functioning, it does not automatically become an immovable property. 2.24 Relying on the aforesaid judgment, the Hon'ble Supreme Court, in the year 2010, in the matter of Commissioner of Central Excise v. Solid and Correct Engg. Works & Ors. (2010 (275) ECR 8 (SC)) 2010-TlOL-25-SC-CX, held that Asphalt Drum/Hot Plants were not immovable property as the fixing of the plants to a foundation was meant only to give stability to the plant and keep its operation vibration free, Further, it was held that 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. Hence, the said plants were held to be movable. Relevant extract of the judgement is reproduced as under for ease of reference: 'Applying the above tests to the case at hand, we have no difficulty in holding that t....
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....o the latter part is in the positive then it would be treated a permanently attached to the earth. 2.27 A composite supply of erection, installation, commissioning etc. of a movable property cannot amount to works contract under GST. 2.28 Where a composite supply is not classifiable as works contract, such composite supply shall be treated as a supply of its principal supply according to Section 8 produced in Para 5 above. 2.29 According to definition of principal supply reproduced in Para 7 above, it should have following features: It should be supply of goods or services which constitutes the predominant element of a composite supply. Any other supply forming part of that composite supply is ancillary supply. 2.30 Thus which part of a composite supply is the principal supply must be determined keeping in view the nature of the supply involved. Value may be one of the guiding factors in this determination, but not the sole factor. The primary question that should be asked is What the essential nature of the composite supply is and which element of the supply imparts that essential nature to the composite supply. Some decisions passed by European Court of Justice to explai....
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....nt determines classification - If predominant element is service, then, whole transaction amounts to 'service' even if element of goods is also involved - Predominance is to be determined considering extent, duration, usefulness and cost of various elements, economic essence and intention of parties [In favour of revenue] 2.31 Thus the principal supply in a composite supply should be determined on the basis of above principle of predominance and for the purpose of taxability, the composite supply should be treated as a supply of such principal supply. TRANSACTION- Sewage System O&M 2.32 The terms and scope of the contract combines installation of the sewerage system Model and O&M work. That the activities under sewerage system installation and O&M contract are so closely linked in a manner that they form a single indivisible supply. The driving factors are: A single tender has been floated for installation of sewerage system and O&M Contract where the preamble of scope specifies that the contract combines providing, laying, testing, commissioning of sewerage system and work. The nature of contract is such that installation of sewerage system is the main service and the other....
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....rete (M15) encasing shall be done for the reaches of governing sewer line laid at less than 0.9 mts depth. The encasing shall also be done where sewer line passing through submerged areas and in hilly terrain having hard rock with steep slope and lesser depth. Manhole chambers Shall be constructed/assembled simultaneously with the laying of sewers as per drawing and detailed specification. Any data or information received by the Contractor; from the department or otherwise, shall not relieve the Contractor from his responsibility for the design and execution. Suitable shoring and shuttering designs will be got approved from the for all excavations and the shoring and shuttering will be provided. Arrangements for dewatering (well points or small pumps) of the soil as required will have to be maintained during the work. The lines laid will be hydraulically tested from manhole to manhole as soon as laid. The contractor shall have to conduct hydro-testing of the sewer line laid and the manholes constructed immediately after laying / construction. The contractor will be responsible for procuring the sewer pipes, man hole frames and covers and other materials as required as p....
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....iquor human consumption), where such supply or service is for cash, deferred payment or other valuable consideration. 2.42 According to definition of works contract, the supply of goods and services are done by the supplier simultaneously which is for immovable property. Hence in works contract supply of goods and services together is compulsory. 2.43 Once the given supply is a works contract, it is clear that by virtue of entry 6 (a) of the Schedule-II it is a supply of service only. The next matter of consideration is classification and exemption. In Notification No. 13/2017-CT (Rate), relevant entries for supply of service for the given case are- (1) (2) (3) (4) (5) "3B Chapter 99 Services provided to a Governmental Authority by way of- (a) water supply; (b) public health; (c) sanitation conservancy: (d) solid waste management: and (e) slum improvement and upgradation Nil Nil"; 2.44 That from above, it has already been deduced that services supplied by the applicant is a service i.e. works contract service. The same is for sewerage system installation and commissioning. Hence it is clearly a service by way of sanitation conservancy. Thus it gets classified....
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....licant are covered in the list of activities which are entrusted to municipality under Article 243W. 2.47 In the given case, the work has been awarded by the Municipal Council which has been formed under Rajasthan Municipalities Act 2009. Thus it has been constituted under the Act which has been framed by the State Government. The Section 5 of the said Act is read as under 5. Establishment and incorporation of Municipality,- (1) In every transitional area, there shall be established a Municipal Board and every such Municipal Board shall be a body corporate by the name of the Municipal Board of the place by reference to which the Municipality is known and shall have perpetual succession and a common seal and may sue or be sued in its corporate name. (2) In every smaller urban area, there shall be established a Municipal Council and every such Municipal Council shall be a body corporate by the name of the Municipal Council of the city by reference to which the Municipality is known and shall have perpetual succession and a common seal and may sue and be sued in its corporate name. (3) In every larger urban area, there shall be established a Municipal Corporation and every such....
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....n vide letter क्रमांक:-प()सहा.आ./एच-II/2024-25/807 dated-09.04.2024 are as under:- Question on which advance ruling is sought: Whether the activity of providing, laying, jointing, testing, and commissioning of sewer system and all ancillary works is exempt under entry 3B of the NN 13/2017-CT (Rate) dated 28-06-2017 Comments: 1. For the sake of clarity, the entry at S. No. 3 with respect to Notification no. 12/2017-CentraI Tax (Rate) dated 28th June 2017, entry at S. No. 3A inserted vide notification no. 2/2018-Central Tax Rate dated 25-1-2018 and entry at S. No. 3B were inserted vide notification no 13/2023-Central Tax (Rate) dated 19-10-2023 are reiterated here below: Sl.No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (percent) Condition (1) (2) (3) (4) (5) 3 Chapter 99 Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, Government or Union territory or local authority aa[***] by way of any activity in relation to any function entrusted to a Pancha....
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.... applicant, the work includes supply of goods and services (both), It includes supply of goods like sewerage system and sewage pumping stations etc. and therefore; prima facie, these do not fall under the category of services, 5. Even for the sake of arguments. if it is considered that the work awarded to the applicant falls under the category at S.No. 3B, then said interpretation will not be consistent with the category at SI.No. 3A, wherein it has clearly been specified that the composite supply of goods and services, the value of supply of goods should not constitute more than 25 per cent of the value Of the said composite supply. The entry at S. No 3 and 3A ate also required to be kept in mind while interpreting the entry at S. No. 3B and from these entries, it is amply clear that composite supply of goods and services, the provisions of entry at S. No. 3A are more relevant instead of 3B. 6. The applicant has himself admitted in the last para of the Statement of Relevant facts having a bearing on the Questions raised" that the activity of applicant is a composite supply of works contract," Therefore, the applicability of provision of services in entry at S. No. 3B appears n....
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....and all ancillary works along with Design, construction, supply, installation, testing and commissioning (Civil, Electrical, Mechanical and instrumentation and Other necessary works) of Sewage Pumping Station/MWP(if any), Sewage Treatment Plant based on SBR Process with provision for waste water reuse including MPS and 10 MLD capacity STP based on SBR process with provision of 1 year defect liability 5 years for towns under package AMRUT-2.0/RAJ/SEWERAGE-13. 3) The applicant has made a contract agreement with Nagar Nigam BIKANER, (The Procuring entity) for Providing, laying, jointing, testing and commissioning of sewer system and ail ancillary works along with Design, construction, supply, installation, testing and commissioning (Civil, Electrical, Mechanical and Instrumentation and other necessary works) of Sewage Pumping Station/MWP(if any), Sewage Treatment Plant based on SBR Process with provision for waste water reuse including MPS and 10 MLD capacity STP based on SBR process with provision of 1 year defect liability 5 years O&M for towns under package AMRUT-2.0/RAJ/SEWERAGE-13. 4) We take up the contentions placed before us. We see that the applicability of GST on the afore....
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....ing of sewer system and all ancillary works along with Design, construction, supply, installation, testing and commissioning (Civil, Electrical, Mechanical and Instrumentation and other necessary works) of Sewage Pumping Station/MWP(if any), Sewage Treatment Plant based on SBR Process with provision for waste water reuse including MPS and 10 MLD capacity STP based on SBR process with provision of 1 year defect liability 5 years O&M for towns under package AMRUT-2.0/RAJ/SEWERAGE-13. The work proposed has been surveyed, based on which a bill of quantities has been prepared as provided in the G-Schedule/H-Schedule/Price Schedule. The contractor is fully responsible for carrying out the work including commissioning of the system with respect to technical feasibility and quality standard and scope of work Will cover the following but not limited to. (2.4) (iii) The contractor will be responsible for procuring the sewer pipes, man hole frames and covers and other materials as required as per specifications, to maintain their safe custody and for proper 2.19) (iv) The O&M period of all the works under this package shall be 10 years in which the initial first year shall be the defect l....
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....arance of appropriate drawings, details etc. and obtain all necessary statutory clearances as deemed necessary, (3.9) c) The general conditions of the contract regarding levy of taxes are summarized in sub Clause 15.20 Which is reproduced as under.- i) VAT/ Sales Tax, service tax or any other taxes and duties on Materials, works or services in respect of this Contract shall be payable by the Contractor according to Law in effect. ii) The Contractor shall deposit royalty and obtain necessary permit for supply of the red earth, moorum, sand, chips, bajri, stone, kankar, etc. from local authorities. The liability, if any, on account of quarry fees, royalties, octroi and other taxes and duties in respect of materials actually consumed on the Works, shall be borne by the Contractor. iii) If pursuant to or under any Law, notification or order any royalty, cess or the hike becomes payable to the Government of India and does not at any time become payable by the Contractor to the State Government/ Local authorities in respect of any Material used by the Contractor in the Works then in such a case, it shall be Lawful to the Government of India and it will have the right and be enti....
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....usted to a Municipality under article 243W of the Constitution. Nil Nil [3A Chapter 99 Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent-of the value of the said composite supply provided to the Central Government, State Government or Union territory or local authority [or a Governmental authority [or a Government Entity] by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution. Nil Nil 3B Chapter 99 Services provided to a Governmental Authority by way of - (a) water supply; (b) public health; (c) sanitation conservancy; (d) solid waste management; and (e) slum improvement and upgradation. Nil Nil] a) The entries at Sr. No. 3 and 3A Of exemption Notification No. 12/2017-CT(R) dated 28.06.2017, exempt supply of pure services and composite supplies (goods component 25% or less) supplied to Central Government, State Government or Local Authority, by way of any activity in relation to Municipal or Panchayat functions under Article ....
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.... Gazette of the following translation in the English language of the Rajasthan Nagarpalika Adhiniyam, 2009 (2009 Ka Adhiniyam Sankhyank 18):- Rajasthan Municipalities Act, 2009 (Act No. 18 of 2009), Published in Rajasthan Gazette Extraordinary Part 4(ka) dated 11.9.2009. Notification No. P 2(21) Legal/2/2009. Last Updated 5th October, 2019 [rj018] Be it enacted by the Rajasthan State Legislature in the Sixtieth Year of the Republic of India, as follows: CHAPTER I 1. Short title, extent and commencement. - (1) This Act may be called the "Rajasthan Municipalities Act, 2009". (2) It extends to the whole of the State of Rajasthan, excluding cantonment areas therein. (3) It shall come into force on such [date] as the Sate Government may, by notification in the Official Gazette, appoint. 2. Definitions. - In this Act, unless the context otherwise requires,- (i)........ (ii) (iii) (iv) (v) (xiii) "Municipality" means a Municipal Corporation, Municipal Council, and a Municipal Board in existence at the time of commencement, or constituted in accordance with the provisions of this Act; 9) In view of above definitions and legal provisions, BIKANER NAGAR....
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....g entries of Sr No. 3 and 3A. The Sr No. 3 and 3A of the Notification No. 12/2017-CTR dtd 28.06.2017 are applicable only in the case of pure services or composite supply having value of supply of goods not more than 25 percent. Since, Sr No 3B is also extension of Sr No 3 and 3A and all these entries are inter-related and it won't be appropriate to read all these entries in isolation or individually. Therefore, Sr No. 3B will also be applicable in case of pure services or composite supply, where value of the goods is not more than 25 percent. 12) As discussed above, the applicant provides services to Nagat Nigam, Bikaner, which is a 'local authority' and all the three entries Sr No 3, 3A and 3B of the Notification 12/2017-CTR dtd 28.06.2017 are consistent and should not be read individually, the rate of tax on services provided by the applicant should be decided in terms of Sr No. 3 and 3A, since the said entries cover services provided to 'local authority', there need to go to Sr No. 3B. 13) It is pertinent to mention here that the applicant has discharging it's tax liability by paying 18% GST (SGST CGST 9%) considering the supply of construction civil work ....