2019 (7) TMI 2008 - AAR - GST

Classification of goods - Applicable rate of GST - works contract or not - manufacture and supply of submersible pump sets and accessories with installation electrification and energisation under Ganga Kalyana scheme to Social Welfare departments of Government of Karnataka meant for various beneficiaries (farmers) as notified by the departments - providing guarantee and maintenance of installed submersible pump sets till 2 years which is used for irrigational purposes. Whether the activity is a composite supply of works contract by way of construction/ erection/ commissioning/ installation/ completion/ fitting out/ maintenance of other irrigation works? - HELD THAT - In the instant case the Applicant s supply involves goods i.e. submersible pump sets and the installation etc of the same as service. Therefore the Applicant supplies goods as well as services which are taxable supplies. The contractual agreement between the applicant and the said Corporation requires the applicant to supply the pumps and also install and energise the same. The applicant is therefore engaged in two taxable supplies that of goods and also the service of installation. The service of installation is possible only when the goods (submersible pump sets) are supplied and hence the pre-dominant supply is that of Submersible Pump Sets and hence the principal supply in this case is supply of goods i.e. Submersible Pump Sets. Therefore the instant supply squarely falls under the definition of Composite Supply . Whether the supply of the applicant falls under the Works Contract or not? - HELD THAT - The applicant has obligation to supply install electrify energise the submersible pump sets and thereby makes the pump sets functional. The obligation on the applicant is in relation to the effective installation and functioning of the goods supplied by them. The contract governing their supplies does not relate to building construction fabrication etc of any immovable property as envisaged in the definition of works contract. Their supplies (the submersible pumps) are in the nature of movable property. Hence the said activity is not related to the immovable property at any point of the time and hence the said activity does not qualify to be a Works Contract - In the instant case though the supply is a composite one it is not a works contract as the said supply is not related to the immovable property. This shows that the first requirement of the Notification is not satisfied. The supplies undertaken by the applicant do not qualify to be considered as works contract. As a result the provisions of the Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017 as amended are not applicable. Since the first condition/requirement is not fulfilled compliance with the second condition/requirement becomes infructuous. The supplies made by the applicant qualify to be treated as a composite supply. The tax liability on a composite supply is governed by Section 8 of the CGST Act 2017. Accordingly the composite supply comprising two or more supplies one of which is a principal supply shall be treated as a supply of such principal supply and the applicable GST rate on the composite supply would be the rate of GST applicable to the principal supply. The Applicant s supply does not qualify as Works Contract . It is a composite supply wherein the principal supply is that of the supply of goods i.e submersible pumps. The applicable GST rate to the applicant s supply would be the rate applicable on the Principal supply i.e. submersible pump sets.

Summary

Issues Involved:
1. Determination of the applicable GST rate for the manufacture and supply of submersible pump sets and accessories with installation, electrification, and energisation under the Ganga Kalyana scheme.
2. Classification of the supply as a "Works Contract" under Section 2(119) of the CGST Act, 2017.
3. Determination of whether the supply qualifies as a "Composite Supply" under Section 2(30) of the CGST Act, 2017.
4. Identification of the principal supply within the composite supply.
5. Application of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended, to the supply.

Issue-wise Detailed Analysis:

1. Determination of the applicable GST rate:
The applicant sought an advance ruling on the applicable GST rate for the manufacture and supply of submersible pump sets and accessories, along with their installation, electrification, and energisation under the Ganga Kalyana scheme. The applicant contended that their supply falls under the "Works Contract" category and attracts a GST rate of 12% (6% CGST + 6% KGST).

2. Classification as a "Works Contract":
The applicant argued that their supply is a "Works Contract" as defined under Section 2(119) of the CGST Act, 2017, which includes contracts for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of any immovable property involving the transfer of property in goods. However, the authority found that the applicant's supply does not involve immovable property but rather the supply and installation of movable submersible pumps. Therefore, the supply does not qualify as a "Works Contract."

3. Qualification as a "Composite Supply":
The authority examined whether the supply qualifies as a "Composite Supply" under Section 2(30) of the CGST Act, 2017. A "Composite Supply" involves two or more taxable supplies of goods or services that are naturally bundled and supplied in conjunction with each other in the ordinary course of business, with one being the principal supply. The authority determined that the applicant's supply involves both goods (submersible pump sets) and services (installation, electrification, and energisation), which are naturally bundled and supplied together. Thus, it qualifies as a "Composite Supply."

4. Identification of the Principal Supply:
The authority identified the principal supply within the composite supply as the supply of goods, specifically the submersible pump sets. The installation, electrification, and energisation services are ancillary to the principal supply of the pump sets.

5. Application of Notification No. 11/2017-Central Tax (Rate):
The authority considered Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended, which stipulates a GST rate of 6% for composite supply of works contract supplied to government entities for specific purposes, including irrigation works. However, since the applicant's supply does not qualify as a "Works Contract," the provisions of this notification are not applicable. Consequently, the GST rate applicable to the composite supply is the rate applicable to the principal supply, which is the supply of submersible pump sets.

Ruling:
The authority ruled that the applicant's supply does not qualify as a "Works Contract." Instead, it is a composite supply with the principal supply being the supply of goods, i.e., submersible pump sets. Therefore, the applicable GST rate is the rate applicable to the principal supply, which is the submersible pump sets.