2019 (10) TMI 481 - AAR - GST

Supply of Works Contract or not - Composite Contract - contract entered into with DMRC for supply erection installation commissioning and testing of UPS system - rate of tax - Sr. no. 3(v) of N/N. 11/2017-C. T. (Rate) as amended w.e.f. 25.1.2018? - HELD THAT - From a perusal of the Agreement submitted by the applicant it is found that even though the contract is for Supply installation testing and commissioning etc. of Uninterrupted Power Supply System for Signalling Telecommunication and Automatic Fare Collection System for the Mass Rapid Transport System of DMRC there is a provision for separate consideration for supply of goods and services. Even though the applicant has bifurcated the work into supply of goods from their Maharashtra GST registered premises and supply of services from their New Delhi GST registered office and accordingly raising separate invoices on DMRC for supply of goods and supply of services we find that the contract has been entered into by the applicant s Maharashtra office and not by their New Delhi GST registered office - Thus we are taking up the contract as one contract for which agreement has been entered into by DMRC and the applicant situated in Maharashtra. Works Contract or Composite Supply? - HELD THAT - The applicant first despatches the goods to DMRC under an Invoice and E-Way Bill. Thus the title in property of the said goods are transferred as soon as the delivery is completed. It is only thereafter that installation etc takes place. We agree with the applicant s contention that the contract for supply of UPS system to DMRC does not qualify as a works contract under Section 2(119) of the CGST Act since the installed UPS system cannot be said to result in the emergence of an immovable property - Hence Works contract will be treated as service and tax would be charged accordingly. In the subject case UPS is not as immovable property as it can be dismantled and moved to a different location without any damage - it is found from the submissions 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. In the contract submitted by the applicant the major part of the contract is supply of goods. i.e. UPS Units etc. These goods are delivered to the client by the applicant and such goods that are supplied are used by the applicant to provide services of installation testing and commissioning of the substations. Without these goods the services cannot be supplied by the applicant and therefore the goods and services are supplied as a combination and in conjunction and in the course of their business where the principal supply is supply of goods. Thus there is a composite supply in the subject case. The principal supply in this case is a supply of goods and therefore the GST will have to be paid on the goods at the appropriate rate after classification under the appropriate heading - The principal goods in the subject case is UPS units which are most important for the applicant to render supply as per the contract. Thus the contract entered into with DMRC for supply erection installation commissioning and testing of UPS system do not qualify as a supply of works contract under Section 2(119) of the CGST Act.

Summary

Issues Involved:
1. Whether the contract with DMRC for supply, erection, installation, commissioning, and testing of UPS system qualifies as a supply of works contract under Section 2(119) of the CGST Act.
2. If it qualifies as a works contract, whether such supply to DMRC would be taxable at the rate of 12% as per Sr. no. 3(v) of Notification No. 11/2017-C.T. (Rate), as amended.

Issue-Wise Detailed Analysis:

1. Qualification as a Works Contract:
The applicant, Vertiv Energy Private Limited, entered into a contract with Delhi Metro Railway Corporation (DMRC) for the supply, erection, installation, commissioning, and testing of UPS systems. The applicant contended that the contract should be treated as two separate supplies: supply of goods (UPS systems) and supply of services (installation, commissioning, etc.). The applicant argued that the UPS systems are movable properties and can be dismantled and reinstalled elsewhere, thus not qualifying as immovable property. They supported this argument with the Supreme Court decision in CCE, Ahmedabad vs. Solid & Correct Engineering Works, which held that machinery fixed with nuts and bolts for stability does not become immovable property. The applicant also pointed out that the contract provides separate consideration for goods and services, and the title of goods transfers to DMRC upon delivery.

Authority's Observations:
The Authority noted that the contract involved the supply of UPS systems and related services, with separate considerations for goods and services. The title of the goods transferred to DMRC upon delivery, and the installation services were provided subsequently. The Authority agreed with the applicant that the UPS systems do not result in the emergence of immovable property and thus do not qualify as a works contract under Section 2(119) of the CGST Act.

Conclusion:
The Authority concluded that the contract does not qualify as a works contract since the UPS systems are movable and can be dismantled and relocated without significant damage. Therefore, the contract should not be treated as a supply of works contract under Section 2(119) of the CGST Act.

2. Taxability at 12%:
Since the contract does not qualify as a works contract, the second issue regarding the taxability at the rate of 12% as per Sr. no. 3(v) of Notification No. 11/2017-C.T. (Rate) does not arise.

Composite Supply Analysis:
The Authority further analyzed whether the contract constitutes a composite supply. They determined that the supply of UPS systems (goods) and the related services (installation, commissioning) are naturally bundled and supplied in conjunction with each other in the ordinary course of business. The principal supply in this contract is the supply of goods (UPS systems), which falls under Heading 8504 and attracts GST at 18%.

Final Order:
1. The contract with DMRC for the supply, erection, installation, commissioning, and testing of UPS systems does not qualify as a supply of works contract under Section 2(119) of the CGST Act.
2. Since the first question is answered in the negative, the second question regarding the tax rate of 12% is not applicable.

Order Date:
Mumbai, 04.10.2019