2021 (12) TMI 886 - AAR - GST

Classification of supply - composite supply or not - Naturally bundled goods or not - combined service of setting up of Wet Limestone FGD plant and operation maintenance - applicability of entry no.3(iv)(e) of the Notification No.11/ 2017-Central Tax (Rate) dated 28.06.2017 - applicable GST rate and SAC/ HSN - HELD THAT - Composite Supply is defined under section 2(30) of the CGST Act 2017 to mean 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. - The concept of naturally bundled supplies is not defined under CGST Act 2017. However Education Guide issued by CBEC (now CBIC) in the year 2012 refers Bundled service to mean a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. Though this reference is given with respect to bundled service it can be extended to bundled supplies in the GST regime. The applicant is involved in supply two services i.e. Setting up of FGD plat and O M of the said plant one at a time - the service of Setting up of FGD plant which is in the nature of turnkey project / EPC contract and examine whether setting up of the said plant qualifies to be a composite supply of works contract or not. In the instant case the setting up of FGD plant includes civil works (tanks silo works Mill Building MCC building etc.) Equipment foundation works duct works installation works (mechanical / electrical) etc. Thus the applicant has undertaken erection installation commissioning of FGD plant which is permanently fastened to earth and hence the said plant becomes immovable property. Construction supply of relevant goods assembly commissioning of such immovable structure qualifies as a works contract service - the tender Notification the Job order reveal that the FGD plant is primarily meant for the control of emission of Sulphur Dioxide Nitrogen Oxide and other items as per the notification dated issued under the Environment Protection Act 1986. Thus the said plant is meant for control of emission of hazardous gases. The service of setting up of FGD plant gets covered under the aforesaid entry 3(iv)(e) subject to the condition that the plant has to be a pollution control or effluent treatment plant and should not be located as a part of a factory. In the instant case the FGD plant is integrated to the thermal power plant and hence we proceed to examine whether the thermal power plant amounts to a factory or not - the FGD plant is meant for the purpose of reducing emission of Sulphur Dioxide gas present in the flue gas coming out at the time of generation of thermal power which is hazardous to the environment. Thus the said plant is a type of pollution control device which is useful for the control of air pollution by reducing emission of Sulphur Dioxide gas generated in the thermal power station. Both the conditions i.e. the FGD plant is a pollution control plant and is not located as part of a factory are fulfilled and hence the applicant s service i.e. setting up of FGD plant which is a composite supply of works contract service is squarely covered under tariff heading 995429 is entitled for the benefit of the entry No.3(iv)(e) of the Notification No.11/2017-Central Tax (Rate) dated 28.06.2017 thereby attracting GST at the rate of 12%. Classification of the O M services of the FGD plant - Applicable rate of GST - HELD THAT - The applicant during the O M contract period of 3 years is responsible for achieving emission norms as notified by the Ministry of Forest and Climate Change with the optimum utilization of energy and consumption of limestone. Further the applicant is also responsible for appointing experienced service engineer supervisor etc. for proper operation and maintenance of the FGD plant during the O M period. The supply of O M of the FGD plant is the service covered under Business Support Service falling under SAC 998599 as Other Support Services not elsewhere classified . Entry No.23 of the Notification 11/2017-Central Tax (Rate) dated 28.06.2017 covers support services falling under SAC 9985 and the impugned service of O M of the FGD plant is covered under entry number 23(iii) attracting GST @ 18%.

Summary

Issues Involved:
1. Whether the combined service of setting up of Wet Limestone FGD plant and operation & maintenance be considered as a composite supply.
2. If considered a composite supply, whether it is a composite supply of works contract as per Section 2(30) and Section 2(119) of CGST Act, 2017, and what would be the principal supply.
3. Whether the supply falls under entry no.3(iv)(e) of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017.
4. Applicable GST rate and SAC/HSN.

Issue-wise Detailed Analysis:

1. Whether the combined service of setting up of Wet Limestone FGD plant and operation & maintenance be considered as a composite supply:

The applicant contended that their services of setting up the FGD plant and operation & maintenance of the said plant together constitute a composite supply, with the principal supply being the setting up of the FGD plant. They argued that the combined supply is naturally bundled and supplied in conjunction with each other in the ordinary course of business. The applicant cited Section 2(30) of the CGST Act, 2017, which defines "Composite Supply" as a supply consisting of two or more taxable supplies of goods or services or both, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

The Authority, however, observed that the tender documents and the agreement clearly demarcate the activities of setting up the FGD plant and its operation & maintenance as separate supplies. The job order specifies separate payment schedules and performance guarantees for each activity, indicating that they are not naturally bundled. The Authority concluded that the combined service does not constitute a composite supply as the two services are not supplied in conjunction with each other but one after the other.

2. If considered a composite supply, whether it is a composite supply of works contract as per Section 2(30) and Section 2(119) of CGST Act, 2017, and what would be the principal supply:

Since the first issue was answered in the negative, this question became redundant. The Authority did not consider the combined service as a composite supply, and hence, it was not necessary to determine if it was a composite supply of works contract or to identify the principal supply.

3. Whether the supply falls under entry no.3(iv)(e) of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017:

The Authority examined whether the setting up of the FGD plant qualifies as a composite supply of works contract and falls under entry no.3(iv)(e) of the Notification No.11/2017-Central Tax (Rate) dated 28.06.2017. The setting up of the FGD plant involves civil works, equipment foundation works, duct works, and installation works, which result in an immovable property. The FGD plant is meant for the control of emission of hazardous gases, making it a pollution control device. The Authority concluded that the setting up of the FGD plant qualifies as a composite supply of works contract and falls under entry no.3(iv)(e) of the said notification, attracting GST at the rate of 12%.

4. Applicable GST rate and SAC/HSN:

The Authority ruled that the setting up of the FGD plant merits classification under SAC 995429 and attracts GST at the rate of 12%, in terms of entry No.3(iv)(e) of the Notification No.11/2017-Central Tax (Rate) dated 28.06.2017. The operation & maintenance of the FGD plant, being a separate supply, falls under "Business Support Service" classified under SAC 9985, specifically SAC 998599 as "Other Support Services not elsewhere classified," attracting GST at the rate of 18%, in terms of entry No.23(iii) of the Notification No.11/2017-Central Tax (Rate) dated 28.06.2017.

Ruling:

a) The combined service of setting up of Wet Limestone FGD plant and operation & maintenance of the said plant cannot be considered as a composite supply.
b) The question of it being a composite supply of works contract is redundant.
c) The supply is not considered a composite supply, making the related question redundant.
d) The setting up of the FGD plant merits classification under SAC 995429 and attracts GST at the rate of 12%. The operation & maintenance of the FGD plant merit classification under SAC 9985, as "Business Support" service, attracting GST at the rate of 18%.