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2025 (5) TMI 1507 - AAAR - GSTClassification of supply - leasing or rental services - supply of hiring services of air conditioning system and fire extinguishing system - Rate of CGST and SGST - to be charged under SAC Code 997314 or not - composite supply or mixed supply - essential elements constituting a transfer of the right to use goods - HELD THAT - The case IN RE M/S. SUN KNOWLEDGE PRIVATE LIMITED 2024 (2) TMI 1059 - AUTHORITY FOR ADVANCE RULING WEST BENGAL on similar issue has been pointed out by the respondent where the WBAAR has pronounced its ruling that supply on account of hiring of electrical equipment sprinkler system comprising fire detectors for true ceiling air conditioning system up to the floor Air Handling Unit with existing ducting and diffusers DG set emergency power supply would attract tax @ 18%. No appeal appears to have been filed on this and it did not come before WBAAAR. A ruling in another case cannot be held to be binding precedent. Section 103 of the CGST Act 2017 specifically stipulates that an Advance Ruling pronounced would be binding to that particular applicant who had sought it and the same cannot be a precedent and applied to others. It is needless to mention that the entire issue depends on the various clauses of the agreement entered into between the concerned parties wherefrom the actual nature of use of the assets concerned is required to be ascertained i.e. whether they remain to be goods or become a part of an immovable property which is required to be examined in depth. Fact that respondent was already paying GST at the rate of 28% is also relevant here. Thus in light of the above we deem it appropriate to remand the case to the Authority for Advance Ruling i.e. the WBAAR for fresh decision. The WBAAR will take into consideration all aspects of the matter and decide the case afresh. Hence without delving into the merit of the case we set aside the Advance Ruling Order No. 18/WBAAR/24-25 dated 14.01.2025 issued by the WBAAR in the case of the appellant and remand the case to the WBAAR for fresh decision after considering all aspects of the matter.
The core legal questions considered in this appeal revolve around the classification of services provided by the respondent involving air conditioning systems, fire sprinkler systems, DG sets, and electrical installations supplied to tenants of properties owned by related entities. Specifically, the issues are:
1. Whether the services provided by the respondent fall under the category of leasing or rental services attracting GST at 18% under serial no. 17(viii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as held by the West Bengal Advance Ruling Authority (WBAAR). 2. Whether the equipment and installations supplied retain the character of 'goods' after installation or become part of immovable property, thereby affecting their classification under GST law. 3. Whether the transaction amounts to a "transfer of the right to use goods" as contemplated under serial no. 17(iii) or 17(vii)(a) of the said Notification, which would attract GST at 28%. 4. The applicability and interpretation of various legal tests and precedents, particularly the Supreme Court's rulings in M/s Bharati Airtel Ltd vs The Commissioner of Central Excise, Pune and Bharat Sanchar Nigam Ltd. vs. Union of India, in determining the nature of the supplied assets and the nature of the transaction. 5. The binding nature and precedential value of prior Advance Rulings on similar facts. Issue-wise Detailed Analysis: 1. Classification of Services under GST Notification The WBAAR had ruled that the services provided by the respondent fall under serial no. 17(viii) of Notification No. 11/2017-Central Tax (Rate), which covers leasing or rental services without operator, attracting GST at 18%. The appellant challenged this classification, arguing that the services should be classified under serial no. 17(iii) or 17(vii)(a), which pertain to transfer or leasing of the right to use goods, attracting GST at 28%. The appellant contended that the WBAAR's ruling was erroneous because it treated the installed equipment as immovable property, thereby excluding them from the definition of 'goods'. The appellant relied heavily on the Supreme Court's judgment in the Bharati Airtel case, which laid down tests to determine whether an asset is movable or immovable. 2. Nature of the Installed Equipment: Goods or Immovable Property? The appellant relied on the Supreme Court's principles from the Bharati Airtel judgment, which include the nature of annexation, object of annexation, intendment of the parties, functionality, permanency, and marketability tests. Applying these tests, the appellant argued that the air conditioners, fire extinguishers, and other equipment are movable goods because they can be dismantled and removed without damaging the immovable property. The respondent countered by applying the same tests to the facts of the case but arrived at the opposite conclusion. The respondent argued that the equipment and fit-outs are permanently affixed to the building and cannot be removed without causing damage, indicating their immovable nature. The object and intendment of annexation were for permanent beneficial enjoyment of the building. The respondent emphasized that these assets are integral parts of the property and do not retain independent marketability once installed. The Court noted that both parties relied on the same legal framework but differed in factual interpretation, especially regarding the permanency and removability of the assets. 3. Whether the Transaction Constitutes "Transfer of Right to Use Goods" The appellant argued that if the equipment are 'goods', then the transaction should be classified under serial no. 17(iii) or 17(vii)(a), involving transfer or leasing of the right to use goods, attracting GST at 28%. The respondent disputed this, contending that the transaction does not involve transfer of such right. The respondent relied on the Supreme Court's ruling in Bharat Sanchar Nigam Ltd. (BSNL) v. Union of India, which laid down five cumulative tests for a transaction to qualify as a transfer of the right to use goods:
Applying these tests, the respondent showed that the assets remain in their legal possession, are used in common areas by multiple tenants, and the lessor retains control and maintenance obligations. The lease agreements explicitly state no transfer of legal possession, negating the possibility of exclusive right or control by any lessee. The respondent also continues to offer similar rights to other tenants. Therefore, the respondent argued that the transaction is a service agreement for use of fitted assets without transfer of right to use goods in the legal sense. 4. Binding Nature of Prior Advance Rulings The respondent cited a prior WBAAR ruling in a similar case involving supply of electrical equipment and other installations, where GST at 18% was held applicable. The respondent argued that the revenue's failure to appeal that ruling amounts to acquiescence, invoking principles of consistency and finality. The Court observed that while consistency is important, an Advance Ruling is binding only on the applicant who sought it under Section 103 of the CGST Act, 2017, and cannot be treated as binding precedent for other parties. Thus, the prior ruling cannot conclusively determine the present case. 5. Need for Examination of Contractual Terms and Factual Matrix The Court emphasized that the classification depends heavily on the specific terms of the agreements and the actual nature of use of the assets. The question whether the assets retain their character as goods or become part of immovable property requires a detailed factual inquiry, including whether they can be dismantled without damage, the intention of parties, and the nature of possession and control. The Court also noted the relevance of the fact that the respondent has been paying GST at 28% since the inception of GST, which may bear on the classification and tax liability. 6. Court's Decision to Remand Given the divergent factual interpretations and the importance of contractual and evidentiary details, the Court refrained from deciding the merits. Instead, it set aside the WBAAR's order and remanded the matter back to the WBAAR for a fresh decision after considering all relevant aspects, including the nature of the assets, contractual terms, and applicable legal tests. Significant Holdings: "The ratio laid down in this judgement is squarely applicable in the instant matter as well, since by applying these test, air conditioners and other equipment provided on lease by the applicant in the instant issue are also movable properties and hence, 'goods'." "If we consider the nature of annexation of the tower to the earth, it is seen that the annexation is not for permanent annexation to the land or the building as the tower can be removed or relocated without using damage to it." "The essential elements constituting a 'transfer of the right to use goods,' as laid down in the BSNL case, are not fulfilled in the present matter. The tenants neither obtain exclusive possession nor control, nor is there a delivery or legal transfer of any specific goods." "An Advance Ruling pronounced would be binding to that particular applicant who had sought it and the same cannot be a precedent and applied to others." "The entire issue depends on the various clauses of the agreement entered into between the concerned parties wherefrom the actual nature of use of the assets concerned is required to be ascertained." "Without delving into the merit of the case, we set aside the Advance Ruling Order No. 18/WBAAR/24-25 dated 14.01.2025 issued by the WBAAR in the case of the appellant and remand the case to the WBAAR for fresh decision after considering all aspects of the matter." The Court thus established that classification of such services under GST requires a nuanced and fact-specific inquiry into the nature of the assets, the terms of the contract, and the actual rights transferred, applying established legal tests and precedents. The ruling underscores the non-binding nature of advance rulings beyond the parties involved and affirms the necessity for detailed factual examination before tax classification.
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