CCTV Surveillance system – Whether immovable Property

[CA Akash Phophalia]

Works contract supply is an evergreen grey area under indirect tax laws to confuse and clarify its tits bits. In this article the author aims to discuss the status of CCTV Surveillance system installed by the government in the light of recent ruling passed by AAR Maharashtra in Allied Digital Services Ltd in 2019 (3) TMI 539 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA .

In this case the Government of Maharashtra (GOM) called for a tender for implementing CCTV for city surveillance for security purpose. The tender was called with the following principle and relevant terms and conditions:-

1. To design, development, implementation and maintenance of CCTV based surveillance system.
2. The single price shall be payable for the contract.
3. The ownership of assets shall vest with GOM.
4. IPR of the customized solution would belong to GOM.

Now the moot point of discussion here is whether the above stated contract related to design, development, installation and maintenance of CCTV surveillance system amounts to works contract.

Considering the terms and conditions and the contract as a whole it is was discussed by the authority that there are more than two taxable supplies of goods or services or both & the provision of service consists of different supplies such as design, development, maintenance and implementation & that all of them constitute, on the over all, a supply to set up a comprehensive CCTV based city surveillance system. In this view of the matter ‘composite supply’ & ‘work contract’ needs consideration which reads as (from CGST Act 2017) :-

“Sec.2(30) Composite supply means 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 ;

Illustration: Where goods are packed and transported with insurance, the supply and supply of goods, packing materials, transport & insurance is a composite supply & supply of goods is a principal supply.”

Sec.2(119) Works Contract means contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immoveable property in goods (whether as goods or in some other form ) is involved in the execution of such contract.”

Works contract is essentially a contract of service which my involve supply of goods in the execution of said contract. However, under the GST Act ‘Works Contract’ has been restricted to any work undertaken for an immovable property which is a complete departure from the erstwhile VAT and Service Tax regimes where the provisions were applicable to both movable and immovable property.

Before deciding whether the agreement in toto is a works contract or otherwise let us understand the meaning of immovable property as decided and discussed by the Supreme Court of India in the case of  Municipal  Corpn. Of Greater Bombay      v. Indian Oil Corpn. Ltd. [ 1990 (11) TMI 407 - SUPREME COURT ]”:-

Hon. Supreme held that if the chattel is movable to another place as such for use, it has to be dismantled and reassemble or re-erected at another place for such use, such chattel would be immovable. In the appeal, even according to the findings of the Collector, mudguns & tap hole-drilling machines have to be dismantled and disassembled from the cast floor before being erected or assembled elsewhere.

It is noteworthy that in the above case ref. relied upon by the assessee referred to above was there any installation of the machine for a given period of time as in the position in the instant case. The machines in question were embedded in the earth. The structures were also custom-made for the fixing of such machines without which the same could not become functional. The machines thus becoming a part & parcel of the structures in which they were fitted were no longer movable goods. It was in those peculiar circumstances that the installation and erection of machines at the site were held to be by this to be immovable property that ceased to remain movable or marketable as they were at the time of their purchase. Once such a machine is fixed, embedded or assimilated in a permanent structure, the movable character of the machine becomes extinct.

In the instant case CCTV cameras are permanently fastened to the street lighting poles which are not intended to be removed but to provide surveillance to gather evidence for prosecution of offenders. If at all they have to be re-located to another place the cameras & the related equipment have to be dismantled for re-erection elsewhere. Hence, it partakes the character of immovable property. As according to the facts of this case the liability of the contractor-applicant does not end with the supply of goods but it extends till the successful testing, commissioning & also to maintenance of the system (an immovable property). The present contract is a works contract.

In the light of relevant provisions of laws and the judgment cited above, it can be concluded that comprehensive CCTV based city surveillance system is an immovable property and the contract, being single price payable for the whole contract, is a composite supply of works contract including design, development, and maintenance thereof.

Author's View

Although the ruling is being decided in the light of the facts of the case and is binding on the parties to the ruling only however, ruling of AAR gives an insight to interpret and understand the manner of applicability of provisions of GST. To the understanding of the author this ruling has enhanced the scope of works contract services and it may have impact on the various contracts under execution and to be executed in the times to come.

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CA Akash Phophalia

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ca.akashphophalia@gmail.com

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