TMI Blog2019 (6) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and attract the assessment of GST liability accordingly. Composite supply of services - naturally bundled services - If supplies contemplated as per the contract with BSNL are not treated as works contract, can these continue to qualify as composite supply? if yes what is the principle supply? - HELD THAT:- In the present facts, supply of material and services for setting up of network, supply of training services and supply of satellite connectivity vehicles amongst all the other ancillary activities required under the contract are aimed at creation of a network and operations - in such a case, if the activity of setting up of network per se qualifies as works contract ; then such works contract constitutes the pre-dominant element of the entire contract and partakes the character of a principal supply . What is the rate of tax applicable to the supplies made under the contract? - HELD THAT:- The present contract in our view is a works contract as it involves provision of services and goods, but it is for us to decide whether it is works contract as defined under the GST Act - It is evident from above that they are constructing civil structure to house various equipmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o qualify as composite supply? if yes what is the principle supply? and What is the rate of tax applicable to the supplies made under the contract? At the outset, we would like to make it clear that the provisions of both the CGST Act the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression GST Act would mean CGST Act and MGST Act. 02 FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus- STATEMENT OF THE RELEVANT FACIS HAVING A BEARING ON THE QUESTION(S) ON WHICH THE ADVANCE RULING IS REQUIRED 1. This Application is being preferred by Sterlite Technologies Limited ( Company / Applicant ), a company incorporated in India under the provisions of the Companies Act, 1956. having its registered office at E-1, E-2,0-3, MIDC Waluj, Aurangabad-431136, Maharashtra, India.. 2. Applicant is eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovery station, satellite data centre, etc. with each other to enable information exchange across the network as desired 5. Relevant clauses of the contract which stipulate the requirement of an exhaustive civil work to be undertaken by Applicant to house the said network are reproduced below: Network Architecture Tier I. Tier I would interconnect 11 major locations of the Indian Navy across the country over defence owned OFC and DWDM network infrastructure Tier II. The remaining 33 locations of the Indian Navy would be connected over defence owned OFC and DWDM network infrastructure Tier III. Tier Ill consists of the regional metro aggregation network at Delhi, Mumbai, Vizag, Kochi, God, Chennai and Port Bloir. The regional metro aggregation network for Tier III shall be present at few locations at various metro cities across the country. These locations would be connected over a DWDM infrastructure that the bidder will have to provide Civil Infrastructure 1. A central building would need to be built at very site to house Type 1/Type 2 Type 3 Infrastructure, Telepresenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnected with each other through its data centers, nearline data centers, disaster recovery station, etc. Such network cannot be moved to another place in as is form but it requires the optical fiber cables to be disengaged, existing civil structures to be demolished, all the equipment to be removed and undertake altogether a fresh activity to re-erect the civil structure and re-install all the necessary equipment and re-engage the same with the optical fiber cables at such other place. 7. In furtherance of the tender bid, BSNL has entered into a contract with Applicant which stipulates Applicant s responsibility to set up the network including the responsibility to supply all the material and services required for setting up of network, training services to operate the same and supply of satellite connectivity vehicles [le, a mobile vehicle mounted with various satellite equipment) required for ensuring seamless connectivity during breakdown of network. 8. The entire project as per contract between Applicant and BSNL is bifurcated into different packages and the purchase order is presently raised by BSNL with reference to cost break up of each of the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity merits analysis of judicial precedents in this regard. The concept of immovability has been subject matter of intense judicial scrutiny over the years and the judicial precedents laid time and again refer to following parameters to determine immovability of a structure: i. Whether it is a permanent fixture attached to building/ land or not; ii. Whether dismantling of the is mandatory for movement or not; iii. Whether the functionality of the system depends upon its installation or not, 1.5. It is summited that the activity of setting up of network envisages, constructing various types of buildings and civil infrastructures which can house all the equipment necessary to provide the connectivity. The scope of the entire set up to be developed by Applicant also covers in its fold creating the ancillary infrastructure such as water supply, plumbing, electricity supply, access roads, back-up power generator etc. it is important to note that the entire set up together contributes to effective and seamless operation of the network for information exchange. Based on the infrastructure to be developed in the course of setting up of network ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of an immovable property. The network cannot be moved in as is form from one place to other 1.10. Network to be set up by Applicant cannot be moved to another place in as is form, but it requires the optical fiber cables to be disengaged, existing civil structures to be demolished, all the equipment to be removed and undertake altogether a fresh activity to re-erect the civil structure, re-install all the necessary equipment and re-engage the same with the optical fiber cables to interconnect the same. Such nature of the structure has time and again been recognized as an immovable structure by various judicial precedents. 1.11. Reliance in this regard, is placed on the decision of the Hon ble Supreme Court in the case of Municipal Corporation of Greater Bombay vs Indian Oil Co. Ltd. (AIR 1991 SC 686) = 1990 (11) TMI 407 - SUPREME COURT relevant portion of which is reproduced below: Permanency is the test. The chattel whether is movable to another place of use in the same position or liable to be dismantled and re-erected at the later place? If the answer is yes to the former it must be a moveable property and thereby it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch set up cannot perform as a network envisaged in the contract. In other words, setting up the equipment in the form of permanently affixed to the earth is the essential necessity of the network, and thus the entire network partakes the character of an immovable property. 1.17. In this context, reference is made to the Hon ble Supreme Court judgment in the case of Kone Elevator India Private Limited Vs. State of TamiI Nadu [2014 (304) ELT 161 (SC)] = 2014 (5) TMI 265 - SUPREME COURT wherein the issue of immovability of lift was discussed. Relevant extract of the judgment is reproduced below; The lift basically comprises components like lift car, motors, ropes, rails, etc. having their own identity even prior to installation. Without installation, the lift cannot be mechanically functional because it is a permanent fixture of the building having been so designed. 1.18. Based on the judicial precedents referred above Applicant submits that, the network to be set up by it partakes the character of an immovable property in as much as the network as it comes into existence is firmly attached underground and permanently becomes a part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FY AS A COMPOSITE SUPPLY 2.1. The scope of contract between Applicant and BSNL in principal involves supply of material and services for setting up of network, supply of satellite connectivity vehicle and supply of training service by imparting training services. Since supplies under the contract are to be made in conjunction with each other, these would be treated as a bundled supply and needs to be further analysed qua composite supply as defined under Section 2(30) of the CGST Act to determine taxability thereof. We have reproduced below provisions of Section 2(30) for easy refence: Section 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 2.2. On a bare perusal of the definition it can be inferred that a composite supply is a supply of two or more naturally bundled supplies made in conjunction with each other. We note that determinant factor to analyse a supply qua composi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing shall be so designed that the Indian Navy Officials will be sufficiently exposed to all the aspects of planning engineering installation, testing, provisioning, operations of the networks. 2.5. Thus, supply of material and services for setting up of network, supply of satellite connectivity vehicle and training service being made in pursuance of setting up and effective operation of the network itself, are indeed naturally bundled. As a matter of fact, it is a globally accepted practice in the turnkey contracts that a contractor undertakes wholistic responsibility of all the activities relating to the contract. In these circumstances, that all the activities required to be undertaken by the Applicant as per the contract merit treatment as a naturally bundled supply and thus qualifies as composite supply . 2.6. The submissions in the forgoing paragraphs is also supported by the decisions of Hon ble Appellate Authorities for Advance Ruling in the case of Giriraj Renewables Private Limited (supra) wherein a turnkey contract involving engineering, design, procurement, supply, development, testing and commissioning is held to naturally bundled and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks contract 2.9. In the present facts, supply of material and services for setting up of network, supply of training services and supply of satellite connectivity vehicles amongst all the other ancillary activities required under the contract are aimed at creation of a network and operations. 2.10. in such a case, if the activity of setting up of network per se qualifies as works contract ; then such works contract constitutes the pre-dominant element of the entire contract and partakes the character of a principal supply . 3. ISSUE FOR DETERMINATION What is the rate of tax applicable to the supplies made under the contract? OUR SUBMISSION RATE OF TAX APPLICABLE FOR SETTING UP OETHE NETWORK 3.1. A composite supply of works contract is stipulated to be treated as a supply of services in terms of Sr. No. 6 of Schedule II of the CGST Act and thus all the supplies of material as well as services underlying such works contract is to be treated as supply of service itself. The rate Of GST applicable for supply of services are notified vide Notification No. 11/2017 - Central Tax (rate) dated June 28, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elating to defense. In such a case Applicant s activity would partake the character of supply of works contract services to Government entity meant predominantly for use other than for commerce, industry, or any other business or profession and would accordingly attract GST at the rate of 12% (CGST and SGST each at the rate of 6%; or IGST at the rate of 12%). 4. PRAYER In view of the submissions made above, it is most humbly prayed that Hon ble authorities may kindly pass a ruling to clarify as follows: a. Bundled supply as per the contract qualify as Composite supply of works contract as defined in Section 2(119) of the CGST Act b. The composite supply of works contract attracts GST at the rate of 12% vide Entry No. 3(vi)(a) of the Notification No. 11/2017-CGST (Rate) dated June 28, 2017 Additional submissions of applicant on 25.03.2019 During the personal hearing the Applicant advanced its submissions relating to applicability of Entry No. of Notification No. 11/2017 - Central Tax (rate) dated June 28, 2017 ( Notification No. 11/2017 ), to the services required to be provided by Applicant in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 12/2017 are issued by the Central Government in exercise of its powers conferred under CGST Act and as such contents of both these notifications form part of the same statutory framework which further supports the persuasive force of the definition of original works as provided under Notification No. 12/2017 to determine the scope of original works as referred in Entry No. 3(vi)(a) of Notification No. 11/2017. 1.4. Reference is also drawn from the ruling Rajasthan Authority for Advance Ruling in the Application of Tata Projects Limited SUCG Consortium = 2018 (6) TMI 463 - AUTHORITY FOR ADVANCE RULING-RAJASTHAN wherein the Authorities deliberated Applicability of Entry No. 3(vi)(a) of Notification No. 11/2017 to the activities of Applicant therein and referred to Notification No. 12/2017 to Rule that recipient of service viz. Jaipur Development Authority qualified as Governmental Authority . 1.5. Without prejudice to the above, in absence of the definition of original works under Notification No. 11/2017, reference may also be drawn from the definition as provided in the Service Tax (Determination of Value) Rules, 2006 ( Service tax valuation ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T TERM AS PROVIDED IN OTHER STATUTE 1.8. Without prejudice to the persuasive force of the definition of original works as contained in the Notification No. 12/2017 and Service tax valuation rules and that these form part of the same statutory framework, the Applicant further submits that even though the term original works is not defined under Notification No. 11/2017 or CGST Act per se, the authorities are not at liberty to refer to any other statute to determine the scope of original works as referred under Notification No. 11/2017. 1.9. In this regard, Applicant submits that, in absence of a definition within the statute, a term needs to be understood in its common parlance and in the context in which it appears. Reliance in this regard is placed in the decision of Hon ble Supreme court in the case of Commissioner of Sales Tax, Madhya Pradesh vs. Jaswant Singh Charan Singh AIR 1967 SC 1454 = 1967 (2) TMI 65 - SUPREME COURT wherein Hon ble Supreme Court while laying its unambiguous ratio in the said case addressed contentions of the counsel for the Appellant who sought to draw reference from the Colliery Control Order, 1945 to ascertain the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coal in this statute as understood in its commercial or popular sense and to adopt its connotation from other statutes passed for different purposes or in context of different object. 1.12. The Hon ble Supreme court in the said case also analyzed at length prior jurisprudence in the case of Ramavtar Budhaiprasad, etc. vs. Assistant Sales tax officer, Akola (1962] 1 SCR 279 = 1961 (3) TMI 55 - SUPREME COURT ; His majesty the King v. Planters Nut and Chocolate company Limited (1951) C.L.R. 122; Attorney General v. Winstanley (1831) 2 D Cl. 302.; Grenfell v Inland Revenue Commissioner (1876]1 Ex-D. 242. and categorically noted that while interpreting a term in a statute, resort must be made to its popular meaning or the commercial meaning attached to it by those dealing in them. Relevant portion of the decision is reproduced below: 5. ...But it is now well-settled that while interpreting items in statutes like the Sales Tax Acts, resort should be had not to the scientific or the technical meaning of such terms but to their popular meaning or the meaning attached to them by those dealing in them, that is to say, to their commercial sense. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Act alone (per Loreburn L.C. in Macbeth v. Chislett (1910) AC 220. For the same reason we refrain from borrowing upon the definition of Local Authority in enactments such as the Cattle Trespass Act 1871 etc. as the High Court has done. 1.14. Reliance is also placed on decision of Hon ble Supreme court in the case of State of Uttar Pradesh and Ors vs Kores India Ltd AIR 1977 (SC) 132 = 1976 (10) TMI 131 - SUPREME COURT wherein Hon ble Supreme Court owing to absence of definition within the statute, referred to the meaning of paper as commonly or generally understood. Relevant portion of the said definition is reproduced for easy reference: 7. The word paper admittedly not having been defined either in the U.P. Sales Tax Act 1948 or the Rules made thereunder, it has to be understood according to the aforesaid well established canon of construction in the sense in which persons dealing in and using the article understand it. It is, therefore , necessary to know what is paper as commonly or generally understood . 1.15. In view of law of the land as referred above, which has only been time and again strengthened by decisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Ministry of Housing and Urban Affairs, Government of India. As such the provisions of CPWD manual have no bearing on interpretation of the provision of Goods and Service Tax law. Without prejudice to the submissions above, even if the term original works as defined under CPWD manual is referred to determine the scope of original works under Notification No. 11/2017, the activities of Applicant continue to be covered under Entry No. 3(vi)(a) of the Notification No. 11/2017. 1.19. The definition of original works under CPWD manual inter alia covers in its fold all new constructions and such term is not appended with any other condition. In other words, any activity that qualifies as a new construction would ipso facto be covered by the definition of original works . The term new construction is not defined under any of the provisions of the Goods and Service Tax law. Accordingly, reference is made to understanding of the said term in common parlance. 1.20. Applicant refers to the Oxford Advanced Learner s Dictionary which explains the term new to mean not existing before or recently made while the term construction is explained to mean a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its fold civil structure as well as original works , relevant potion of the entry is reproduced below for easy refence: (vi) Services provided to the Central Government, State Government, Union Territory, a local authority, a governmental authority or a government entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration - (a) a civil structure or any other Original works meant predominantly for use other than for commerce, industry, or any other business or profession; 1.26. Applicant submits that use of the term original work independent of civil structure is indicative that the term original work covers in its fold things other than civil structure . In such a case, an attempt to interpret the term original works limited to construction of building, road or any other civil infrastructure leaves the term original work as redundant. It is a cardinal principal of law that intention of the Legislature is primarily to be gathered from the language used and a construction which results in rejection of words as meaningless has to be avoided. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held on 06.02.2019, Sh. Rohit Jain, Advocate, Economic Laws Practice appeared and requested for admission of application as per contentions made in their application. Jurisdictional Officer Sh. R. B. Jogdand , Dy. Commr. of S.T.(AUR- VAT-E-003) Aurangabad division appeared and made written submissions. The application was admitted and called for final hearing on 05.03.2019, Sh. Rohit Jain, Advocate, Economic Laws Practice appeared and made both, oral and written submissions. The Jurisdictional Officer was not present. 05. OBSERVATIONS We have gone through the facts of the case, documents on record and submissions made by both, the applicant as well as the jurisdictional office. The Applicant, engaged in providing goods and services, is registered under GST Laws with registration number GSTIN 27AAECS8719B12C. Their activities include manufacture of telecom products such as optic fiber optic fiber cable, etc.; laying of these optic fiber cables (either underground or hung overhead) to create a network, setting up of control centers, installation of equipment necessary to operate the network for desired purpose, commissioning of network a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to imports as well as domestic procurement. The applicant is of the view that the network to be set up by them in accordance of its contract with BSNL results in creation of an immovable property and thus qualifies as a works contract as per Section 2(119) of the CGST Act. Alternatively they have also submitted that if supplies contemplated as per the contract with BSNL are not treated as works contract, in that case can these continue to qualify as composite supply? If yes what is the principle supply? Perusal of clauses of the agreement reveals that the applicant supplies more than two taxable supplies of goods or services or combination thereof. Hence we are convinced that the various supplies as contemplated by the contract constitutes composite supply as defined u/s 2(30) which read as follow- Section 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; The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus the present contract in our view is a works contract as it involves provision of services and goods, but it is for us to decide whether it is works contract as defined under the GST Act. Section 3(26) of General Clauses Act, 1897 defines Immovable property as follows: Immovable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth; It is evident from above that they are constructing civil structure to house various equipment, electrical installation, infrastructure, etc. We further find from the Project Schedule submitted by the applicant that their work involves Construction buildings for housing the equipment room, Data centers, Nearline data centers, Disaster Recovery Center, Training of Project Management Team, Supply of Equipment at a central site of bidder and segregrated as per, site; Staging of Equipment, Joint Testing, Delivery of Equipment to sites, Installation of equipment, Certification of Network by a Certifying Authority, Commissioning of the Network, Training for trainers and Completion of Warranty. Thus from a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quipments which are installed by the applicant are first supplied by them. Thus it is seen that it is not a fact that the applicants are only involved in erection, commissioning or installation of machinery belonging to some other person but are installing and commissioning the equipments supplied by them. Hence primarily what they are doing is supplying goods i. e. equipments. Thus the works to be undertaken by them cannot be considered as original work . The applicant has made submissions to support their contention that the subject contract should be considered as falling under clause (vi) (a) of Section 5 of Notification No. 11/2017 - CT (Rate) as amended. However in view of the discussions we find that the subject contract does not envisage original works and it is also seen that the contract is not in respect of a civil structure. Hence we find that the applicant s contention cannot be accepted and the said contract does not fall under clause (vi) (a) of Section 5 of Notification No 11/ 2017 - CT (Rate) as amended. It is also seen that the subject contract does not satisfy the descriptions mentioned in clauses (i) to (xii) except clause (ii) of Section 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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