TMI Blog2022 (1) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further, as per Para 6 (a) of Schedule II to the GST Act, works contracts as defined in clause (119) of section 2 shall be treated as a supply of services. So, the instant supply shall be treated as supply of services. Taxability of supply - HELD THAT:- The applicant has made the instant composite supply of works contract to Kolkata Municipal Corporation which is a local authority in terms of definition under clause (69) of section 2 of the GST Act. Further, the works contract, as it appears from the scope of work, involves installation and maintenance of pipeline for water supply. We therefore find that the instant composite supply of works contract gets covered under entry serial number 3(iii) of the Notification No. 20/2017- Central Tax (Rate) dated 22.08.2017 and therefore shall attract tax @ 12%. The instant contract shall be treated as an indivisible single contract thereby the O M contract cannot be held to be independent of DB supply. Moreover, though the term pure services has not been defined under the Act, a bare reading of the description of services as specified in the aforesaid entry denotes that supply of services which does not involve any supply of good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the city of Kolkata. The contract was awarded by KMC vide letter of acceptance dated 4th October, 2016. 1.4 The applicant submits that the contract was awarded to him for a single lump sum amount. However, for the contract signing purposes, KMC shared two separate contracts for DB phase and O M phase along with the Letter of Award. 1.5 The applicant has made this application under sub-section (1) of section 97 of the GST Act and the rules made there under raising following questions vide serial number 14 of the application in FORM GST ARA-01: (i) Whether based on the facts of the agreement entered between the applicant and KMC, Establishment of District Meter Areas, Construction Works and Operation Maintenance (hereinafter referred to as DB and O M respectively) be considered as divisible supplies under the GST Laws? (ii) If the answer to (1) is not affirmative, whether the agreement entered between the applicant and KMC be treated as single contract for composite supply of DB and O M and what would be its taxability under GST regime? (iii) If the answer to (1) is affirmative (i.e. DB and O M will be considered as divisible), would O M be regarded as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yethelence Pipes of assorted diameters KM 13 4 Supply and Installation of various types of Valves of assorted diameters Nos 222 5 Supply and Installation of Domestic water and bulk meters of assorted diameters Nos 25000 6 Water loss reduction(NRW) and management services and Operation and Maintenance for a period of 3 years Years 3 2.3 The applicant was awarded the contract by KMC vide letter of acceptance dated 4th October, 2016 and for the contract signing purposes, KMC shared two separate contracts for DB phase and O M phase (In line with its usual practice to ensure performance of 2 type of scope in single agreement) along with the Letter of Award. However, as per the tender documents and subsequently the signed contract between KMC and the applicant, the subject works contract was awarded to the applicant for a single lumpsum amount. Special conditions of the contract specify that the contractor shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding major and minor repairs. Operation Maintenance of the distribution network for distributing water efficiently, equitably and minimizing water loss and maintaining infrastructure on DMA basis. Providing continuous (24 x 7) pressurized water supply to the connected consumers and maintaining the infrastructure. Collection of water and sending the same to Laboratory for testing of water quality ensure it meets Potable Water Specifications. Detecting and monitoring non-revenue connections and consumption and inform about such connections to KMC and install meters to measure consumption. Provide consumer service connections on approval/sanction by KMC. Operation and Maintenance of SCADA and monitoring system through computerized water management system. 2.7 The applicant submits that at the time of submission of Bid, VAT and Service Tax were applicable on contract. Further, as per the tender documents and subsequently the signed contract, it was imperative for the bidder to maintain price of O M phase to a certain percentage of contract price which was a minimum 28% of total contract value. The applicant has referred relevant extract from the bidding docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny defects therein in conformity in all respects with the provisions of the contract. A consolidated price is stipulated as the total contract price combining the contract prices of the inter related phases i.e. DB and O M under single tender. 2.11 According to the applicant, following provisions of the GST Act is pertinent in the matter of taxability on instant supply: Section 8 of the Central Goods and Services Tax Act, 2017 speaks that tax liability on a composite or a mixed supply shall be determined in the following manner, namely: - (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and (b) where the term composite supply has been defined under Section 2(30) of the supra Act as - 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; Further principal supply is defined under Section 2(90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government, a local authority or a Governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal shall would fall under Entry 3(iii) with HSN Code 99544 attracting GST @ 12%. 2.13 The applicant contends further that if the O M contract is held to be independent of DB supply, the former shall be considered as a pure service extended to a government entity and hence would be considered as an exempt supply under Entry 3 of Notification no. 12/2017-Central Tax (Rate) dated 28.06.2017. Sl.No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent.) Condition (1) (2) (3) (4) (5) 3 Chapter 99 Pure services (excluding works contract service or other composite supplies involving s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f erection and installation of the networks. The functions relating to the rendering services of erection, installation and maintenance of the networks are integrally connected and are inter-dependent and therefore tender did not allow to bid separately for DB and O M scope. 2.16 The Client being KMC is aware of such interdependence of the two contracts. Although awarded under the same LOA and two separate contract agreements signed for execution, clauses under both of them make it abundantly clear that notwithstanding the break-up of the contract price, the contract shall, at all times, be construed as a single source responsibility contract and the applicant shall remain responsible to ensure execution of both the contracts to achieve successful completion and handing over of the facilities. 2.17 Composite nature of the contract is further clear from the clause that defines satisfactory performance of the First Contract (DB) upon completion of operation and maintenance phase in Second Contract. The client has not contracted for DB phase, but for the composite supply, namely works contract service for construction and operation and maintenance of Water distribution network. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rate of tax applicable on given service (as it is a works contract service) shall fall under Entry 3(iii) with HSN Code 99544 and would attract CGST and SGST @ 6% each. 4.5 In order to analyze the issue involved in the instant case, we find it relevant to reproduce following clauses from the General Conditions of Contract (GCC, for short): In clause 1.1 of GCC: Contract is the Contract between the Employer and the Contractor to execute, complete and maintain the Works and Services. It consists of the documents listed in GCC Clause 3. Completion Date is the date of completion of the Works and Services as certified by the Engineer in accordance with GCC Sub-Clause 32. In clause 7 of GCC: 7.1 Unless otherwise expressly limited in Section 6, Employer s Requirements, the Contractor s obligation cover the design, execution and maintained of all Works, provision of all equipment and materials and the performance of all Services required to reduce water losses, provide continuous pressurized potable quality water supply and provide support services to Employer for timely resolution of customer complaints within the Site specified in the Emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter issue a Certificate of Sectional Completion to the Contractor. 32.2 Initial Take Over date: If Certificate of sectional completion is issued by Engineer to any construction works or part of it including DMA establishment works or Sub DMA establishment works as per clause 32.1 above, before the completion of Design Construction Period as specified in PCC. Contractor shall take over the O M of such DMAs or Construction works and eligible for payment as per O M period till completion of Construction period or Final take over date, whichever is earlier. 4.6 It appears that the scope of work includes inter alia supply, laying, installation and commissioning of distribution network with HDPE pipe (noted in para 2.6) along with operation and maintenance. We find that the contract has been divided into two phases i.e., (i) Design Construction Phase and (ii) O M Phase. However, completion of first phase of the contract i.e., Design Construction Phase shall entitle the contractor to apply for certificate of sectional completion only as referred to in clause 32.1 of the GCC. We also find that para 33.1 of GCC speaks about Taking Over Certificate wherein it is st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958); (b) canal, dam or other irrigation works; (c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal. 6 Provided that where the services are supplied to a Government Entity, they should have been procured by the said entity in relation to a work entrusted to it by the Central Government, State Government, Union territory or local authority, as the case may be, 4.10 The applicant has made the instant composite supply of works contract to Kolkata Municipal Corporation which is a local authority in terms of definition under clause (69) of section 2 of the GST Act. Further, the works contract, as it appears from the scope of work, involves installation and maintenance of pipeline for water supply. We therefore find that the instant composite supply of works contract gets covered under entry serial number 3(iii) of the Notification No. 20/2017- Central Tax (Rate) dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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