In re M/s. Hewlett Packard Enterprise India Private Limited (GST AAR Karnataka)
a) Whether the proposed activity of setting –up of the data centre facilities as explained proposed to be under taken by the applicant would qualify as “works contract “ as per section 2(119) of the Central Goods and Service Tax Act 2017 and Section 2(119) of the Karnataka Goods and Service Tax Act 2017 ?
The applicant, when they enter into a contract for the setting up of the data centres, is given the building which is required to be converted into a fully functional data centre. The applicant carries out the refurbishment of the entire building by carrying out the various civil, electrical and mechanical works on the civil structure. All these works, especially the Civil works have a sense of permanence and cannot be dismantled and taken away. Moreover other works like electrical works are also such that they cannot be removed and relocated without substantial damage. Furthermore once the entire work has been completed, then the building acquires a new look and an identity in terms of its functionality. In other words once the contracted activities are carried out on the building then it acquires the identity of the desired data centres. Thus the contracted activities and the supply of the required material are in relation to an immovable property.
On the basis of the aforesaid facts its evident that the applicant has entered into a contract for carrying out the various listed activities leading to erection, fitting out, renovation and commissioning of data centres. The contract also involves transfer of property in goods. It is therefore opined that the proposed activities of the applicant are covered under the definition of Works Contract.
The applicant further states that the scope of the activity of works contract cannot be restricted in relation to immovable property alone, the same can be extended to activities in relation to plant and machinery. In this regard the applicant takes recourse to Section 17 (5)(c) of the CGST Act which restricts credit on works contract service when it is supplied for construction of an immovable property other than plant or machinery. They further state that as per the language used in Section 17 (5) (c), it can be inferred that if works contract service is utilised towards the plant and machinery, credit is eligible on the same. In view of this, the applicant contends that scope of the activity of works contract cannot be restricted to an activity undertaken only in relation to immovable property and the scope can be extended to the services rendered in relation to plant and machinery also.
We do not agree to the contention of the applicant in this regard. Firstly the term Works Contract’ is clearly defined in Section 2(119) of the CGST Act, 2017. The definition is self explanatory and leaves no doubt that it is in relation to an immovable property only. Secondly, in Section 17(5) of the said Act, the term ‘plant and machinery’ is also defined. Here the machinery, apparatus and equipment is secured to the earth by way of a foundation or structural support. This foundation or the structural support is meant to impart stability to the machine while working. It, however, does not impart the machine/equipment the same degree of permanence that a building acquires when built on its foundation. Here the equipment is fitted on the foundation and the same can be removed and relocated without damaging it. The same does not hold true for a building or an immovable property. Therefore the inference drawn from the provisions of Section 17(5) are erroneous and we do not concur with the applicant on the same.
b) What is the rate of GST applicable on the proposed activities?”
Applicant seeks to know the rate of tax applicable on the activities proposed to be undertaken by them. As already concluded in Para 9.6 above, the activities proposed to be carried out by the applicant qualify to be treated as works contract the rate of tax applicable would be accordingly applied. Notification 11/ 2017 – Central Tax (Rate) dated June 28, 2017 provides the rates of GST applicable on intra state supply of goods and services. SI. No.3 of the Notification provides that a composite supply of works contract, as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017, is liable to GST @ 18%. Therefore, as the proposed activity falls under the category of the works contract it is liable to tax @18%.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, KARNATAKA
ORDER UNDER SECTION 98(4) OF THE CENTRAL GOODS & SERVICES TAX ACT, 2017 AND UNDER 98(4) OF THE KARNATAKA GOODS & SERVICES TAX ACT, 2017
1. M/s. Hewlett Packard Enterprise India Private Limited, No.24,Salapuria Arena, Hosur Main Road, Adugodi, Bangalore – 560 030, having GSTIN number 29AADCH5900Q1Z4, have filed an application for Advance Ruling under Section 97 of CGST Act,2017, KGST Act, 2017 & IGST Act, 2017 read with Rule 104 of CGST Rules 2017 & KGST Rules 2017, in form GST ARA-01 discharging the fee of Rs.5,000/- each under the CGST Act and the KGST Act.
2. The applicant is a private limited company, registered under the Goods and Services Act, 2017,engaged in the sale of IT products and services in relation thereof.
3. The Applicant has sought advance ruling in respect of the following questions:-
(a) Whether the proposed activity of setting-up of the data centre facilities as explained proposed to be undertaken by the Applicant would qualify as Works contract’ as per Section 2(119) of the Central Goods and Service Tax Act, 2017 and Section 2 (119) of the Karnataka Goods and Service Tax Act. 2017?
(b) What is the rate of GST applicable on the proposed activities?
4. The applicant furnishes some facts relevant to the stated activity:
4.1 The Applicant is inter alia engaged in sale of IT products and services in relation thereof. The Applicant proposes to undertake projects for setting-up of data center facilities for its clients including government agencies/ bodies. Draft agreement along with scope of work (“hereinafter referred to as SOW”) proposed to be executed by the Applicant for one such project has been submitted by the applicant.
4.2 A brief write up on the activities proposed to be undertaken by the Applicant in setting up of data centre is explained in detailed manner in the table below:
