Whether Value of Goods gives conclusion that activity is Works Contract Service or Not?

In an Application filed before AAR under GST, Maharashtra by Prasa Infocom & Power Solutions Private Limited

1. The value of goods supplied is ₹ 26.03 crores (excluding taxes), the value of Civil and Mechanical Work is ₹ 0.34 crores, the installation cost is ₹ 1.02 crores and the AMC cost (post warranty) for a one year period and three year period is ₹ 0.86 crores and ₹ 2.59 crores.

2. Major value of the contract exceeding 85% or the total cost of the project is pertaining to supply of goods.

3. Applicant has submitted that the subject activity undertaken by them involves creation of an immovable property and therefore qualifies as a supply of works contract liable to GST @ 18%.

4. The applicant has further submitted that the scope of the work involves complete design of data Centre, supply of equipment, transport and delivery to sites, training, installation, testing and commissioning of such equipment.

5. Their contention is that the installed equipment cannot be dismantled and removed after installation, without damage

6. The major part of the contract is supply of goods They receive separate payment for such goods sold.

7. There is no building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair maintenance, renovation, alteration or commissioning of any immovable property

8. In this case, it is found that there is absolutely no construction of any kind. The Data Centre, as per the submissions made, appears to be a space /room where the equipment /machinery /other various apparatus are installed. The value of Civil Construction shown is insignificant, as compared to the value of goods/ services. The major portion in this project is of sale of equipment/ Machinery/ other various apparatus.

9. We hold that the supply of goods and service by the applicant to Cray Inc. (Cray) does not qualify as ‘works contract’

Our Comments:

1. There is use of words major or minor supply of goods or services in Works Contract definition. For Works Contract there must be construction of immovable property.

2. Above Ruling is in direct conflict with AAR, WB passed in case of Ashish Ghosh where AAR held the contract as Works Contract in spite of the fact the value of supply of goods was 90% of total value of supply.

3. Above Ruling is in direct conflict with AAR, Tamil Nadu passed in case of TATA Projects Ltd where AAR held the contract as Works Contract in spite of the fact the value of supply of goods was 82% of total value of supply.

4. AAR failed to recognize the condition of “Cross Breach” between contract for supply or goods and services.

5. Merely separate consideration has been the agreed terms cannot be the reason for not being the Works Contract Service

6. There was no discussion on the Definition of Immovable Property

7. AAR failed to consider that fact that installed equipment cannot be dismantled and removed after installation, without damage

Author Bio

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One Comment

  1. kashupatel22@gmail.com says:

    Sir,
    As per my opinion
    Such wrong ruling has been given due to major revenue loss to govt. where Rate on Supply of equipment/ Machinery/ other various apparatus is higher than rate prescribed for “Work Contract Services”

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