In re Eiffel Hills And Dales Developers Pvt. Ltd. (GST AAR Maharashtra)
Q.1. Whether MEP activities (Mechanical, Electrical & Plumbing Works) undertaken by the applicant falls within the definition of composite supply of works contract as defined under Section 2(119) of CGST Act??
Answer: – Answered is in affirmative.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING MAHARASHTRA
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by EIFFEL HILLS AND DALES DEVELOPERS PVT LTD, the applicant, seeking an advance ruling in respect of the following questions.
1) Whether MEP activities (Mechanical, Electrical & Plumbing Works) undertaken by the Applicant falls within the definition of composite supply of works contract as defined under Section 2(119) of CGST Act??
2) Whether can the applicant charge GST rate of 12% on MEP (Mechanical, Electrical & Plumbing Works) activities by availing the benefit of Central Tax (Rate) Notification No 01/2018 dated 25th January 2018, if the said supplies are in relation to an housing project enjoying Infra status vide F No 13/6/2009-INF dated 30th March 2017 of Government of India, in Ministry of Finance, Dept, of Economic Affairs?
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such 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, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the “GST Act”.
02. FACTS AND CONTENTION – AS PER THE APPLICANT
The submissions, as reproduced verbatim, could be seen thus-
Statements of relevant facts having a bearing on the questions raised and statement containing the applicant’s interpretation of law.
The applicant M/s Eiffel Hills And Dales Developers Pvt Ltd having GSTIN 27AABCE8028J1ZI is a construction company engaged in the business of Mechanical, electrical and plumbing (MEP) turnkey project contracting & engineering.
The MEP activities provided by the applicant include design, engineering, supply, installation and commissioning of plumbing, firefighting and electrical infrastructure systems to a wide range of commercial projects. The applicant is venturing into an agreement with a developer/builder to provide MEP services for an affordable housing project. The said housing project satisfies the definition of affordable housing described in Notification no 13/6/2009INF dated 30th March, 2017 by Ministry of Finance, Department of Economic Affairs thereby enjoying the Infra status within the meaning of Central Tax (Rate) Notification No 01/2018 dated 25th January 2018.
By conjoint reading of Notification No 20/2017-Central Tax (Rate) dated 22nd August 2017 and notification No 01/2018 dated 25th January 2018 as amended by inserting therein in Item No (v) new sub item (da) it is apparent that “Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, or installation of original works pertaining to, (da) low-cost houses up to a carpet area of 60 square meters per house in an affordable housing project which has been given infrastructure status vide notification of Government of India, in Ministry of Finance, Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30th March 2017;” attracts GST @ 12%.
Thus, in order to seek clarity and certainty on the questions raised in point no 14 of the said application, the applicant has thereby approached the Honorable Advance Ruling Authority under Section 97 of the Maharashtra Goods and Service Tax Act, 2017.
Additional Submissions on 14.08.2018
In connection with the above submission made by the GST department at the time of Preliminary Hearing against our application and questions raised to the Hon Advance Ruling Authority in application No 46 dated 28.06.2018, we state as follows
A) in reply to our first question raised “Whether MEP activities (Mechanical, Electrical, Plumbing Works) undertaken by the applicant falls within the definition of composite supply of works contract as defined under Section 2(119) of CGST Ad”, the dept.’s reply is not concrete on whether the same tantamount to the composite supply of Works contract?
In reply to the above we state that, as per the draft contracts agreement for Electrical & Plumbing works to be undertaken by us and submitted in this behalf to the GST Dept, on 08.08.2018, the scope of work for electrical contract includes complete installation, testing & Commissioning of Substation Electrical Work, HT & LT Cabling work, DG & Cabling Work, Street light & Cabling Works whereas the scope of work for plumbing contract includes complete external plumbing work, laying of RCC hume pipes/Gl pipes/UPVC Pipes for storm water lines, construction of chambers.
With reference to section 3(26) of General Clause Immovable Property is defined as “Land, benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth.”
Further Works Contract as defined in clause (119) of Section 2 of the CGST Act 2017, means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in execution of such contract.
On conjoint reading of both the definitions it is amply clear that the aforesaid work activities results in creation of immovable property and also satisfies the definition of work contract.
Further on reading composite supply definition under Section 2(30) which states that “a supply made by taxable person to a recipient comprising two or more supplies of goods and services, 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 activities of engineering, designing, supply, installation and commissioning are interrelated in any external electrical and plumbing activities and are not provided separately in ordinary course of business, and hence they together form a composite supply within the meaning of Section 2(30).
B) In reply to second question on whether can the applicant charge GST Rate of 12% on MEP activities by availing the benefit of central tax rate Notification No 01/2018 dated 25th January, 2018 under sub item (da) in item (V) under serial no 3 of the said notification, the department replied that the benefit of this notification is in respect of Original Works and the same is defined under S no 2(zs) of Notfn No 12/2017 CT(rate) dated 28.06.2017 as under “Original Works” means-all new constructions;
I) All types of additions & alterations to abandoned or damaged structure on land that are required to make them workable;
II) Erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise.
The department’s contention is that the aforesaid activities cannot be termed as Original Works which is impractical. All the above concerned activities, falls within the definition of Original Works.
03. CONTENTION – AS PER THE CONCERNED OFFICER
The submission, as reproduced verbatim, could be seen thus-
The application has been examined and the submission/comments are as under;
I) Brief facts are as under:
1) The applicant M/s Eiffel Hills and Dales developers Pvt. Ltd. is engaged in the business of Mechanical, Electrical, Plumbing (MEP) turnkey project contracting and engineering.
2) The MEP activities provided by the applicant include design, engineering, supply, installation and commissioning of plumbing, firefighting and electrical infrastructure systems to a wide range of commercial projects.
(II) The GST rate (6%+6%) is applicable to following as per notification No. 20/2017 CT (rate) dated 22/08/2017 as amended by notification No. 1/2018 CT rate dated 25/01/2018. The details of exemption at S. No. V are as under:
(v) Composite supply of works contract as defined in clause (119) of sec 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, or installation of original works pertaining to,
(a) Railways, including monorail and metro; (vide notification No. 1/2018-central Tax rate dated 25/01/2018 excluding deleted and replaced by including)
(b) A single residential unit otherwise than as a part of a residential complex;
(c) low-cost houses up to a carpet area of 60 square meters per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;
(d) Low cost houses up to a carpet area of 60 square meters per house in a housing project approved by the competent authority under
(1) The “Affordable Housing in Partnership” component of the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana;
(2) Any housing scheme of a State Government;
(e) Post-harvest storage infrastructure for agricultural produce including a cold storage for such purposes; or
(f) Mechanized food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages
d(a) low-cost houses up to a carpet area of 60 square meters per house in an affordable housing project which has been given infrastructure status vide notification of Govt, of India, Ministry of Finance, Dept, of Economic Affairs vide F. No. 13/6/2009-1NF dated 30th March, 2017. (d)(a) added vide notification No. 1/2018 central Tax rate dated 25/01/2018).
Ill) The definitions of Composite Supply, Works Contract, and Original Work & Immovable Property are as under:
a) Composite Supply as defined in clause (30) of section 2 of the Central Goods and Services Tax Act, 2017 means a supply made by a taxable person to a recipient comprising two or more supplies of goods or services, 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 of goods, packing materials, transport and insurance , is a composite supply and supply of goods is the principal supply.
b) “Work Contract” is defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, the term “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property. Wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.
The definition of Original Works as defined in at S. No. 2(zs) of Notification No. 12/2017 Central Tax(rate) dated 28.06.2017 is as under;
“Original Works” means- all new constructions;
I) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;
II) Erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;
The definition of Immovable Property as defined u/Section 3(26) of the General Clause,” 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.
IV) In view of the above, the reply is under;
1) Whether MEP activities ( Mechanical, Electrical, plumbing Works) undertaken by the applicant falls within the definition of composite supply of works contract as defined under Section 2(119) of Central GST Act?
Ans: – As per the Annexure II of the application dated 28.06.18 for the Advance ruling, the MEP activity provided by the applicant includes design, engineering, supply, installation and commissioning of plumbing, firefighting and electrical infrastructure systems to a wide range of commercial projects.
The definition of Immovable property as defined u/Section 3(26) of the General Clause,” 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.
If the aforesaid works become immovable property as permanently fastened to the building attached to Earth & transfer of property is involved in execution of contract then it will fall within the definition of Works Contract.
In the opinion of this office as per the definition of composite supply in the instant case two or more works contract supplies which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply has to be made by the applicant. So if the combination of the services provided by the applicant are covered under the definition of works contract and simultaneously is also covered under the definition of composite supply then it will fall within the definition of Composite Supply of Works Contract.
Prima facie, it appears that the services of design & engineering are not covered under the definition of works contract.
2) Whether can the applicant charge GST rate of 12% on MEP (Mechanical, Electrical, plumbing Works) activities by availing the benefit of central Tax rate notification No. 01/2018 dated 25th January, 2018, if the said supplies are in relation to an housing project enjoying infra status vide F. No. 13/6/2009-INF dated 30th March 2017 of Government of India, In Ministry of Finance, Department of Economic Affairs?
Ans,- The exemption of GST to the Composite Supply of Works Contract is to be by way of construction, erection and commissioning or of installation of original works (pertaining to low cost houses up-to carpet area of 60 sq. mtr.) In applicant’s case, their activity is by way of design, engineering, supply and commissioning of plumbing, firefighting and electrical infrastructure system which cannot be termed as Original Works viz. New construction or addition / alteration to abundant or damaged structure on land or erection commissioning or installation of plants, machinery or equipment or structure whether pre-fabricated or otherwise. Hence, prima facie, it appears that the applicant is not entitled to avail the exemption GST rate of 12% on MEP activity.
Therefore, if the combination of the services provided by the applicant are covered under the definition of works contract and simultaneously is also covered under the definition of composite supply then only the applicant will be eligible to charge GST rate of 12% on MEP by availing the benefits of Central Tax-Rate Notification No. 01/2018 dated 25th January 2018 subject to fulfilment of other conditions of the notification.
Additional submissions given by the officer-
Please refer to this office letter of even no. dated 30.07.2018 and letter dated 14.08.2018 received from M/s Eiffel Hills and Dales Developers Pvt. Ltd. on the above mentioned subject.
In view of the above, the comments are as under;
Q.1 Whether MEP activities ( Mechanical, Electrical, plumbing Works) undertaken by the applicant falls within the definition of composite supply of works contract as defined under Section 2(119) of Central GST Act?
Comments:
As per further instructions received from Member, Advance ruling authority, GST, Mumbai during PH on 31.07.2018 that in order to determine the nature of supply i.e. “Composite Supply”, we have to study the contract. The applicant has submitted separate Work Orders (Draft) for electrical work and plumbing work vide letter dated 14.08.2018 (received on 21.08.2018). Our observation is as below on the basis of extracts of the draft agreement:
“ELECTRICAL WORK:
Contract type:
The Contract shall be divided into two types:
A) TYPE-/-………………………
B) TYPE-11– Supply of material under basic rates
This shall be Item rate Contract for the supply of material for above mentioned works in Type – 1 Contract, for the proposed substation electrical works, HT & LT Cabling works, DC & Cabling works, Street Light & Cabling.
a. Basic rate for each item is mentioned in Annexure-ll. In case of any deviation in specification, Contractor has to seek prior written approval from Client.
b Contractor shall submit all the quotes from vendors to our Purchase dept.
c. Purchase Dept. shall verify and approve the rate of the item.
d. After the above approval Contractor shall procure and install the item at site.
e. Contractor shall raise bill for the same item with basic landed approved rate (excluding GST) plus 5 % for handling charges.
f. It shall be mandatory for the Contractor to seek approval from the client for each & every lot of Procurement of all the items & also for which the basic rates has been mentioned in Annexure-ll.
g. any variations in the basic rates of the items will be paid or debited – as the case may be – to the Contractor accordingly upon the Completion of the entire awarded scope of work i.e. at the time of Full & Final Bill.
h. However, failing to adherence or an attempt to By-pass the defined procedure may lead to candid denial of any or all considerations for such claims.
CONTRACT FOR PLUMBING WORK:
Execution of Extra items / Deviated items:
1. The rates for deviated or extra items shall be derived from the Tender item rates as far as possible.
2. If the items of work are absolutely new, then the rate shall be worked at actual cost of materials with 15% profit on material + labour + 3% Overheads & Wastages (where M = Material component & L = Labour component).
3. if for such extra items any material supplied by the Client free of cost than 5% on such free supply material shall be considered towards overheads and profit element”.
This shows that the customer placing the order or giving the contract to Eiffel is controlling the quantity as well as the quality of the goods and services. However, as per the definition of “Composite Supply” means ” a supply made by a taxable person to a recipient comprising two or more supplies of goods or services, 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.”
There are following elements to be present to qualify as such for composite supply,-
1. There should be two or more taxable services.
2. They should be naturally bundled.
3. Supply in conjunction with each other;
4. in the ordinary course of business;
5. one of which is a principal supply.
It is observed that “in the ordinary course of business”, the customer controls only the quality of that goods and services and the timelines of the project. However, the quantity of the goods is left to the control of the Contractor. But in the instant case, as per the Service Work Order, they are controlling both. As per Annexure T, they are billing the goods and labour cost separately. Hence, these are two different supplies to be treated as such instead of composite supply.
