Query: Whether Orders for Supply of Aluminium Windows or Doors and installation thereof amounts to Supply of Goods or Supply of Services? The Supply of Aluminium Windows under HSN Code No. 7610 attracts 28% GST whereas the Works Contract Services attracts 18% GST:
The orders for supply of Aluminium Windows and Doors will be executed by Onsite fabrication and are installed in the slots provided by the Builder in the buildings. They are fitted with the help of screws and can be removed as such at will. The execution orders essentially involve both supply of goods and services.
If we examine the nature of activities involved, the activities by the Supplier results in fabrication & installation of Aluminium Windows or Doors, a movable property which is a supplied with regards to immovable property but not fabrication and installation of any immovable property, as such.
Therefore, there is a opinion among One Section of the Departmental Officers and Consultants that fabrication & installation of Aluminium Windows or Doors which are a movable property to be treated as Supply of Goods falling under HSN Code No. 7610 attracting GST @ 28%. Another Section of the Departmental Officers and Consultants have a opinion that the activity falls under the category of “Works Contract Service” attracting GST @ 18%.
As there is conflict of opinions, If anyone pays GST @ 18% on these supplies, the same may lead to rise of Audit Objections and Tax demands. However, on the other hand, if higher rate of tax is charged, it may and will affect the Orders from the Customers.
To have a comprehensive view over these Supplies, Let us examine the Provisions of GST Law in this regard. The GST Act (SGST Act and CGST Act) covers such supplies under two definitions; namely composite supply under Section 2(30) and works contract under Section 2(119) read with entry No. 6 of Schedule-II to the GST Act. The issue has been examined basing on these explanation alongside the statutory definitions cited above;
In terms of Section 2 (30) of GST Act, 2017,
“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;
In terms of Entry No.6 of Schedule II of CGST Act,
The following composite supplies shall be treated as a supply of services, namely:—
(a) works contract as defined in clause (119) of section 2.
From these, one can observe that all the Composite Supplies if they are made in relation to works contract as defined in the Section 2 (119) will be treated as Supply of Services though they involve goods as principal supply.
In view of these, the provisions of Section 2 (119) is required to be considered and the said provisions are reproduced as under;
“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.
To have a legal perspective over these aspects, the decision of Hon’ble Supreme Court Judgment in the case of M/s.Kone Elevators Vs. State of Tamilnadu in WP (C) No. 232 of 2005 dt. 06.05.2014 is examined. In the said case, the issue of supply and installation of lift in the Buildings was dealt with as to whether the said activity falls under the Supply of Goods or Works contract.
Initially, the Three Judge Bench has held that the said activity as Supply of Goods whereas on referring this matter to Larger Bench of Supreme Court consisting of Five Judges, the Larger Bench has decided that the said activity falls under Works Contract in terms of Article 366 (29A) (b) of the Constitution of India.
While holding the supply and installation of lift, the Large Bench of Hon’ble Supreme Court has observed that
“ ….. “the dominant nature test” or “overwhelming component test” or “the degree of labour and service test” are really not applicable. If the contract is a composite one which falls under the definition of works contracts as engrafted under clause (29A)(b) of Article 366 of the Constitution, the incidental part as regards labour and service pales into total insignificance for the purpose of determining the nature of the contract.” (para 63)
“It may be noted here that in all the cases that have been brought before us, there is a composite contract for the purchase and installation of the lift. The price quoted is a composite one for both. As has been held by the High Court of Bombay in Otis Elevator (supra), various technical aspects go into the installation of the lift. The installation requires considerable skill and experience. The labour and service element is obvious. But it is not in dispute that the preparatory work has to be done taking into consideration as to how the lift is going to be attached to the building. The nature of the contracts clearly exposit that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc. are the components of the lift which are eventually installed at the site for the lift to operate in the building. In constitutional terms, it is transfer either in goods or some other form. In fact, after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building.”
“It is necessary to state here that if there are two contracts, namely, purchase of the components of the lift from a dealer, it would be a contract for sale and similarly, if separate contract is entered into for installation, that would be a contract for labour and service. But, a pregnant one, once there is a composite contract for supply and installation, it has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel. Therefore, it would not be appropriate to term it as a contract for sale on the bedrock that the components are brought to the site, i.e., building, and prepared for delivery. The conclusion, as has been reached in Kone Elevators (supra), is based on the bedrock of incidental service for delivery. It would not be legally correct to make such a distinction in respect of lift, for the contract itself profoundly speaks of obligation to supply goods and materials as well as installation of the lift which obviously conveys performance of labour and service. Hence, the fundamental characteristics of works contract are satisfied.”
“Thus analysed, we conclude and hold that the decision rendered in Kone Elevators (supra) does not correctly lay down the law and it is, accordingly overruled.” (para 64)
By making the above observations, Larger Bench of the Hon’ble Supreme Court overruled the decision of Three Judges Bench and decided that composite Contract for supply & installation of Lift falls under the “Works Contract”.
The issue of supply and installation of Lifts in the Building is completely similar to the composite contract of supply and installation of Aluminium Windows. The Builders do make preparatory work by providing slots after due levelling these slots without which windows cannot be fixed/installed. In those slots, the Suppliers fix the individual frames, glass shutters, handles, rollers etc., with considerable skill. Otherwise, the Shutters do not open and roll out or roll in and Aluminium Windows do not perform. On installation, they become “Permanent Fixtures” of the Buildings.
In view of these facts, the activity of Supply of Aluminium Windows or Doors and their Installation do fall under the category of Supply of Works Contract Services and Tax Rates applicable to the Works Contract Services i.e., 18% GST is applicable to these Supplies.
In addition to these, It is also relevant to find out the intention of the Law Maker in these cases. The Law Maker’s intention to include movable property in the form of plant and machinery in the definition of Works Contract can be seen from the provisions of Section 17 (5) (c) of the CGST Act, which is reproduced as under:
(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;
From the bare reading of these provisions, it can be observed that the Law Maker recognizes that the installation of machinery (which is a movable property) do fall under the category of “Works Contract Services”.
Thus, a reasonable analogy can be drawn that the activity of installation of plant and machinery is similar to that of installation or fixing out of windows in the slots provided in terms of work orders. The capability of an item like window can be moved away, by itself does not determine the nature of service. Thus, there are no reasons to bar the installation of Aluminum Windows or Doors out of the category “Works Contract Services” just because they are movable items and can be removed with less difficulty or with relative ease. For that matter, any heavy concrete structures fixed in the course of construction of Metro Rail also can be removed with necessary tools and skills.
In view of these findings, the composite supply of Aluminum Windows or Doors and their Installation fits in the definition of “Works Contracts” given under Section 2 (119) of the CGST Act, 2017 and hence, the rates of Tax applicable to Works Contract Services i.e., 18% is applicable to the Supply & Installation of Aluminium Windows or Doors.
(Content is merely for sharing knowledge. Author is Voluntarily retired Superintendent of Customs, Central Excise & Service Tax, Hyderabad and can be reached at [email protected] or 9440551266)