In re HYT Engineering Company Pvt Ltd (GST AAR Uttar Pradesh)
We find that the major part of the contract is supply of goods i.e. Machinery and Plant, tools, gauges, instruments, office equipment & furniture and electrical goods. These goods are delivered to the client (JV) by the applicant and such goods are used by the applicant to provide services of installation, testing, commissioning and electrical works. Without supply of these goods, the services cannot be supplied by the applicant and therefore we find that the goods and services are supplied as a combination and in conjunction and in the course of their business where the principal supply is supply of goods. Thus we find that there is a composite supply with supply of goods being the principal supply.
As per Section 2(119) of the CGST Act, 2017, “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”.
Immovable property has not been defined in the GST Act. Definition of Immovable Property is given in Clause 3 (26) of General Clauses Act, 1897 which says that “immovable property shall include land, benefits arising out of land and things attached to earth, or permanently fastened to anything attached to earth.” As per Section 3 of the Transfer of Property Act 1882, the phrase “attached to earth” means- (a) rooted in the earth, as in the case of trees and shrubs; (b) imbedded in the earth, as in the case of walls or buildings; or (c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached.
We find that the applicant has not claimed that the mechanical engineering work and electrical engineering work for installation of plant and machinery in the railway sites is immovable property and have submitted that it is the part of electric loco shed which is immovable property. The applicant has been entrusted the work of supply, installation, testing and commissioning of M& P items.
In case of M/s Sirpur Paper Mills Ltd. Vs. Collector of Central Excise, Hyderabad (1998 (97) ELT 3 (SC)), CEGAT recorded finding that whole purpose behind attaching machine to a concrete base was to prevent wobbling of machine and to secure maximum operational efficiency and also for safety. Supreme Court held that in view of those findings it was not possible to hold that the machinery assembled and erected by the appellant at its factory site was immovable property as something attached to earth like a building or a tree.
In the case of Virgo Industries (Eng.) Pvt Ltd vs CCE, Chennai, 2015 (4) TMI 247(Mad.), the Madras High Court observed that an item fixed to the earth can continue to be movable if the same is capable of being shifted to another place without having to dismantle the same into constituent components and without causing substantial damaging to such individual components.
For the goods/services supplied by the applicant to be covered in the works contract, it is necessary that the contracts enumerated therein should relate to immovable property. If the contract is otherwise or if the same results in movables, then it may be a composite supply but not the works contract.
We are of the view that the activities of installation, commissioning, testing, supplying mechanical work and electrical work are not in respect of immovable property as the Machinery and plant is attached to concrete base to prevent vibration/wobble free operation and preventing vibration/wobble free operation does not qualify for being described as attached to the earth under any one of the three clauses described above . Hence, the said supply of goods/services by the applicant to JV is not works contract.
We find that the applicant has sought ruling as to whether the benefit of SI. No. 3(v) of Notification No.11/2017-Central Tax (Rate) as amended vide notification no. 20/2017-Central Tax (Rate) is applicable to the subject works. We find that si. No. 3(v) of the Notification No.11/2017-Central Tax (Rate), as amended prescribed CGST rate @ 6% for composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017,(other than that covered by item (i), (ia), (ib), (ic), (id), (ie) and (if) above) supplied by way of construction, erection, commissioning, or installation, of original works pertaining to railways, including monorail and metro.
18. The rate prescribed vide si. No. 3(v) of the Notification No.11/2017-Central Tax (Rate) as amended is applicable to composite supply of works contract and as the supply entrusted to the applicant vide JV Agreement is not a works contract, the applicant is not entitled for the benefit of the said notification.
Read AAAR Order : Setting up of Electric Loco Shed for Railway is composite supply of works contract service
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH
ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2017 & UNDER SECTION 98(4) OF THE UPGST ACT, 2017
1. M/s HYT Engineering Company Private Limited, New Electric Loco Shed, Opp Saiyedpur Railway Station, Chochakpur Saidpur Road, Saiyedpur Bhitri, Ghazipur-233304 (here in after referred to as the applicant) is a registered assessee under GST having GSTN: 09AAACH5158H1ZI.
2. The applicant has filed application for advance ruling in Form GST ARA-01 and submitted as under-
(1) They had entered into Joint Venture with M/s. Indwell Constructions Private Limited and constituted M/s. INDWELL – HYT (JV) (hereinafter referred as “JV”).
(2) Rail Vikas Nigam Limited (hereinafter referred as “RVNL”) has invited a tender Tender no. RVNL/BSB/SYH/1 dated 25.05.2018 for the Construction of PEB shed, structure, building, water supply arrangement, drainage, sewerage, road works, track works, power supply and general electrical works, OHE works, signal & telecommunication works and supply, installation and commissioning of machinery and plant in connection with setting up of Electric Loco Shed at Saiyedpur Bhitri, Uttar Pradesh (India).
(3) The JV had made a bid for the tender and the said tender was allotted to the JV, and the Letter of acceptance (hereinafter referred to as LOA) bearing No. RVNL/BSB/SYH/1/1416 dated 24.09.2018 was issued to the JV. The JV has duly accepted the same and signed.
(4) JV had awarded the contract to the JV partners on a back to back basis vide the JV agreement dated 10.10.2018 with the specific execution of the works contract between the partners. Applicant was allocated with the work of supply, installation and commissioning of the plant and machinery, mechanical engineering works, electrical works etc
(5) The Applicant being one of the partners in the JV is engaged in providing works contract service as sub-contractor to JV for original works pertaining to RVNL. They execute and undertake composite supply of works contract as defined in clause (119) of section 2 of Central Goods and Services Tax Act, 2017(hereinafter referred as “CGST Act”).
(6) The nature of works awarded is that of works contract whereby in terms of Section 7 of CGST Act, 2017 read with Schedule II to the said Act, it has to be construed as supply of services. Accordingly, the rate of tax is to be determined in terms of Notification No.11/2017-Central Tax (Rate) as amended.
(7) On perusal of the said notification SI. No. 3 covers the following:
