This article is containing discussion on Supply of Pumps as well as installation and commissioning work treated as Works Contract Services as perAdvance Ruling given by the West Bengal Authority in the case of KSB Limited vide order dated 19-05-2023. An analysis is provided to determine whether the supply of pumps and related services can be considered as Works Contract Services and their applicability to sewerage treatment plants.
Facts of the Case
The applicant is engaged in the business of manufacturing and selling pumps for various applications. The applicant also provides services in relation to installation, commissioning, repairs and maintenance of such pumps.
A contract has been awarded to the Applicant by the Kolkata Municipal Corporation (KMC) for replacing the old, poor performing pump with a new pump.
Question before the AAR
An advance ruling application has been submitted with respect to the supply made to the Kolkata Municipal Corporation (KMC), for replacing the old, poor performing pump with a new pump. The Applicant raised following question vide the application filed under sub-section 2(a) & 2(b) of section 97 of the GST Act.
“Whether supply for construction of a sewerage treatment plant which involves supply of pumps as well as installation and commissioning work attracts GST rate of 12% in terms of notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 read with of Notification No. 20/2017-CT (Rate) dated 22/08/2017.”
Essential terms of the entry 3(iii) of the above Notification
Applicability of the entry 3(iii) of the notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 read with Notification No. 20/2017-CT (Rate) dated 22/08/2017 shall be done if following conditions be fulfilled.
a) Nature of supply should be Composite supply of works contract as defined in clause (119) of section 2 of GST Act;
b) Supply should be made to the Central Government, State Government, Union territory, a local authority, a Governmental Authority or a Government Entity and
c) The way of supply should be construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, –
(a) ……………
(b) ……………
(c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal.
Analyzing Points –
1. Whether supply for construction of a sewerage treatment plant which involves supply of pumps as well as installation and commissioning work is Work Contract Service as per clause 119 of section 2 of the CGST Act.
2. Such supply of pumps as well as installation and commissioning work shall be treated as supply for the purpose of sewerage treatment or disposal.
Work Contract Service
Section 2(119) of CGST Act – “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;
As per the aforesaid definition, the essential feature for a service to be a ‘works contract’ service is that whether the service is in relation to an immovable property or not. Consequently, it needs to be examined whether the supply in this case could be considered as pertaining to ‘immovable property’. Section 3(26) of the General Clauses Act, 1897 gives the following definition to ‘immovable property’:
“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;
The pump in question could not be classified as land or benefits to arise out of land. On examining further, it could be observed that even though the term “attached to the earth” has not been defined in the General Clauses Act, 1897, Section 3 of the Transfer of Property Act, 1882 gives the following definition:
“attached to the 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;
The pump in this case could not be classified into the clauses (a) and (b) mentioned above. The applicability of clause (c), however, requires further examination. As per clause (c) reproduced above, if something is attached for the ‘permanent beneficial enjoyment’ of what it is attached to, it would fall within the definition of ‘attached to the earth’ and thus within the definition of ‘immovable property’.
The Hon’ble Supreme Court of India has stated in the case of CCE v.s. Solid & Correct Engg. Works that:
Paras.- 28 & 29 (relevant extract):
28. The English law attaches greater importance to the object of annexation which is determined by the circumstances of each case. One of the important considerations is founded on the interest in the land wherein the person who caused the annexation possesses articles that may be removed without structural damage and even articles merely resting on their own weight are fixtures only if they are attached with the intention of permanently improving the premises.
29. The Indian law has developed on similar lines and the mode of annexation and object of annexation have been applied as relevant tests in this country also. …..
Para.-30 (relevant extract):
30. The courts in this country have applied the test whether the annexation is with the object of permanent beneficial enjoyment of the land or building.
…..
What is evident from the observations mentioned in paras. 29 & 30 that the object or intention of annexation is the pertinent test to determine whether something is for ‘permanent beneficial enjoyment’. Further, para. 28 also implies that this would be determined on the basis of the ‘circumstances of each case’. In view of the same, the facts of this case have to be examined to determine that whether the installation of pump could be classified as immovable property and consequential actions would follow.
The case description shows that the tender is floated for the purpose of replacing the earlier pump on account of performance issues and installation of a new submersible pump by the applicant. The pump would be fastened to the civil structure by way of nuts, bolts and fastenings. The civil structure in this case is a sewerage pumping station under KMC, the very purpose of which is pumping of sewerage for further treatment & disposal. The pump is essential to this activity and is thus expected to be installed and fastened at its place of installation throughout its operational life, and is thus installed for the permanent beneficial enjoyment of the civil structure to which it is attached to. Thus, in light of the facts of the case, the pump on installation would be an immovable property, and thus the installation, repair and maintenance of pump at the sewerage pumping station would qualify to be ‘works contact service’ as per Section 2(119) of GST Act.
The terms and conditions stated in the tender issued have been considered for the purpose supply of work contract service.
Clause of work description in the tender – “Manufacture, supply and installation of two nos. 240 cusec (480 m3/min) at 3 m head axial flow column type submersible pump motor units in place of poor performing old pump at Palmer Bridge Drainage Pumping station and at Ballygunge Drainage Pumping station under KMC”.
Conditions, responsibilities and technical specifications of the scope of work of the applicant as per tender document: –
– Design and manufacture of the submersible pump motor set,
– Carriage and delivery of the submersible pump motor set to the site of installation,
– Erection and installation of the submersible pump motor set,
– Testing and maintenance of the submersible pump motor set after installation,
– Erection of foundation, as per requirement.
From the above, it could be seen that the scope of work includes transfer of property in goods. It also includes erection, installation and maintenance of the pumping set, including its foundation as per requirement. In light of these facts, the applicability of the Notification has to be examined.
Purpose of supply for sewerage disposal:
The tender is issued by the Sewerage and Drainage (S&D) department of the KMC. The tender document itself states that the supply is in the nature of replacing the poor performing old pumps. The purpose of the pump in this case is pumping the sewerage from one location to other, which is an integral part of the process of sewerage disposal. Further, the applicant has also submitted a document issued by the Executive Engineer (Mech.) and Asst. Engineer (Mech.) from the S&D department of KMC which states that: ‘it is to confirm that the above-mentioned contract is for disposal of drainage/sewage generated at the KMC area under the Kolkata Municipal Corporation and is in the nature of Composite supply of Works Contract’.
On the basis of the above, the AAR held that the contract is for the purpose of sewage disposal, and the Notification would apply to this case, subject to fulfilling other conditions.
Conclusion: Based on the advance ruling, it is established that the supply of pumps, installation, and commissioning work in sewerage treatment plants can be treated as Works Contract Services. The AAR’s decision takes into account the nature of the supply, the attachment of the pump to the civil structure, and the purpose of the supply for sewerage disposal. Companies involved in similar projects should consider this ruling and its implications when engaging in supply and installation activities for sewerage treatment plants.
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