RAJASTHAN AUTHORITY FOR ADVANCE RULING
GOODS AND SERVICES TAX
KAR BHAWAN, AMBEDKAR CIRCLE, NEAR
RAJASTHAN HIGH COURT
JAIPUR - 302005 (RAJASTHAN)
Joint Commissioner
Additional Commissioner
(b) applicability of a notification issued under the provisions of this Act;
(e) Determination of the liability to pay tax on any goods or services or both.
12.10.2022
Note: Under Section 100 of the CGST/RGST Act, 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act, 2017, within a period of 30 days from the date of service of this order.
At the outset, we would like to make it clear that the provisions of both the CGST Act and the RGST 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 RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / RGST Act would be mentioned as being under the "GST Act".
The issue raised by M/s M/s Secure Meter Limited, E-Class, Pratap Nagai' Industrial Area, Udaipur, 313003- Rajasthan - (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (b)&(e) given as under:-
(b) Classification of any goods or services or both;
(b) applicability of a notification issued under the provisions of this Act; (e)Determination of the liability to pay tax on any goods or services or both.
A. SUBMISSION AND INTERPRETATION OF THE APPLICANT:
1. Brief facts of the case :
a.) The applicant i.e. M/s Secure Meter Limited, E-Class, Pratap Nagar Industrial Area, Udaipur is engaged in providing the compressive water services and currently is in the process for bidding for tender floated by the PHED, a unit of Government of Rajasthan for Operation and Maintenance of Mansi Wakai dam Stage-I, complete system including mechanical, electrical, instrumentation installation works switchyards/GSS and maintenance of Dam, pumping machinery, pipe line & tunnel from Mansi Wakai Dam to Nandeshwar filter plant project on ESCO and O&M contract.
b.) The terms and scope of the contract combines ESCO Model and O&M contract. That the activities under ESCO model and O&M contract are so closely linked in a manner that they form a single indivisible supply. The driving factors are:-
- A single tender shall be floated for Operation and Maintenance of Dam, pumping machinery, pipe line & tunnel on ESCO Cum O&M Contract where the preamble of scope specifies that the contract combines ESCO model and O&M work.
- The nature of contract is such that initial activities under ESCO model is the main service and the other services under O&M contract combined with such service are in the nature of ancillary services which help in better operation of main activities under ESCO model and make the model successful.
c.) Thus, based on above facts and concept such contract shall be a single supply and cannot be treated as distinct supplies. Since all the conditions of composite supply are satisfied, it is a composite supply.
d.) Further, since composite supply of works contract has been specifically classified as supply of service under Schedule II, it should be first analysed whether the contract can be classified as a works contract or not.
e.) The scope of work involves replacement of old Centrifugal pump sets with energy efficient new centrifugal pumps to maintain average energy consumption, replacement and repair of header pipes, of suction and delivery pipes, with higher size of MS pipe, special repair / rehabilitation / replacement of existing pump sets, switchgears, mechanical and electrical equipment, electric panels cables of all sizes, in phased manner at his own cost ensuring that the Notified Flow on Mansi wakal water supply scheme is not disturbed. The supply and installation of new pumping machinery and other equipment's shall be done as per the best engineering practises.
f.) The operation and maintenance work shall be carried out of all the plant and machineries installed in pump house, switchyards at the main pumping station of Mansi Wakai project.
g.) Operation and maintenance of Dam and its mechanical, Civil and electrical accessories, all valves pipeline internal and external lighting etc. from inlet of RWR, of adjacent pump house to the delivery head pipe.
h.) The pumping station and its surrounding shall be kept clean and in dry condition, properly ventilated and illuminated. For the purpose of illumination, replacement of fitting/ fixtures shall be done by the contractor, if required.
i.) The applicant shall be responsible for painting, colour/ white washing, distempering etc. to the pumping station building, thrice during the entire contract period.
j.) MAINTENANCE OF PIPE LINE & TUNNEL:
The applicant shall have to do both preventive and break down maintenance of pipe line and Tunnel. The pipe line shall have to be under consistent surveillance round the clock and throughout the year. The contractor shall be responsible for Patrolling, operation and maintenance of the pipelines, repairing of leakages of pipelines, replacement of burst pipes, repairing of appurtenances of pipelines like air valves, scour valves air vessels system, intermediate OHSR (for vacuum filling system), pressure gauges, joints etc.
k.) SWITCHYARD:
He shall be responsible for Maintenance, Overhaul, periodic filtration of transformers oil, repairing of electric fault in the switchyard.
L) MAINTENANCE OF DAM:
Gates: -
Operation and Maintenance (including routine preventive maintenance) of all plant and machinery installed Electrical & Mechanical installation and equipment for Spillway Radial Gate & Rope Drum Hoist.
Crest Stop log gate & Gantry Crane Hoist: -
Operation and Maintenance (including routine preventive maintenance) of all plant and machinery installed Electrical & Mechanical installation and equipment for Crest Stop log gate & Gantry Crane Hoist.
It is understood based on the scope of work detailed above that ESCO model requires improvement of the whole water supply system involving pump houses, pumping stations, transmission lines, switchyards, and headwork. Re-modelling of pump foundation and extension of pump house, replacement of fittings/fixtures and painting of all permanent structures like pumping station building, Dam, Tunnel etc. are involved in the contract.
Applicant's interpretation of law:
Based on facts given in point no. 15 and the intent of the proposed activity, it is implied that the given work is a contract for improvement of the pumping system under the Mansi Wakai project, wherein transfer of property in goods in the form of new pumping machinery and mechanical/electrical equipment shall be involved in the execution of such contract.
That Works contact in itself is a composite supply in which construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning etc. are involved along with transfer or property in goods.
Now whether a supply is a works contact or not is dependent on whether the plant or device or property is a movable or immovable property. To decide whether a property is movable or immovable, the given terms have not been defined under the Act and hence the reliance needs to be placed on other laws and judicial precedents.
Under the General Clauses Act 1897 the term immovable property has been defined under Section 3(26) as "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:
As per the definition the term permanently fastened or attached to earth can be treated as immovable property. Any attachment with earth which is temporary in nature or can be shifted from part of earth to another without causing substantial damage to it cannot be treated as immovable property.
On the given issue, CBEC has also clarified in its circular number 58/ 1/2002-CX dated 15/1/2002 where in para (e) it was clarified that; -
If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items involved not be considered as moveable and will, therefore, not be excisable goods.
Further, such a contract can amount to works contract in GST only if the improvement is of any immovable property. Taking references from the concepts evolved from the precedents, it is understood that the properties for which improvement works has been assigned like pump houses, DAM, campus etc. cannot be moved from one site to another. All the components of the pumping system are erected at the prescribed location and permanently attached to the earth and they cannot be dismantled and reassembled as such dismantling may cause substantial damage to the system and its components.
Thus, based on above facts and concept we find that the contract shall be a single supply and cannot be treated as distinct supplies. Since all the conditions of composite supply are satisfied, it is a composite supply.
Now, under Notification No 12/2017-CT (Rate) dated 28.06.2018, under entry number 3 A, an exemption from GST has been provided for composite supplies which is reproduced as under: -
Thus, according to said entry in the notification, in case of composite supply of goods or services, if the value of supply of goods does not exceeds 25% of the total value of supply during the contract period and if provided to State Government or a local authority and the supply is by way of an activity in relation to functions entrusted to Municipality under Article 243W of the Constitution, then no GST is applicable.
The activities entrusted to the Municipality under Article 243W of the Constitution of India and listed under Twelfth Schedule are enumerated as under;- [Article 243-W],-
1. Urban planning including town planning.
2. Regulation of land use and construction of buildings.
3. Planning for economic and social development.
4. Roads and bridges.
5. Water supply for domestic, industrial and commercial purposes.
6. Public health, sanitation conservancy and solid waste management.
7. Fire services.
8. Urban forestry, protection of the environment and promotion of ecological aspects.
9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.
10. Slum improvement and up gradation.
11. Urban poverty alleviation.
12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.
13. Promotion of cultural, educational and aesthetic aspects.
14. Burials and burial grounds; cremations, cremation grounds and electric crematoriums.
15. Cattle ponds; prevention of cruelty to animals.
16. Vital statistics including registration of births and deaths.
17. Public amenities including street lighting, parking lots, bus stops and public conveniences.
18. Regulation of slaughter houses and tanneries.
On perusal of said Schedule it is evident that under point number 5, the water supply for domestic, industrial and commercial purposes is responsibility of Municipality. It is pertinent to note that given activity of ESCO plant redevelopment is in relation to clean drinking water facility to the citizens. Thus, it is easily ascertained that the applicant is engaged in a Work Contract (Composite supply) to a Governmental Authority.
Thus, according to applicant the property of improvement is an immovable property and thus the given work should be treated as works contract and accordingly the exemption as defined in entry 3 A of Nt. 12/2017-CT (rate) can be claimed.
B. QUESTIONS ON WHICH THE ADVANCE RULING IS SOUGHT:-
1. Whether the activity of operation and maintenance is to be considered as Supply of goods or a Supply of Services under CGST / RGST Act 2017? Accordingly, whether the transaction can be sub-classified as a "Pure Supply of Service" or "Pure Supply of Goods" or "Composite supply of goods and services being a Works contract?
2. Whether the applicant is entitled to the benefit of exemption under entry 3 A of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017, as amended? If not, what is applicable rate of tax?
C. PERSONAL HEARING
In the matter personal hearing was granted to the applicant on 14.06.2022 & 29.08.2022. Shri Pankaj Mandwani, (Authorised Representative) along with Sh. Anil goyal, & Sh. Ramesh Kumawat of applicant appeared for PH. During the PH, they submitted additional documents as required by the authorities. Further, they reiterated the submissions already made in the written application, they requested for early disposal of the application.
D. COMMENTS OF THE JURISDICTIONAL OFFICER
Comments received from the Deputy Commissioner, SGST, Circle-C, Udaipur vide letter dated 08.06.2022 are as under: -
With your above Reference letter the comments on the Advance Ruling Application filed by M/s SECURE METERS LIMITED (GSTIN-08AACCS8785M1ZH) are given below:-
Question 1.
Whether the activity of operation and maintenance is to be considered as Supply of goods or a Supply of Services under CGST / RGST Act 2017? Accordingly; whether the transaction can be sub-classified as a "Pure Supply of Service" or "Pure Supply of Goods" or "Composite supply of goods and services being a Works contract?
Reply :- The applicant is awarded with work of OPERATION AND MAINTENANCE OF MANSI WAKAL DAM STAGE I, COMPLETE SYSTEM INCLUDING MECHANICAL, ELECTRICAL, INSTRUMENTATION INSTALLATION WORKS, SWITCHYARD/GSS AND MAINTENANCE OF DAM, PUMPING MACHINERY, PIPE LINE & TUNNEL ON SINGLE POINT RESPONSIBILITY BASIS.
This specific work requires awardees to provide regular engineering and technical services for mechanical, electrical, instrumental, inspection of entire pipe line, daily maintenance work, daily operation of water pumps, daily Operation and maintenance of DAM and its mechanicals.
Therefore the contract or work or supply is specifically or mainly supply of professional services or technical services or engineering services for particular project.
This work also requires to supply certain goods for maintenance work.
As the main supply of professional services or technical services or engineering services does not naturally bundled with supply of goods and thus not covered under composite supply.
When a two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply is treated as mixed supply.
Therefore the contract/work above is mixed supply and therefore the highest rate of tax of particular supply involved in mixed supply will be applicable.
Question 2
Whether the applicant is entitled to the benefit of exemption under entry 3A of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017, as amended? If not, what is applicable rate of tax?
Reply:- The specific work is covered under mixed supply and not as a composite supply. Therefore the benefit of entry no. 3A of notification no. 12/2017 Central Tax Rate is not available to him.
The mixed supply of service is to be taxed at rate of highest rate of goods or services included in supply.
E. FINDINGS, ANALYSIS & CONCLUSION:
1. We have perused the records on file and gone through the facts of the case and the submissions made by the applicant as well as the department. We have also considered the issues involved, on which advance ruling is sought by the applicant, and relevant facts.
2. Based on the written submission made by the applicant i.e. M/s Secure Meter Limited, we find that applicant is in the process for bidding for tender floated by the PHED, a unit of Government of Rajasthan for Operation and Maintenance of Mansi Wakai dam Stage-I, complete system including mechanical, electrical, instrumentation installation works switchyards/GSS and maintenance of Dam, pumping machinery, pipe line & tunnel from Mansi Wakai Dam to Nandeshwar filter plant project on ESCO and O&M contract. The terms and scope of the contract combines ESCO Model and O&M contract.
3. Based on the scope of work as detailed in contract/ Tender Document NIT No. 03/2021-22, it is understood that ESCO model requires improvement of the whole water supply system involving pump houses, pumping stations, transmission lines, switchyards, and headwork. Re-modelling of pump foundation and extension of pump house, replacement of fittings/fixtures and painting of all permanent structures like pumping station building, Dam, Tunnel etc. are involved in the contract. Further, we understood that a single tender shall be floated for Operation and Maintenance of Dam, pumping machinery, pipe line & tunnel on ESCO Cum O&M Contract where the preamble of scope specifies that the contract combines ESCO model and O&M work. Thus, the activities under ESCO model and O&M contract are closely linked.
4. On perusal of contract, we are of the view that the nature of contract is such that initial activities under ESCO model is the main service and the other services under O&M contact combined with such service are in the nature of ancillary services which help in better operation of main activities under ESCO model and make the model successful. As per contract agreement, stipulated date of start is 11.02.2022 and stipulated date of completion of project/ work order No. SE(proj)/BSW/2021-22/1405-09 dated 11.02.2022 is 10.02.2025.
5. The given activities undertaken by the applicant are culminating into works contract services. Now works contact service in itself is a composite supply. The same has been defined under Schedule-II under Entry 6 which is read under:-
"6. Composite supply
The following composite supplies shall be treated as a supply of services, namely:
(a) works contract as defined in clause (119) of section 2; and
(b) supply, by way of or as part of any service or in any other manner what so ever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration. "
6. Works Contract in itself is a composite supply in which construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning etc are involved along with transfer or property in goods.
7. Now whether a supply is a works contract or not is dependent on whether the plant or device or property is a movable or immovable property. To decide whether a property is movable or immovable, the given terms have not been defined under the Act and hence the reliance needs to be placed on other laws and judicial precedents.
8. Under the General Clauses Act 1897 the term immovable property has been defined under Section 3(26) as "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:
9. As per the definition the term permanently fastened or attached to earth can be treated as immovable property. Any attachment with earth which is temporary in nature or can be shifted from part of earth to another without causing substantial damage to it cannot be treated as immovable property.
10. On the given issue, CBEC has also clarified in its circular number 58/1/2002-CX dated 15/1/2002 where in para (e) it was clarified that;-
If items assembled or erected at site and attached by foundation to earth cannot be dismantled -without substantial damage to its components and thus cannot be reassembled, then the items involved not be considered as moveable and will, therefore, not be excisable goods.
11. According to definition of works contract under GST regime, the supply of goods and services are done by the supplier simultaneously which is for immovable property. Hence in works contract supply of goods and services together is compulsory.
12. Apart from above, now we are discussing the legal position of the case. As per submission made by the applicant, they want to avail exemption from tax as provided in Serial number 3A of Notification No. 12/2017- Central Tax(Rate) dated 28.06.2017 [as amended]. The Serial number 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 [as amended vide Notification No. 22/2021-Central Tax (Rate) dated 31.12.2021] is reproduced as under: -
13. Thus, according to said entry in the notification, in case of composite supply of goods or services, if the value of supply of goods does not exceeds 25% of the total value of supply during the contract period and if provided to State Government or a local authority and the supply is by way of an activity in relation to functions entrusted to Municipality under Article 243W of the Constitution, then no GST is applicable.
14. The activities entrusted to the Municipality under Article 243W of the Constitution of India and listed under Twelfth Schedule are enumerated as under;- [Article 243-W],-
15. On perusal of said Schedule it is evident that under point number 5, the water supply for domestic, industrial and commercial purposes is responsibility of Municipality. The given activity of ESCO plant redevelopment is in relation to clean drinking water facility to the citizens. Thus, it is easily ascertained that the applicant is engaged in a Work Contract to a State Government i.e. PHED.
16. Applicant submitted the break-up of material cost under the Operation & Maintenance of Mansi wakal water project and stated that the value of supply of goods constitutes less than 25 per cent, of the value of the said composite supply.
17. Ongoing through the facts, we are not agreeing with report of jurisdictional the Deputy Commissioner, SGST, Circle-C, Udaipur, that supply made by applicant fall under mix supply. The main work entrusted to applicant is maintenance of water supply and keep it working and for execute this functioning any supply of goods for repair and maintenance will continue the composite supply. Even the supply is treated as an pure supply it will be again eligible for exemption under entry No. 3 of Notification No. 12/2017-CT (R) dated 28.06.2017,which is as under -" "Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority [or a Government Entity] 1 by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution"
18. Thus, based on above facts and legal provisions, we are of the view that the activities to be undertaken by the applicant in respect of Operation & Maintenance of Mansi Wakai dam is a single supply and cannot be treated as distinct supplies, the given work is a contract for improvement of the pumping system under the Mansi Wakai project, wherein transfer of property in goods in the form of new pumping machinery and mechanical/electrical equipment shall be involved in the execution of such contract. It is understood that the properties for which improvement works has been assigned like pump houses, DAM, campus etc. cannot be moved from one site to another. All the components of the pumping system are erected at the prescribed location and permanently attached to the earth and they cannot be dismantled and reassembled as such dismantling may cause substantial damage to the system and its components. The activities to be undertaken by the applicant in respect of Operation & Maintenance is for an immovable property i.e. Mansi Wakai dam and thus the given work is held as works contract. Further, since all the conditions of composite supply are satisfied, therefore it is a composite supply of works contract. Further, in the present case, as per break-up of material cost under the Operation & Maintenance of Mansi wakal water project provided by the applicant, the value of supply of goods is 11.50% i.e. below 25% out of total value of supply. Hence, the applicant is eligible for exemption under entry No. 3 A of Notification No.l2/2017-CT (R) dated 28.06.2017.
19. The activity of Operation & Maintenance of Mansi Wakai dam Stage-I, complete system including mechanical, electrical, instrumentation installation works switchyards/GSS and maintenance of Dam, pumping machinery, pipe line & tunnel from Mansi Wakai Dam to Nandeshwar filter plant project on ESCO and O&M contract by the applicant is to be undertaken for a Government Department i.e. PHED. In this activity of Composite supply of goods and services if supply of goods is below 25% out of total value of supply then GST will be NIL in consonance with entry No. 3A of Notification No.l2/2017-CT (R) dated 28.06.2017 (as amended) and if more than 25% of the total value of supply then GST will be @12% (SGST 6% + CGST 6%) in consonance with entry No. 3(iii) of Notification No.l 1/2017-CT (R) dated 28.06.2017(as amended).
20. In view of the foregoing, we rule as under: -
RULING
The activity of O & M of Mansi Wakai dam Project on ESCO Model and O & M work by the applicant is to be undertaken /being undertaken for a Government Department. In this activity of Composite supply of goods and services the applicability of GST will be as under,-
(a) Composite supply of goods and services where supply of goods is below 25% out of total value of supply then GST will be @ NIL.
(b) Composite supply of goods and services where supply of goods is more than 25% of the total value of supply then GST will be @12% (SGST 6% + CGST 6%).