IN RE: EIFFEL HILLS AND DALES DEVELOPERS PVT. LTD.
GST
2018 (12) TMI 844 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – 2019 (21) G. S. T. L. 96 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – AAR
Dated:- 25-9-2018
GST-ARA-46/2018-19/B-119
GST
SHRI B.V. BORHADE, AND SHRI PANKAJ KUMAR, MEMBER
PROCEEDINGS
(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 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 advance ruling 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
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s 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 27AABCE8028J1Z1 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 13/6/20091NF dated 30th March, 2017 by Ministry of Finance, Department of Economic Affairs thereby enjoying the Infra status within the meaning o
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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 Act”, 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 insta
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nitions 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 Jan
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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 is applicable to following as per notification No. 20/2017 CT (rate) dated 22/08/2017 as amended by notification No. 1/2018 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
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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-INF dated 30th March, 2017. (d)(a) added vide notification No. 1/2018 central Tax rate dated 25/01/2018).
III) 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 princip
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/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 a
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n 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?
AnsThe 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 otherw
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tract 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, DG & Cabling works, Street Light & Cabling.
a. Basic rate for each item is mentioned in Annexure-II. In case of any deviation in specification,
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s.
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
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Site Name:
SWO:
Location:- Infra
Subject:- Service Work Order for Supply, Installation, Testing & Commissioning of Electrical Work (with Material plus Labour) at
Sr.No.
Description
Unit
Qty.
Supply
Labour
Total amount
Rate
Amount
Rate
Amount
1.
HT Panels
2.
Transformers
2.1
Transformer 630 KVA
No.
6
From the above, it appears that the supply is of goods and labour services separately. The above said supplies seems to be not naturally bundled or supplied in conjunction with each other in the ordinary course of business.
The Assesse in their letter has not stated which principal supply is in ordinary course of business.
The items like HT panels, transformers, HD cable, HT and termination kit, LT feeder panels etc. are
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Question No. 1, the applicant is not entitled to avail the exemption GST rate of 12% on MEP activity.
04. HEARING
The case was taken up for Preliminary hearing on DT. 31.07.2018 when Sh. Narender Varma, Manager along with Sh. Govind Soni, Manager Tax appeared and stated that they were not carrying copy of authority letter and would be submitting the same next time. They were also requested to provide copies of contracts in respect of both their questions. Jurisdictional Officer, Sh. Said Hakim Supt., Division – III, Pune appeared and made written submissions.
The application was admitted and called for final hearing on 04.09.2018, Sh. Narender Varma, Manager along with Sh. Govind Soni, Manager Tax appeared. They made detailed oral submissions in respect of their application. Jurisdictional Officer, Sh. Said Hakim Supt., Division – III, Pune appeared and made written submissions. We were heard from both the sides.
05. OBSERVATIONS
We have gone through the facts of the case. The
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g, 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. 13/62009-INF, dated the 30th March 2017;” attracts GST @ 12%.
This application is made by the applicant to seek clarity and certainty on the questions raised. In order to appreciate the question we have to first decide whether the proposed activity is a composite supply as defined u/s 2 (30) of the GST Act and further we have to decide whether this composite supply is a works contract as defined in section 2(119) of the GST Act. We shall now deal with each agreement separately and appreciate the important clauses of the agreement as below:-
A) Type -I (Material Supply, installation, testing and commissioning)
Subject:- Service Work order for complete external plumbing work , layi
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ure prevailed as on date. However, any new levy of taxes or change in present tax structure as implemented by Govt. authorities during the tenure of the Contract will be assessed, mutually discussed, agreed upon & paid accordingly.
General & Special Conditions of Contract
1. The Contractor shall execute and complete the work shown upon the drawings and contained in the Tender document, as revised and modified from time to time and issued to the Contractor, and shall execute the work as per the terms, conditions and specifications contained in the Tender document, subject to any modifications contained in this Work Contract.
2. The scope of work includes all resources, material, machinery, Scaffolding, tools, tackles, Consumables, curing pipe, Light fixtures & wiring, control panel, etc. other than FOC material supplied by company unless explicitly mentioned.
3. Coordination with Client, Architect, Consultants, Project Manager, etc.; wherever applicable shall be included in Servi
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4 days & 28 days to the Client.
9. Contractor shall have strict vigilance & control on the Concrete brought at site in respect of it's workability, etc. so as to ensure quality RCC work, free of any defects.
10. Contractor shall use Cement of VASAVDATTA/Ultratech/Zuari make & Reinforcement Steel of Fe 5000 Rolling make (Shri Om, Trishul OR Kalika make) for awarded scope of the Work. In the event of any issue about unavailability of the same, itis mandatory & binding upon the Contractor to obtain written permission from the Client, prior to use of such any other alternative brand.
11. Points discussed & mutually agreed & duly signed by both the parties, from time to time, during the meetings pertaining to this Work Contract & thus transformed into M.O.M (Minutes of Meeting) shall form the part of this Contract & treated as an Addendum to this Work Order.
12. Any delay due to reasons attributed to Client cause & resulting in idleness of Contractors men & machinery may be consider
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e basis duly defined & mutually agreed while signing the Work Order. On receipt of such R.A. Bill and after an assessment amount shall be released upon thorough scrutiny of the said Bill within next 15 working days.
2. Similarly, upon satisfactory completion of awarded work, Contractor shall submit Full and Final Bill duly supported by all requisite measurements, reconciliation statement for Client supplied material and statement showing reconciliation of advances paid till date, etc.to our Billing department. Payment in the form of full and final settlement excluding 5% Retention amount shall be made upon thorough scrutiny of the Bill.
Mode of Measurements:-
Mode of measurements for all the tasks shall be in accordance with the provisions of IS 1200 and strictly in accordance with work executed as per the GFC drawings issued from time to time by our Architects / Structural Consultants.
It mandatory & binding upon the contractor to check & confirm the BOQ quantities to the Clie
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ng to the Contractor. Contractor shall bring the same at his own costs and submit the same as extra item in RA Bills.
Termination:-
In the event if Contractor fails to satisfy clients / consultants in achieving good quality of work, desired speed of work and overall timely execution of the project then the client has full rights to terminate the contract by issuing a termination notice, (02 Nos.) each of 7 days in advance. Client also reserves the right to get part or whole work done through any other agency at Contractors risk and cost & Consequences.
Completion Period:-
Entire work shall be carried in coordination with site in charge. The actual schedule of work shall be as discussed with Management and site in charge.
In the event of delay, on account of issue of drawings, decisions, statutory permissions, from Client side then the required extension of time to complete the project will be given to the Contractor.
(M+L) Cost + Mark Up Contract:-
If Client intend to exec
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ation in basic rate beyond a limit of (+/-) 5% due to market fluctuation shall be conidered for payment on actuals in respective RA bills subject to prior approval from client.
6. Labour component is to be derived on the basis of cost towards labour work for installation & other misc work including tools / tackles, specialized Equipments including any incidental charges for bonafide reasons required to complete the work in all respect even if not included in scope of work indicated in item descriptions.
7. Mark up on Material component is derived on material cost on the basic rate, any variation in amount due to change in basic rate & other bonafide reasons shall be considered for payment at actuals.
8. Taxes for the billing shall be charged on basic rate of material without taxes after calculation of input credit or the same shall be deemed as composite contract.
B) The details of contract terms and conditions for external Electrical work contract are reproduced as follows,
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te installation so as to satisfactorily deliver a fully functional facility or asset to the Client right from preparation of exclusive Planning, Value engineering, it's application cum installation, testing, commissioning & satisfactory handing over of the facility including related services with due diligence & to the complete satisfaction of the Client.
Agreed Rate & Contract Value: – The Total Value of awarded scope of Contract pertaining to the subject matter is works out to the tune of INR.__________/- (before Taxes) & with applicable GST@_____, the Total Value of Work is stands at INR.__________. The contract value is arrived based on the present tax structure as on date and the present statutory requirements of Local / Govt. authorities, any new levy of taxes or change in present tax structure and any additional expenditure to be incurred towards any statutory changes enforced by Local / Govt. authorities hereafter & till the completion of work will be reimbursed by the Client
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all ensure that the same shall be procured, brought at site & installed in place by you without any delays at your sole risk & cost consequences.
b. To prepare & submit the detail Project Report duly supported with all relevant documents / drawings & separate copy of Reconciliation report as well..
c. To prepare all necessary dockets with layout drawings duly supported with complete Write-up about the installed Infra Electrical works for onward handing over to the Society.
d. Contractor's scope shall be inclusive of Unloading/ Loading/ Warai/Mathadi Charges.
e. All electrical Materials shall be in Code: RAL-7032 color.
f. Contractor shall also submit an irrevocable Bank guarantee of 5% of Total Contract value for Contract Type-I from any Nationalized Bank in the form of Performance guarantee (PBG) on acceptance of work order.
TYPE- II Supply of material under basic rates
This shall be Item rate Contract for the supply Of material for above mentioned works in Type – I Contr
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ntire 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 dental of any or all considerations for such claims.
2. Agreed Rate & Contract Value: -The Total Value of awarded scope of Contract pertaining to the subject matter is works out to the tune of INR._______(before Taxes) & after adding an applicable GST@ ____%, the Total Value of work is stands at INR._____. The contract value is arrived based on the present tax structure on date and the present statutory requirements of Local / Govt. authorities, any new levy of taxes or change in present tax structure and any additional expenditure to be incurred towards any statutory changes enforced by Local / Govt. authorities hereafter & till the completion of work will be reimbursed by the Client at actuals.
3. Scope of Work:-
The Scope of Work for the Electrical Infra Works shall comprise of the following and as mentioned in a
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ole risk & cost consequences.
b. To prepare & submit the detail Project Report duly supported with all relevant documents / drawings & separate copy of Reconciliation report as well..
c. To prepare all necessary dockets with layout drawings duly supported with complete Write-up about the installed Infra Electrical works for onward handing over to the Society.
d. Rate Of material in Contract Type-Il shall be inclusive Of Unloading/ Loading/ Warai/ Mathadi Charges.
e. All electrical equipment shall be in Code: RAL-7032 color.
4. Completion Period:-
The awarded scope of Infra Electrical Work in external development shall be completed within 90 days from the date of issue of work order.
However, methodology statement along with MS Project bar chart / PERT chart depicting the activity based completion plan shall be submitted to the Client before start of work & upon issuance of necessary GFC shop drawings to the Client. In the absence of the same, Client determined methodology a
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e form of full and final settlement excluding 5% Retention amount will be made within 45 days starting from its date of receipt of certified copy of said Full & Final Bill at our Head Office..
d. Contractor shall submit reconciliation sheet of material supplied by the Client on FOC basis along with each milestone based bill duly assessed & certified by our EIC/MEP Department & in the event of any variation in the material (both in the form of wastage or as an excess consumption ) noticed beyond a prescribed limit as defined herein above under Clause 3-C then same shall be account for on Contractors Part & the cost of the same at actuals shall be recovered from the respective milestone based bill or his Full & Final settlement.
e. The Contractor shall also submit the relevant proofs of the payments made towards the Statutory Compliances like Labor Taxes, PF, ESIC, etc. as an enclosure with each Milestone Bill as mandatory submittals.
In the event if the Contractor fails to satisfy Cl
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on of the contract, excluding the defect liability period in the manner laid down in the said terms and conditions. However, any defects and damages observed in the other agencies work or any consequential damages to the work executed by the Contractor after the completion of such works shall be made good by the respective agency deployed by the Client.
c. The responsibility of maintaining and security of client supplied material and assets shall lie with the Contractor.
d. The Contractor shall Cordon off the awarded building site premise using good quality Pre-Coated Galvalume sheets so as to ensure security measures & also to maintain ambience of the work premises.
e. The schedule of Rate hereby mentioned shall remain unaltered & unchanged & thus mandatorily binding upon the contractor for entire scope of work awarded herewith & till the complete tenure of the Contract & the Contractor is not liable to claim any escalation under whatsoever circumstances.
f. Points discussed &
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ply and supply of goods is a principal supply.
From the detailed scrutiny of the proposed contract we find that the contract like the one at hand which includes Design, engineering, work laying of RCC Hume pipe/GI pipe etc. for storm waterline and construction of chambers involves more than two taxable supplies in the nature of resources, material and machinery.
We also notice that large number of service receivers of such bundle of services mostly expect plumbing work to be provided as a package in the ordinary course of business. In the light of above observation the plumbing contract constitute a composite supply as defined u/s 2(30) of the GST Act. As a corollary to this finding we now examine whether this transaction is covered by the definition of Works Contract as defined u/s 2(119) of the GST Act. We reproduce this definition as below:
As per Section 2(119) Of the Act, “works contract” means a contract for building, construction, fabrication, completion, erection, installati
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f RCC Hume pipes/ UPVC pipes for storm water lines, drainage line etc. including construction of chambers. We also find that the plumbing system is either attached to earth or as the case may be fastened to building which is attached to the earth.
A sum of above discussion lead to a conclusion that the draft contract for plumbing work is a composite supply of works contract as defined in S. 2(119) of the GST Act.
However, we find that jurisdictional officer holds different opinion. We want to deal with their contention. The officer on perusal of records found that applicant billed goods and labour separately and thus opined that there are different supplies which seems to be not naturally bundled or supplied in conjunction with each other in the ordinary course of business and hence not a supply in the nature of composite supply.
After having gone through the relevant clauses of the draft contract we are not inclined to agree with the jurisdictional officer that there is separate su
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d that applicant would be required to do various acts which includes design, supply, installation and commissioning of substation that is electrical infrastructure. This is also a turnkey project contract like plumbing contract discussed in the earlier part of this ruling. For the reasons discussed therein we also hold that electrical contract which involves supply of taxable goods and services is a composite supply as defined u/ s 2(30) of the GST Act and the said composite supply is works contract as defined u/ 2(119) Of the CST Act.
We now take up second question raised by the applicant which read as below:
“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,
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