GST Caselaw

Activity for retro-fitment of Twin Pipe Air Brake Systems on wagons for Railways is a composite supply with supply of goods being the Principal Supply and classifiable under Heading 860721000

#GSTCase-26-Pew Engineering (P.) Ltd [2018] 100 taxmann.com 450 (AAR-WEST BENGAL)

 

 

  1. Query:

 

Query 1: Whether activity for retro-fitment of Twin Pipe Air Brake Systems on wagons awarded by Indian Railways would be treated as composite contract or works contract.

Query 2: If Retro-fitment of Twin Pipe Air Brake Systems on wagons would treated as composite contact than what would be considered as principal supply, would it be the supply of the Twin Pipe Air Brake Systems or the supply of services of fitting of such goods to the wagons and what would be the rate of tax?

  1. Facts

 

The Applicant received a tender from Indian Railways for retro-fitment of Twin Pipe Air Brake Systems on wagons. The material was to be supplied by Applicant. The Actual fitment and testing was to be made at the wagon workshop with manpower, tools, spares and machinery provided by the applicant and equipment and electricity, provided free of cost by the contractee. The work of the applicant was subject to on-site inspection at various stages and final inspection of the complete wagon before issuance of the completion/inspection certificate for each wagon. Scrap generated during fabrication and assembly work was to be retained by Contractee. Value of twin pipe air brake systems constitutes about 90% of the contract value.

 

  1. Observation

Query 1: The term retro-fitment indicates the wagons that have otherwise been in operation are being upgraded by fitment of the twin pipe air brake system. Supply of twin pipe air brake systems is not an immovable supply, so it should not be covered in Works Contract Category under Section 2(119) of CGST Act, 2017.

Query 2: The provision for on account payment based on progress of work indicated that supply of goods was inseparably linked with supply of service and mere delivery of the Twin Pipe Air Brake Systems was not sufficient discharge of contractual obligation. Therefore two supplies, were naturally bundled in the ordinary course of business.

Supply of service of fitting Twin Pipe Air Brake Systems to the wagon cannot be made unless the goods have already been supplied. The supply of services of the fitting is, therefore, dependent upon and ancillary to supply of the Twin Pipe Air Brake Systems. Predominant supply is, therefore, of the Twin Pipe Air Brake Systems, which constitutes essence of the contract.

  1. Held

The contract is not a works contract but in the nature of composite supply wherein Twin Pipe Air Brake Systems are the Principal Supply and entire contract value would be taxable at the rate applicable for supply of Twin Pipe Air Brake Systems.

Twin Pipe Air Brake System is classifiable under Tariff Head 8607 21 00 and is taxable @ 5% in terms of Serial No. 241 of Schedule I of Notification No. 01/2017 – CT (Rate) dated 28/06/2017 with no refund of the unutilized input tax credit [as clarified in TRU Clarification issued under F.No.354/1/2018-TRU dated 25/01/2018].

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