GST update on whether installation of furniture is to be considered as works contracts or composite supply? 106/2020-21

The tussle as regards an activity is to be considered as works contract or as composite supply is very common, particularly when the activity is related to installation/commissioning. We all know that under GST regime, works contract can be only with respect to immovable property and so the dispute is all the more persistent. Recently, an issue came up before the Authority for Advance Ruling Madhya Pradesh in case of METHODEX SYSTEMS PRIVATE LIMITED wherein it was asked whether the activity of installation of customized furniture for the government was to be construed as works contract or was to be considered as composite supply of furniture along with the service of installation and commissioning. The analysis of this ruling is the subject matter of discussion of the present update.

The applicant was awarded a contract wherein it was to supply, install and fix customized furniture for newly constructed Mantralaya, Vallabh Bhawan Extension, Bhopal. As per the contract executed with CPA (Capital Project Administration - a Department of Govt.), item-wise prices of furniture in the tender were required to be submitted which were approved by the contractee CPA. The invoice issued by the applicant to the CPA was item-wise and consolidated transaction price was charged. The installation / fixing charges are not separately charged in the invoice, nor these charges are required to be charged item-wise. The applicant contends that this contract should be considered as works contracts as the supply of above furniture results in immovable property and should to chargeable at concessional GST rate of 12% under serial no. 3 of Notification No. 11/2017-Central Tax (Rate) dated, 28.06.2017.

The AAR observed that the furniture has been manufactured or made at suppliers’ locations and which have been installed or fixed at the place of the recipient. Such installed or fixed items of furniture can be removed/ moved to any place without damage to the furniture. Thus, supply, installation and fixing of furniture cannot be covered under works contract, as it does not result in immovable property. Further the as per 2(119) Of CGST Act, works contract should be related to 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. Hence, it is cleared that any contract should be for construction/installation of immovable property but in the present case, the installation of furniture do not result in immovable property and so does not fall in S.N. 3 of Notification No. 11/2017 Central Tax (Rate) dated, 28.06.2017.

The AAR held that the contract in questions i.e. work order relating to supply, installation and fixing of customized furniture in a building conform to the concept of "COMPOSITE SUPPLY" as provided in section 2(30) of CGST Act, 2017. The supply made by the applicant to the CPA consists of two taxable supplies, one of supply of furniture and other of installation of the same with the principal supply being that of furniture attracting GST rate of 18%.

The above ruling has correctly held that the installation of pre-fabricated furniture which is movable cannot constitute works contract service. In the present case, the furniture mainly comprised of meeting room tables, sofa set etc. which can be easily shifted. However, if the customized furniture comprised of cupboards or drawers that are affixed to building and would usually not be shifted to another place, then it could have been said that the activity would be works contract attracting GST rate of 12%. As it was clearly ruled that the activity is not related to immovable property, the recipient is also entitled to avail input tax credit of the GST charged by the applicant and there is no confusion about the same. Had it been construed as works contract, the input tax credit to the recipient would have been denied.

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GST update on whether installation of furniture is to be considered as works contracts or composite supply? 106/2020-21

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