Whether the work relating to ?supply, installation and fixing of customized furniture in a building is a composite supply or works contract and what is the applicable GST rate?

PJ/Case Law/2020-2021/3631

Methodex System Private Limited (GST AAR Madhya Pradesh) ruling no: GST-ARA 08/MP/GST/2020, dated 05 March 2020

Brief Facts:The applicant is involved in supply, installation and fixing of furniture and supply to Government department and charged GST @ 18% under composite supply falling under chapter 9403.

Issue:Whether the work relating to “supply, installation and fixing of customized furniture in a building is a composite supply or works contract and what is the applicable GST rate?

Applicant Contention’s:The applicant has executed a work order with Government Department in supply, installation and fixing of furniture and charging GST 18% under composite supply. The government department has asked to appellant that the said activity will be fall under work contract under SAC 9954 (Construction Services) and GST rate will be applicable 12% according to Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 and the Notification No. 20/2017-Central Tax (Rate) dated 22.08.2017.
As per section 2(119) of CGST Act provides “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.
The classification of services to Notification No. 11/2017-CT (Rate) dated 28.06.2017, works contract services has been classified as “construction services” under heading 9954. The claim as made by government department that rate of tax applicable to said supply is 12% as per above notification is not legally tenable. Hence, the said supply will be fall Serial No. 438 of Schedule III of CGST Act under HSN 9403 is taxable @18% with effect from 15.11.2017. The government department emphasized upon the fact that above contention is also supported by the definition of ‘original works’ as given in the rate notification which includes installation of plant, machinery and equipment
Clause (a) of para 6 of Schedule II as notified u/s 7 of CGST Act, “works contract” as defined in clause (1 15) of section 2 shall be treated as supply of service.
As per section 2(30) of CGST Act, “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, 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 applicant contented that they supply the furniture along with installation service and both are taxable supply. Hence the said supply will be fall under composite supply wherein supply of furniture is principal supply.

Respondent Contention’s and reasoning: The AAR noted the fact that one of the important conditions for a service to be construed as a works contact is that the supply must result into an immovable property. As installation of furniture can be easily separated, the same cannot be construed as an immovable property and hence cannot be treated as works contract service. The AAR agreed with the contention of the taxpayer that supply made is a composite supply and principal supply is of sale of furniture. Accordingly, GST at the rate of 18% should be charged on the supply, which is the rate applicable on sale of furniture.

Comments:The notification no.11/2017-CT(Rate) has classified the work contact for construction service. But in the above case, the applicant is engaged in supply of furniture together with installation and commissioning service to government department fall under composite supply. This supply is naturally bundled in general parlance of business. Hence, the advance ruling has rightly classified the above supply.

Prepared By- Vijay Singh

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PJ/Case Law/2020-2021/3631

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