18% GST Payable On Supply Of Functional Cattle Feed Plant, Inclusive Of Erection, Installation, Commissioning: AAR

The two-member bench of Atul Mehta and Arun Richard observed that the Cattle Feed Plant once installed and commissioned in the premises is transferred to the customer, it involves transfer of property. The Plant installation comprises cabling and fastening to earth/ foundation and all the equipment/parts are interlinked to constitute a functioning Plant that it cannot be moved as such without dismantling. Supply of a functional Cattle Feed Plant, inclusive of its Erection, Installation and Commissioning and related works is covered under work contract services.

The applicant supplies a cattle feed plant involving supply of various equipment and machinery. It supplies a complete cattle feed plant involving equipment receiving raw-material till packaging of finished goods with erection, installation and commissioning service, with or without civil work, as per the requirement of the customer. These activities of installation, commissioning, whether, with civil or without civil, forms part of the bundle only and is as per industry practice.

The applicant received the order for design, installation, testing and commissioning of cattle feed plant. The applicant has quoted and agreed separate prices for supply of equipment and installation and commissioning of equipment. The bill of quantity specified the number of equipment required for a cattle feed plant including accessories and all the goods were offered to customers at their respective rate even if there is one contract for supply of cattle feed plant.

The applicant has sought the advance ruling on the issue whether a contract involving supply of equipment or machinery and erection, installation and commissioning services without civil work thereof would be contemplated as composite supply of cattle feed plant under GST regime. If the supplies would qualify as composite supply, what would be the classification of this bundle and applicable tax rate thereon in accordance with Notification No. 01/2017 – CT (Rate) dated June 28, 2017.

Yet another issue raised was whether contracts involving supply of equipment / machinery & erection, installation & commissioning services with civil work would be contemplated as works contract service or not. If the supplies would qualify as composite supply of works contract, what would be the classification and applicable tax rate thereon in accordance with Notification No. 11/2017 – CT (Rate) dated June 28, 2017.

The AAR noted that the issue hinges on the 'test of permanency' to determine the nature of subject supply of an installed, functional and operational plant. In simple and precise words, the 'test of permanency' has been enunciated by the Supreme Court in the case of Municipal Corporation of Greater Bombay &ors. V. Indian Oil Corporation Ltd., wherein one of the questions considered was whether a petrol tank, resting on earth on its own weight without being fixed with nuts and bolts, had been erected permanently without being shifted from place to place. It was pointed out that the test was one of permanency; if the chattel was movable to another place of use in the same position or liable to be dismantled and re-erected at the later place, if the answer to the former is in the positive it must be a movable property but if the answer to the later part is in the positive then it would be treated as permanently attached to the earth.

"We hold that the functional and operational Cattle Feed Plant in its knocked down, either semi knocked down/ completely knocked down condition loses its identity. Further, it is fact on record that an erected Cattle Feed Plant as such cannot be shifted from one place to another, i.e., to say that all the different equipment, machines parts and accessories, electrical systems are required to be dismantled and then only the equipment can be shifted," the AAR ruled.

Name Of The Applicant :M/s IDMC Ltd

ADVANCE RULING NO. GUJ/GAAR/R/2022/14

Dated:14.03.2022

Click Here To Read/Download Order