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Establishment of an immovable facility is a works contract

GST Update: Establishment of an immovable facility is a works contract
Recently AAR gave an important ruling dated 16th October, 2019 regarding establishment of an immovable facility and its classification in case of Tata projects Ltd. [2019] 111 taxmann.com 531 (AAR-TAMILNADU) which is discussed as below:

Facts of the Case
  • The applicant is engaged in the process, design, detailed engineering, procurement, shop fabrication & inspection, supply, storage, site fabrication, erection, inspection & commissioning of Integrated Cryogenic Engine & Stage Test Facility.
  • ISRO has awarded the applicant a contract for establishment of Integrated Cryogenic Engine & stage Test facility (ICET) for Satellite launch Vehicle Program
Issue Involved
  • Whether supply of Engineering, Procurement & Construction (EPC) contract for establishment of Integrated Cryogenic Engine & Stage Test facility (ICET) wherein both goods and services are supplied can be construed to be a Composite Supply in terms of Section 2(30) of CGST Act, 2017?
Observation/Judgment
  • Applicant supplies civil electrical and Air conditioning system, structural and Mechanical system, Facility Fluid System, safety and Fire protection system, Instrumentation, control and data acquisition system . All the above system is to be designed, engineered, tested and then erected at the site by the applicant himself.
  • Mere supply of the equipment, instruments, consumables etc. is not enough, the same has to be integrated and erected and finally commissioned at the site. Further, the payment schedule in the contract also shows that the billing / invoicing is indivisible. Thus, the whole contract is a composite contract.
  • Additionally, the applicant has a contractual obligation to erect the civil electrical and Air conditioning system, structural and Mechanical system, Facility Fluid System, safety and Fire protection system, Instrumentation, control and data acquisition system. The entire facility is an immovable structure thereby this supply is to be considered a works contract.

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