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

The Authority for Advanced Ruling (AAR) has determined that the 18 percent GST applies to the supply of a fully working cattle feed plant, including its erection, installation, commissioning, and related operations. The two-member bench comprising Atul Mehta and Arun Richard remarked that once the Cattle Feed Plant is constructed and commissioned in the premises, it is transferred to the customer, implying property transfer.

The Plant installation consists of cabling and fastening to the ground/foundation, and all of the equipment/parts are interconnected to form a functioning Plant that cannot be moved as is. Work contract services cover the supply of a fully operational cattle feed plant, including erection, installation, commissioning, and related works.

The applicant provides a cow feed plant with a variety of equipment and machinery. It provides a comprehensive cow feed plant, from raw material receipt through final product packaging, as well as erection, installation, and commissioning services, with or without civil work, as required by the customer. These actions of installation and commissioning, whether civil or not, are included in the package and are standard industry practice.

The applicant secured an order for the design, installation, test, and commission a cow feed plant. The applicant has quoted and agreed on separate rates for equipment supply as well as installation and commissioning. Even if there was only one contract for the provision of cattle feed plant, the bill of quantity indicated the amount of equipment necessary for a cow feed plant, including accessories, and all commodities were sold to clients at their respective rates.

The applicant has sought for an advance ruling on whether a contract containing the provision of equipment or machinery as well as erection, installation, and commissioning services but no civil work is considered a composite supply of cattle feed plant under the GST scheme. What would be the classification of this bundle and applicable tax rate if the supplies qualify as composite supplies, as per Notification No. 01/2017 – CT (Rate) dated June 28, 2017?

Another question arose was whether or not contracts including the supply of equipment/machinery as well as erection, installation, and commissioning services in conjunction with civil work would be considered works contract service. What would be the classification and appropriate tax rate if the supplies qualify as a composite supply of works contract, as per Notification No. 11/2017 – CT (Rate) dated June 28, 2017?

The issue, according to the AAR, revolves around determining the nature of the subject supply of an installed, functional, and operational plant through a “test of permanency.” The Supreme Court defined the ‘test of permanency’ in the case of Municipal Corporation of Greater Bombay & ors. V. Indian Oil Corporation Ltd., where one of the issues was whether a petrol tank, resting on the ground on its own weight without being fixed with nuts and bolts, had been erected permanently without being moved from place to place. It was pointed out that the test was one of permanence; if the chattel was movable to another place of use in the same position or liable to be dismantled and re-erected at a later time, it must be a movable property, but if the latter part was positive, it would be treated as permanently attached to the earth.

The AAR made its decision that, “We believe that a viable and operational Cattle Feed Plant loses its identity when it is knocked down, either partially knocked down or entirely knocked down. Furthermore, it is well established that a constructed Cattle Feed Plant cannot be moved from one location to another, i.e., all of the various equipment, machine components and accessories, and electrical systems must all be dismantled before the equipment can be moved”.

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