DEFINITION
- Section 2(119) of CGST ACT, 2017 provides as follows:
“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.
A careful analysis of the above definition
is as below;
The definition includes the word “means”. The use of this word means,
that if the contract is in relation to the 14
actions mentioned in the definition above in respect of any immovable
property, then only it will be a works
contract. If the actions are other than these 14, the contract will be out
of the definition and will be a contract of composite supply under GST laws.
If the above 14 activities/actions are for
an immovable property, only then the
contract is works contract, and
The activity must involve transfer of property in goods also (whether
as goods or in some other form) in the execution of the contract to make it a
works contract. If there is no transfer
of goods, the contract will be out of the definition of works contract.
The expression “in some other form” in the bracket is of utmost significance as by this expression the ordinary
understanding of the term ‘goods’ has been enlarged by bringing within its fold
goods in a form other than goods.
Goods in some other form would thus mean
goods which have ceased to be chattels or movables or merchandise and become attached
or embedded to earth. In other words, goods which have, by incorporation,
become part of immoveable property are deemed as goods. So transfer of property
as goods or goods which have lost its own form involved in the execution of a works contract will be covered in
the definition.
In the Pre-GST
regime, the contracts involving above actions in relation to both movable and immovable properties were
treated as works contracts. Now in GST,
If the contract is in relation to a movable
property, then it will be a composite
supply of goods or services depending upon the principal supply and will
not be a works contract.
MEANING OF IMMOVABLE PROPERTY
“Immovable Property” has not been defined
in GST Law and therefore its definition has to be considered as per other laws.
Section 3(26) of the General clauses
Act, 1987 defines immovable property as under:
“Immovable property shall include land,
benefits to arise out of land and things attached to the earth, or permanently fastened to anything attached
to the earth.”
Attached to the earth means:
rooted in the earth, as in the case of
trees and shrubs;
imbedded in the earth, as in the case of
walls or buildings ; or
attached to what is so imbedded for the permanent beneficial enjoyment of that to
which it is attached.
Section
3 of Transfer of Property
Act, 1882 defines it as “Immovable Property does not include standing timber,
growing crops or grass”. Plant &
Machinery fastened to earth may also be covered as immovable property based on
the facts of each case. Hon’ble Supreme Court, in the matter of T.T G.
Industries Limited Vs CCE, Raipur (2004) 167 ELT 501 (SC), held machinery as
immovable property considering the weight and volume of the machine and the
process involved in its erection and installation. The following factors can be
helpful to ascertain whether plant and machinery is immovable property or not:
·
Degree
of permanency of attachment to earth,
·
Intent
of use of goods / property is essentially of
immovable nature,
·
Cannot
be detached from earth without causing substantial
damage to it,
·
Identity
of the goods is lost post removal.
If above conditions are not satisfied then
plant and machinery will not be immovable property even if machinery is fixed
to earth by foundation or structural support as per explanation to section 17
of CGST Act,2017 mentioned below:
Explanation – the expression “Plant & Machinery”
means apparatus, equipment and machinery fixed to earth by foundation or
structural support that are used for making outward supply of goods or services
or both and includes such foundation and structural support but excludes –
·
Land,
building or any other civil structure;
·
Telecommunication
towers; and
·
pipelines
laid outside the factory premises.
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