Summary:
The Tamil Nadu Authority for Advance Ruling (‘the TNAAR’) has held that temporary construction sites where the Applicant deploys personnel and technical resources for assembling precast structures, qualifies as a “fixed establishment” under Section 2(50) of the Central Goods and Service Tax Act, 2017 (‘the CGST Act’), thereby requiring mandatory GST registration in the State where such sites are located. The TNAAR has further ruled that inter-state movement of materials to these project sites amounts to a taxable supply, even without a consideration, since registrations in different States are treated as distinct persons under the CGST Act.
Facts:
- The Applicant entered into contracts with customers across India for the construction of commercial buildings using precast technology
- For execution of the projects, the Applicant deployed only 6-7 employees at the respective construction sites for a period of around 150 days, as the assembly of precast structures was largely mechanized with the use of cranes
- The Applicant regularly transported materials, tools, equipment, accessories, store consumables, and machinery such as cranes to other States for use in executing the works contracts. However, there was no transfer of ownership in such materials and equipment, as they were used solely for execution purposes and were not supplied as part of the contract
Key Issues before the TNAAR:
- Whether the Applicant is required to obtain GST registration in other States where it executes works contracts using precast structures manufactured at its principal place of business, and whether temporary project sites (within or outside the State) must be registered as an additional place of business despite the absence of a permanent fixed establishment?
- Whether transportation of precast structures, raw materials, and other inputs to construction sites in other States without consideration and without two distinct legal parties amounts to “supply” under the CGST Act?
Discussion and Ruling:
- As per Section 2(50) of the CGST Act, a “fixed establishment” means a place (other than the registered place of business) that has a sufficient degree of permanence and an appropriate structure in terms of human and technical resources to supply or receive services for its own needs
- In the present case, the Applicant had a sufficient degree of permanence at the construction sites in other States and deployed human and technical resources there for execution of works contracts
- Accordingly, such sites qualified as a fixed establishment, requiring the Applicant to obtain GST registration in the State where the construction site was located. Where the sites were situated within the same State as the registered principal place of business, they were required to be declared as an additional place of business
- The activity undertaken by the Applicant, namely the supply of goods or services without consideration, falls under Schedule I and is therefore within the scope of “supply” under the CGST Act. Although the activity does not involve two different parties, the Applicant would be treated as a distinct person under the CGST Act
- Consequently, even in the absence of consideration and without involvement of separate parties, the transportation of materials used for erecting precast structures at construction sites in other States amounts to a taxable supply