2018 (9) TMI 1339 – APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA – 2018 (17) G. S. T. L. 297 (App. A. A. R. – GST) – Supply of goods or services – Works Contract – transaction of setting up an operation of Solar Photovoltaic Plant – indivisible contract – transfer of immovable property.
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Whether in case of separate contracts for supply of goods and services for a solar power plant, there would be separate taxability of goods as ‘solar power generating system’ at 5% and services at 18%? – Held that:- While the contracts are ostensibly two separate contracts, one for supply of material and other for rendering works and services, they are in fact one single indivisible contract. The goods supplied to the owner by the appellant are specifically brought for the purpose of the erection of the system. The appellant is entrusted with the work mainly for their expertise in erection and installation of the plant in the execution of turnkey project. The function relating to the supply
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ts are made they are linked to each other and are indivisible.
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Whether the contract for the setting up of the solar power generation plant is a ‘composite supply’? – Held that:- By making two separate agreements – one for the supply of goods and the other for the ‘supply for services’ what is purported to be done is an artificial division of contracts which though done, cannot take away the true and inherent nature of the contract. It is a single supply of a ‘SOLAR POWER GENERATING SYSTEM’ consisting of two or more taxable supplies – This is clearly a case of composite supply of goods and installation thereof. The entire transaction of providing the goods and the services are naturally bundled- it is natural and also a practice to expect that a contractor who will supply the goods may also supply the services along with it.
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Immovable property or not – What would be the principal supply and whether it would be a supply of services or supply of goods? – Held that:- The erecti
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an important part of the project.
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In the present case, we have seen that the detailing of the system being what it is, it cannot be called a ‘simple machine’ by any stretch of imagination. The PV module may be an important part of the system but what is intended to be bought is not the PV module but an entire system – the conclusion drawn by the ARA that the Agreements made lead to the erection of a Solar Power generating System, is affirmed.
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The clear legislative intent is that at all levels, from part to system, GST will be payable at 5%. In fact, the effective rate for such contracts even prior to GST was approx. 3%, and an application of the “equivalence principle” also affirms that the intent of the Government was never to tax the entirety of the goods and services in relation to setting up an SPGS at a significantly higher rate of 18%.
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Whether parts supplied on standalone basis (when supplied without PV modules) would also be eligible to concessional rate of 5
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services .Depending upon the nature of supply, intra-state or inter-state the rate of tax would be governed by the entry no 3(ii) of the Notification No 8/2017-Integrated Tax (rate) under the Integrated Goods and Services Tax Act, 2017 (IGST Act) or the Notification no 11/2017 Central Tax/State Tax (Rate)under the CGST Act and MGST Acts. The rate of tax would be 18% under the IGST Act and 9% each under the CGST Act and the MGST Act, aggregating to 18% of CGST and MGST Act.
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Other two issues not decided in the absence of documents. – MAH/AAAR/SS-RJ/07/2018-19 Dated:- 4-9-2018 – SMT. SUNGITA SHARMA, MEMBER AND SHRI RAJIV JALOTA, MEMBER PROCEEDINGS (under Section 101 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar pro
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ce it was not constituted in the State of Maharashtra at the prevalent time. Since the Appellate Authority was not formed, the appellant filed letters dated 2 April, 2018 and 26 April 2018 before the Commissioner of Central Tax and the Chief Commissioner of Central Tax, Mumbai Zone and Commissioner of State Tax, Maharashtra State for understanding the way forward so that the appellant s right to file an appeal is not adversely affected. CONDONATION OF DELAY The first issue relates to the issue of condonation of delay in filing the appeal as the Appellate Authority for advance Ruling was not formed in the State of Maharashtra during the period of limitation. The appellant has therefore prayed that in view of the above, the time period as mentioned in the Act should be calculated from the day of setting up the authority as no recourse was available before that. The Appellate authority was constituted through notification no. MGST-1018/C.R.38/Taxation-1 dt 10.5.2018 and the appellant appl
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ed to as the Application ) for seeking clarification basis the draft contracts of the Appellant, in view of the provisions of composite supply and the rate of tax provided for Solar Power Generating System under GST. The Appellant sought clarification in respect of the following: a. Whether in case of separate contracts for supply of goods and services for a solar power plant, there would be separate taxability of goods as solar power generating system at 5% and services at 18%. b. Whether parts supplied on standalone basis (when supplied without PV modules) would also be eligible to concessional rate of 5% as parts of solar power generation system. c. Whether benefit of concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors. C. Subsequently, the Authority for Advance Ruling, Maharashtra (hereinafter referred to as the AAR ) vide Advance Ruling No. GST-ARA03/2017/B-03 dated 3rd March, 2018. = 2018 (5) TMI 963 – AUTHORITY FO
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r photovoltaic plant which is in the nature of a works contract in terms of clause (119) of Section 2 of the GST Act, and hence, should be taxable at the rate of 18% b. In the absence of any documents, the AAR was not able to deal with the question regarding applicability of concessional rate of tax on parts of solar power generating system in the present proceedings. c. With regard to the question whether benefit of concessional rate of 5% of SPGS and parts thereof would be available to sub-contractors it was held that no documents were provided and hence this question was not dealt with in the proceedings. Being aggrieved by the Impugned Order, the Appellant prefers the present appeal on the following grounds amongst others to be urged at the time of hearing: GROUNDS OF APPEAL Case 1 – Where all goods are supplied by the contractor including PV modules 1. The proposed transaction is for composite supply of solar power generating system ( SPGS ) as a whole and hence the rate of GST sh
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been defined under GST. However, a reference can be made as per paragraph 1.2 below Parts for manufacture of solar power generating system and PV modules – There is no restriction provided on what would qualify as parts and in such case all goods which qualify as parts of solar power generating system would be eligible for concessional rate of tax 1.2. Wide ambit of term solar power generating system ( SPGS ) 1.2.1. The Appellant submits that the term solar power generating system has not been defined under GST. Generally, solar power generating systems are the systems which absorb sunlight and convert it into electricity which can be put to further use. 1.2.2. Further, the term solar power system has been defined under Solar Power-Grid Connected Ground Mounted and Solar Rooftop and metering Regulation -2014 issued by State of Goa. Solar power system as per the regulation means a grid-connected solar generating station including the evacuation system up to the Grid inter-connection po
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ferred to as Notification 12/2012 ), is reproduced below for ease of reference: (1) Flat plate solar Collector (2) Black continuously plated solar selective coating sheets (in cut length or in coil) and fins and tubes (3) Concentrating and pipe type solar collector (4) Solar cooker (5) Solar water heater and system (6) Solar air heating system (7) Solar low pressure steam system (8) Solar stills and desalination system (9) Solar pump based on solar thermal and solar photovoltaic conversion (10) Solar power generating system (11) Solar photovoltaic module and panel for water pumping and other applications (12) Solar crop drier and system(13)Wind operated electricity generator, its components and parts thereof including rotor and wind turbine controller (14) Water pumping wind mill, wind aero-generator and battery charger (15) Bio-gas plant and bio-gas engine (16) Agricultural, forestry, agro-industrial, industrial, municipal and urban waste conversion device producing energy (17) Equipm
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case of BHEL Versus COMMISSIONER OF CENTRAL EXCISE, HYDERABAD – 2007 (10) TMI 165 – CESTAT, BANGALORE it was held that: In the present case, the appellants have claimed exemption in respect of inverter charger card as solar power generating system. The appellants actually manufactured SPV lantern. The above lantern required electricity for its It is possible to convert solar energy to electricity with the help of inverter charger manufactured by the appellants. The Dy. General Manager has certified that the inverter merger constitutes solar power generating system as it performs the function of generating the required high frequency AC power from in-light with, the help of SPV module and supplying it to the compact fluorescent lamp of a solar lantern. In view of the above, expert opinion, we hold that e impugned item can be considered as solar power generating system and is entitled for the benefit of the exemption Notification. Therefore, we allow the appeal with consequential relief
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ch a manufactured product is made up and into which it may be resolved and includes an accessory (or attachment). Basis the aforesaid judgments, it can be deduced that the components of the solar power plant which are essential for setting up of the power plants would also be eligible for the benefits provided to the solar power plant. Per the above, the Appellant submits that in the instant case where the contract is awarded for supply of solar power generating system, the entire contract should be taxable at the rate of 5%. This is in line with the concept of composite supply in which case the taxability is as per the principal supply which, in the instant case, is the supply of SPGS. The Appellant s submissions on the concept and taxability of composite supply and thereby supply being made by the Appellant in the instant case being a composite supply of SPGS has been provided hereunder in detail. 1.3. Concept and taxability of composite supply Concept under GST Laws: 1.3.1. The Appe
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composite supply and supply of goods is a principal supply. Further, Section 8 of the CGST Act provides that a composite supply comprising two or more supplies, one of which is a principal supply will be treated as supply of such principal supply. The relevant para of Section 8 of the CGST Act provides as follows: 8. Tax liability on composite and mixed supplies. – The tax liability on a composite or a mixed supply, shall be determined in the following manner, namely:- (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply Per the above, the essential conditions for a supply to qualify as composite supply can be highlighted as under: a. 2 or more taxable supplies of goods or services or both b. The taxable supplies should be naturally bundled c. The taxable supplies should be supplied in conjunction with each other d. One taxable supply should be a principal supply In such case, the supply which
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the Education Guide issued by the CBEC in the year 2012 ( the Education Guide ). The relevant extract of the Education Guide is reproduced as under for ease of reference: Bundled service means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. An example of bundled service would be air transport services provided by airlines wherein an element of transportation of passenger by air is combined with an element of provision of catering service on board. Each service involves differential treatment as a manner of determination of value of two services for the purpose of charging service tax is different. The Education Guide also clarifies that in cases of composite transactions, i.e. transactions involving an element of provision of service and an element of transfer of title in goods in which various elements are so inextricably linked that they essentially form one
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d transport by air is a bundle offered by a majority of airlines The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. For example service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business. Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are: There is a single price or the customer pays the same amount, no matter how much of the package they
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d by the CBEC. Global jurisprudence – Meaning of composite supply: 1.3.3. The concept of composite supply is a global concept and has been discussed in various countries. Provided below is relevant extract from various countries regarding the same: Australia In terms of Goods and Services Tax Ruling 2001/8 issued under Australia, Composite Supply means a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part. Composite supply is treated as supply of one thing. There have been various precedents in which the courts have defined a composite supply. Few are highlighted below: The Full Federal Court in the case of Luxottica found that while supply is widely defined it invites a commonsense, practical approach to characterisation. It was observed that while Supply is defined broadly, it nevertheless invites a commonsense, practical approach to characterisation. An automobile has many parts which are fitted together to make a single
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ancillary to the accommodation part of the supply. Per the above, composite supply is taxed as supply of the dominant activity to which others are merely ancillary. In the present case also, the dominant supply is those of goods (which together constitute as solar power generating system) and hence should be taxable as supply of SPGS. European Union Per the European Union Directive, a composite supply is a transaction where supplies with different VAT treatments are sold together as one. The supplies with a composite supply may consist of parts that, if assessed separately, have different tax rates. Some have standard rates, reduced rates or are exempt from VAT. The European Court of Justice ( ECJ ) has delivered several judgements on the aspect of composite supply under European Union Value Added Tax laws ( EU-VAT ). In the case of Card Protection Plan Ltd. Vs. C & E Commrs [1994] BVC 20, the ECJ held that a service must be regarded as ancillary to a principal service if it does
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is potentially zero rated) and a magazine (potentially zero rated) as well as the right to attend classes which would be standard rated. The Court decided that there was a single standard rated supply of the right to belong to the playgroup and the T shirt and magazine were incidental to that main supply. No one who was not in the playgroup would have bought the T shirt or magazine separately. Per the above, it is clear that globally also composite supply means a supply of more than one goods/services wherein one supply qualifies as principal supply. Therefore, taxes as applicable on the principal supply are applied on the whole composite supply. Supply of all equipments, including the main equipment PV modules, required to set up SPGS is a composite supply 1.3.4. In the instant case the intention of the parties is to supply solar power generating system. A perusal of the draft agreement also proves that the intent of the parties is to supply SPGS wherein goods are supplied through ons
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nt for commercial convenience. However, as a general trade practice all the equipments which are being supplied under the agreement are supplied together for setting up a solar power generating system. Further, relevant paragraph of Schedule A of the draft contract for supply of equipments is reproduced below for ease of reference: 1.1. The broad scope of Supplies covered under this Agreement is described herein below. The scope for providing the solar project generating system shall include design, engineer, manufacture, inspection; shop testing, packing and shipment of Equipments, Spare parts and Materials forming part of solar power generating system. These are integral parts of the solar power generating system being provided and would not be used separately. 1.2. In respect of equipment and systems listed below, all items required to make the equipment and/or system complete in all respects are deemed to be included whether or not these items are specifically mentioned in the Agre
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PGS with various components and not the components merely. In this regard, it is submitted that the contract for supply of SPGS majorly covers supply of all equipments required for setting up of the SPGS including the spare parts, and also includes activities which are in relation to provision of such goods and are integral for setting up of the SPGS. It is imperative to note that such activities are integral to provision of SPGS and does not form substantial part of the contract. The contract should be understood as that of supply of SPGS which consists of various components such as PV modules, structures, transmission lines etc. Even if the contract is said to be a composite contract, the principal supply in that case would still be that of SPGS, and hence, the entire contract should be taxable at the rate of 5%. As mentioned in the statement of facts above, it has been acknowledged by the AAR in its order itself that the Appellant is entering into wholesome contracts for supply of S
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such goods and form an ancillary part of the contract. 1.3.8. Drawing reference to the provisions under the erstwhile law as well, the Appellant would like to point out that even the customer in the instant case perceives that the entire contract is for supply of solar power generating system as the intent of both the parties is supply of the goods/ system which would help in generation of electricity. Hence, all supplies under the contract are bundled and linked wherein the main intent is provision of the goods which constitute solar power generating system. 1.3.9. The Appellant reiterates that per the recitals of the agreement, the underlying scope of works include supply of solar power generating system along with all equipments, spare parts and materials which form an integral part of solar power generating system. Separate prices are specified for different equipment which are supplied under the agreement for commercial convenience such as movement of goods, claiming of payment o
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are outside the domain of works contract service . Whether the EPC contracts qualify as composite supply (u/s 2(30) of the CGST Act) as supply of goods or services or both, naturally bundledor supplied in conjunction with each other in the ordinary course of business will depend on the facts of the case. If such (EPC contracts) supplies could be treated as composite supply with supply of solar power generating systems as the principal supply, then such supplies may be eligible for 5% GST rate as a whole…. Accordingly, in the instant case, since the contract is for supply of SPGS, the same should qualify as a composite supply wherein the principal supply is of SPGS and hence, entire contract should be taxable at 5% 1.3.11. Per the definition of composite supply and scope of work as defined in the agreement, the Appellant submits that the appellant has entered into an agreement for supply of SPGS and the entire agreement should qualify as a composite supply agreement wherein the princi
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d for panel housing or setting up the module such as controllers and switches. This is due to the fact that PV module is a packaged, connect assembly of typically photovoltaic solar cells, which constitute the photovoltaic array of a photovoltaic system that generates and supplies solar electricity. In other words PV modules are nothing but an assembly of solar cells that helps in converting solar power into electricity. The fact that solar PV module constitutes 60-70% of the entire solar power plant can also be substantiated with the help of the clauses of the draft agreement which are reproduced below for ease of reference: a. Solar Modules, which are an assembly of solar cells that helps in converting solar power into electricity. Solar modules constitute more than 60% of the solar power generating system, hence, qualify as one of the most significant parts in the SPP – Delivered at Project Site directly by way of High Seas Sale. 1.4.2. Hence, PV module is the most important compone
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ruments Ltd. vs. Commr. Of C. Ex., Jaipur = 2004 (7) TMI 259 – CESTAT, NEW DELHI, wherein a Solar Photovoltaic Module was held to be a Solar Power Generating System. Relevant extract of the judgement is reproduced below for ease of reference: 7. The adjudicating authority admitted the fact that Solar Photovoltaic Module is a Solar Power Generating System. We find that other parts are only panel housing consisting of controllers and switches. Hence the whole system is a Solar Power Generating System and is entitled for the benefit of notification. Therefore, the denial of benefit of notification by the adjudicating authority is not sustainable. The impugned order is set aside and the appeals are allowed . 1.4.6. Basis the above submissions, it is clearly evident that the PV Modules is the most important part of SPGS and hence qualifies as principal supply . Hence the whole contract even if construed as composite supply should be liable to tax considering it to be supply of PV Modules, w
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to mean 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 . Further, in terms of Serial Number 6 of Schedule Il to the CGST Act, works contract is treated as a supply of service and the general rate of tax applicable on works contract is 18%. It is further submitted that in terms of the definition of works contract, installation and commissioning services can said to be works contract only if it is in relation to immovable property. Essence of the contract and intention of the parties involved in the contract is clearly to supply SPGS 2.2. The Appellant submits that the intention of the parties entering into the contract is to procure/supply a solar power plant. The relevant extract of the draft contrac
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e equipments which are being supplied under the agreement are supplied together for setting up a solar power generating system. Further, relevant paragraph of Schedule A of the draft contract for supply of equipment is reproduced below for ease of reference: 1.1. The broad scope of Supplies covered under this Agreement is described herein below. The scope for providing the solar project generating system shall include design, engineer, manufacture, inspection; shop testing, packing and shipment of Equipments, Spare parts and Materials forming part of solar power generating system. These are integral parts of the solar power generating system being provided and would not be used separately. 1.2. In respect of equipment and systems listed below, all items required to make the equipment and/or system complete in all respects are deemed to be included whether or not these items are specifically mentioned in the Agreement. ……2. Complete supplies required for the construction of the
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judgement of the Hon ble High Court in the case of National Organic Chemicals Industries Ltd. Vs. State of Maharashtra [2012, SCC Online Bom 2128: (2012) 54 VST 271] = 2012 (8) TMI 407 – BOMBAY HIGH COURT, the AAR has held that a contract must be read as a whole and the contract will not become a contract for supply of equipments merely by including certain clauses that say that the supplier would supply only equipments. In this regards, it is submitted that as is clear from the scope of the contract, the underlying intention of the parties is to supply SPGS, , and hence, should be taxable at the rate of 5%. As mentioned above, the underlying activities like design, engineering, commissioning etc. are integral for the contractor for providing SPGS under the contract, and hence, such activities are not substantial enough to make the contract as a works contract taxable at the rate of 18%. The Solar power generating s stem is movable in nature and hence is not an immovable property to qu
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orks contract. 2.5. It has been highlighted in various pronouncements by the judicial authorities that in cases where an object is installed/fastened to the land for better/improved efficiency running of the said object, and not for the benefit of land, such object will not be considered as immovable property. Further, it has been held that if fixing of a plant to a foundation is only for providing stability to the plant and where there is no intention to make such plant permanent, the foundation provided would not change the nature of the plant and make it an immovable property. In a judgment by the Hon ble Supreme Court in the matter of Sirpur Paper Mills vs. CCE, Hyderabad [1998 (1) SCC 400] = 1997 (12) TMI 109 – SUPREME COURT OF INDIA, wherein in case of a paper making machine, it was held that merely because the machinery was attached to the earth for operational efficiency, it does not automatically become an immovable property. If the appellant wanted to sell such goods, it coul
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of that finding, we are unable to uphold the contention of the appellant that the machine must be treated as a part of the immovable property of the company. Just because a plant and machinery are fixed in the earth for better functioning, it does not automatically become an immovable property. Relying on the aforesaid judgment, the Hon ble Supreme Court, in the matter Commissioner of Central Excise v. Solid and Correct Engg Works & Ors. (2010 (175) ECR 8 (SC)) = 2010 (4) TMI 15 – SUPREME COURT, held that Asphalt Drum/Hot Mix Plants were not immovable property as the fixing of the plants to a foundation was meant only to give stability to the plant and keep its operation vibration free. Further, it was held that the setting up of the plant itself is not intended to be permanent at a given place. The plant can be moved and is indeed moved after the road construction or repair project for which it is set up is completed. Hence, the said plants were held to be movable. Relevant extra
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1955 Mad 620, 1955 CriU 1369) = 1955 (3) TMI 46 – MADRAS HIGH COURT, held that if something is temporarily embedded in the earth, it cannot be termed as immovable property. The relevant extract of the judgement is reproduced as under: 2. The answer to the question depends upon whether the equipment of the touring cinema would fall within the category of immoveable property. We have no hesitation in holding that it does not. In the question referred to us, the properties are described as collapsible and capable of being removed. In the very nature of things, properties of that nature cannot be immoveable property. The expression permanently fastened occurring in the question is a little misleading. Actually some of the machinery or the poles of the tent may be imbedded in the earth, but they are imbedded only temporarily and not permanently, If they were permanently fixed, the equipment would not form part of a touring cinema. Further, it is worthwhile to note that the Madras High Court
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ourt, while deciding whether the engine and pump set were an immovable property, held that the attachment of the oil engine to earth is for the beneficial enjoyment of the engine itself, and hence, such an attachment does not make the engine part of the land and as immovable property. Relevant extracts of the judgment are reproduced below for ease of reference: We find ourselves in agreement with the second part of these observations, which is apposite to the instant case. In the case before us, the attachment of the oil engine to earth, though it is undoubtedly a fixture, is for the beneficial enjoyment of the engine itself and in order to use the engine, it has to be attached to the earth and the attachment lasts only so long as the engine is used. When it is not used, it can be detached and shifted to some other place. The attachment, in such a case, does not make the engine part of the land and as immovable property. In view of the aforesaid judgments, it is submitted that even ass
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he MNRE Circular, it has also been clarified that if the supplies under the contract can be treated as composite supply with supply of solar power generating systems as the principal supply, then such suppliers may be eligible for 5% GST rate as a whole. Relevant extracts from the MNRE Circular are reproduced above in paragraph 1.3.10. Hence, it is quite clear that the contract in question constitutes to be a supply of SPGS, as acknowledged and agreed by the AAR in its order as well, and hence, should be taxable at the rate of 5%. 2.7. Reliance in this regard is also placed on the Chartered Engineer Certificate (hereinafter referred to as CEC ) which clearly states that the SPGS proposed to be supplied by the Appellant can be easily shifted from one place to another and it is highly movable. 2.8. In this regard, the Appellant also submits, that the Central Board of Customs and Excise (hereinafter referred to as the CBEC ), vide 37B Order No. 58/1/2002 – CX issued under F.No. 154/26/99
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oint reading of the above along with the judicial precedents, clearly demonstrates that the solar power plant once installed is capable of being moved from one place to another without substantial damage, therefore the solar power plant cannot qualify as an immovable property, and the impugned AAR order should be set aside on this ground alone. 2.9. It is further submitted, that the AAR has not taken the aforesaid facts and judicial precedents into consideration before passing its order and has grossly erred in holding the contract for supply of equipments for solar power generating system as works contract based on the following observations, amongst others: a. The intention of the buyer under the contract is to purchase the entire SPGS with various components and not only the components. b. The responsibility of the supplier under the contract includes design and engineering work even before the supply of equipments. c. The contract also includes within its scope implementation, oper
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ermanently fastened to anything attached to the earth. As submitted above, various parts of solar power generating system is only installed together to the grid sub-station so that the same is capable of functioning as a system together. It is further submitted that though SPGS may be shifted from one place to another only in rare circumstances, the same is still capable of being removed and hence cannot, by any stretch of imagination, be said to be an immovable property. The AAR in the Impugned order has failed to explain as to why the contract entered into by the Appellant for supply of SPGS would qualify to be an immovable property . On the contrary, the AAR has baselessly assumed that contracts in relation to SPGS are commonly qualified as works contract. In this regard, it is submitted that the intention of the parties to the contract is to procure SPGS and services like design and engineering work, implementation, operation and maintenance are essential for supplying the solar po
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se. The level of construction work in case of TTG is intense. The relevant extracts of the judgement which shows that the level of construction is intense is reproduced below: 9. In their reply to the show cause, the respondents explained the processes involved, the manner in which the equipments were assembled and erected as also their specifications in terms of volume and weight. It was explained that the function of the drilling machine is to drill hole in the blast furnace to enable the molten steel to flow out of the blast furnace for collection in ladles for further processing. After the molten material is taken out of the blast furnace, the hole in the wall of the furnace has to be closed by spraying special clay. This function is performed by the mudgun which is brought to its position and locked against the wall for exerting a force of 240-300 tons to fill up the hole in the furnace. The blast furnace in which the inputs are loaded is a massive vessel of 1719 m cubic metre cap
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sheet of about 5 feet diameter. It is welded to the columns which are similar to huge pillars. This fabrication activity takes place in the cast house floor at 25 feet above ground level. After welding the columns, the base plate has to be secured to the concrete platform. This is achieved by getting up a trolley way with high beams in an inclined posture so that base plate could be moved to the concrete platform and secured. The same trolley helps in the movement of various components to their determined position. The various components of the mudgun and drilling machine are mounted piece by piece on a metal frame, which is welded to the base plate. The components are stored in a store-house away from the blast furnace and are brought to site and physically lifted by a crane and landed on the cast house floor 25 feet high near the concrete platform where drilling machine and mudgun has to be erected. The weight of the mudgun is approximately 19 tons and the weight of the drilling mach
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urther, in the instant case, the contract is merely entered into for supply of SPGS which cannot be said to be a works contract by any stretch of imagination. Hence, the aforesaid judgment relied upon by the AAR is completely out of place in the present set of facts of the Appellant. 2.11. Further, the AAR has also relied on the judgement of the Bombay High Court in the case of M/s. Bharti Airtel Ld. Vs. The Commissioner of Central Excise [2014 SCC online Bom 907 :(2015) 77 VST 434], = 2014 (9) TMI 38 – BOMBAY HIGH COURT, wherein Base Trans receiver System (hereinafter referred to as the BTS ) was held to be immovable on the ground that the BTS system is not marketable. It was observed that in case the BTS site has to be relocated, all the equipments like BTS, microwave equipment, batteries, control panels, air conditioners, UPS, tower antennae etc. are required to be dismantled into individual components and then they can be moved from the existing site and reassembled at new site. It
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ion or repair project for which it is set up is completed. 2.13. It is submitted that the AAR has ignored the fact that Asphalt Drum/Hot Mix Plants were held to be movable property as the fixing of the plants to a foundation was meant only to give stability to the plant and keep its operation vibration free and not with the intention of permanently affixing it to the ground. In the instant case also, the solar power plant is fixed at the site only for operational efficiency and not with the intention of permanently affixing the plant to the earth. The AAR has distinguished the aforesaid judgment on the basis that the plant was indeed moved after the road construction or repair project for which it is set up is completed. In this regard, it is submitted that the fact that something is capable of being moved shows that it is not immovable in nature. The fact whether it is actually moved or not, does not change the nature of the property, and hence, the AAR has misinterpreted the judgment
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t whether it is actually moved or not, does not change the nature of the property. Further, the AAR has wrongly concluded on the basis of rulings that the solar power plant is an immovable property since it cannot be shifted without first dismantling it and then re-erecting it at another site. In this regard, the Appellant would like to submit that in fact, any equipment which is assembled and affixed to the ground has to be dismantled and then re-erected. However, this would not make the equipment immovable. The test to be applied is whether there is substantial damage or loss to the property in such process. If not, the equipment would still qualify as movable, as is the case in the Appellant s matter. Hence, the AAR has wrongly applied the principles settled by the Hon ble Courts. 2.14. In view of the aforesaid submissions, it is clear that in the present case, supply of solar power plants cannot be said to be works contract. Hence, the same should be taxable as a composite supply o
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manufacture , which means parts of SPGS would also qualify for concessional rate of 5%. 3.2. A part is essentially a section, which, when combined with other sections, make up a whole system/ product . In the case of equipment, various parts would combine to make up the whole equipment, which has a specific function. 3.3. Compared to a part , an accessory is essentially a piece which enhances the functionality of equipment and adds to the function of the equipment. However, even without the accessory the equipment can function on its own. 3.4. In the present case, it is not the case that all other goods/ equipment are ancillary and the same are required essentially for functioning of the solar power plant and hence, should form part of the solar power generating system. 3.5. Per the above, our understanding is that supply of other parts (apart from solar power generating system) should also constitute as supply of parts of solar power generating system which should attract concessiona
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ators where it has been held that specific goods supplied for such generators would also be eligible for the exemptions extended to the generators as wind operated electricity generator In Gemini Instratech Pvt. Ltd. vs. CCE, Nashik [2014 (300) EL T 446 (Tri-Mum)] = 2013 (7) TMI 464 – CESTAT MUMBAI, the issue involved was whether doors specifically designed to be used with tower on which wind operated electricity generators are installed be eligible for benefit of notification which provides exemption from payment of excise duty to wind operated electricity generators and its components and parts thereof. It was held that such doors would also be eligible for the exemption. This was also ratified by the Supreme Court [2015 (315) ELT A82 (SC)] = In Elecon Engineering co. Ltd. vs. CC [1998 (103) ELT 395 (Tri)] = 1998 (3) TMI 359 – CEGAT, MUMBAI, the issue involved in the case was whether power cables, earthing cables, wind farmer computer will be eligible for benefit of exemption under N
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celle, rotor, wind turbine controller, nacelle controller and control tables will be treated as parts/components of wind operated electricity generators and will be eligible for exemption. In regard to the above, though there has not been any judgment with respect to components of solar power plants, on similar lines of the precedents discussed above for wind power, the components of solar power generating system should also be covered under concessional rate of 5% under GST. 3.8. the Appellant further submits that in terms of Note 2 of Section XVI of the Customs Tariff (hereinafter referred to as Note 2 ), parts which are suitable for use solely with a particular machine, will be classified with the machine of that kind. The relevant extract of Note 2 is reproduced as under for ease of reference: 2. Subject to Note 1 to this Section, Note 1 to Chapter 84 and to Note 1 to Chapter 85, parts of machines (not being parts of the articles of heading 8484, 8544, 8546 or 8547) are to be class
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is also excerpted by us already, goods of a kind described in any of the Headings of Chapters 84 and 85 (other than Heading Nos. 84.65 and 85.28) are in all cases to be classified in their respective Headings. Then, coming to Rule (b) of Note 2 to Section XVI, which is also excerpted by us already, other part of goods of a kind described in any of the Headings of Chapter 84, if suitable for use solely or principally with a particular kind of machine (described in Chapter 84) is required to be classified with machine of that kind mentioned in Chapter 84. Therefore, what has now to be examined is, when Heading No. 84.31 describes the goods (article) classified thereunder as machinery for making or finishing cellulosic pulp, paper or paper-board whether the goods or article Granite Press Roll , which is held by CEGAT itself, to be a part or component of paper making machinery, does warrant its classification thereunder. In our view, when Note 2 to Section XVI requires classification of p
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as held by the Collector (Appeals). Thus, when classification of imported article – the Granite Press Roll – ought to have been made under Tariff Item No. 84.31 of Chapter 84, as is held by us, CEGAT has gone wholly wrong in classifying that article under Import Tariff Item No. 68.01/16(1) of the 1st Schedule to the Customs Tariff Act, 1975, particularly when that article could not have been regarded as an article of stone, as such, to become an excepted item under Note 2 to Section XVI read with Note 1(a) to Chapter 84, warranting its classification under Heading in Chapter 68 and according to rules governing classification of materials or substances or their parts. 14. Since Granite Press Roll is an imported article, which is classified by us as Tariff Item 84.31 of the 1st Schedule to the Customs Tariff Act, 1975 as it stood prior to its amendment on 28-2-1986, the import duty payable thereon is only as provided thereunder. Further, reliance is placed on the decision of the High Cou
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nerating system, thus the same should be classified as SPGS itself. 3.11. It is submitted that generation of power by way of solar energy is one of the key promoters for the Government s aspiration of Make in India . The Government has set target of 175 GW of renewable power by 2022 which includes 100 GW of solar power. Per Make in India website set up by the Government of India, India s annual solar installations would grow four times by 2017. If the goods supplied under the contract for construction of solar power plants is taxed at separate rates applicable on the individual goods, it would lead to higher tax burden on the developer of the solar power plants. Please note that since electricity has been exempted from GST, GST payable on the input side would burden the developer and hence, would prove detrimental to the growth of solar power generating plants in the country. Accordingly, concessional rate of 5% should also be available to parts of solar power generating system supplie
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acturer/supplier/ sub-contractor. 4.4. Since the concessional rate of 5% is provided to renewable energy products and parts thereof, the same should be applicable to all suppliers providing such products as long as it can be established (through certification or otherwise) that these are to be used in solar power generation system. This would also be in line with practice under erstwhile excise law wherein benefit was extended to sub-contractors also through MNRE certification. In view of the aforesaid, it is humbly submitted that the Impugned Order passed by the Advance Ruling Authority is based on erroneous reasoning, misinterpretation of the facts and hence is incorrect and bad in law. Case 3 -where only services are supplied 5. Taxability of contract for services 5.1. A separate contract is awarded to the contractor for provision of services which consists of the following: Construction of complete buildings including control rooms and inverter rooms, roads and drainage system, bou
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sonable withheld. In terms of Schedule III of the agreement, the scope of work includes design, engineering and studies, transportation, unloading, storage and site handling, installation and commissioning of equipments and material services. It further includes erection, testing and commissioning of solar power projects, erection testing and commissioning of solar modules, module mounting structures etc. Under GST, service has been defined as anything other than goods and the general rate of services is 18%. The Appellant in this regards submits that such contract is a separate contract for services itself and hence has to be taxed on independent basis. In our understanding, the same should be analysed independent of contract for goods, and only the contract for services should be taxed as pure service agreement and be categorized as works contract liable to tax at the rate of 18%. Hence, in view of the aforesaid submissions, the Appellant would like to reiterate that the AAR, in its
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taxable at the rate of 5%. The Appellant would like to reiterate that this fact has been completely ignored by the AAR, in addition to the various judicial precedents referred to by the Appellant in its Advance Ruling Application, which has also been ignored by the AAR in its order. In furtherance, the CEC (certificate by charted engineer) also states that SPGS can be easily shifted from one location to another, which goes to prove that a contract for supply of SPGS is not a works contract. The CEC is also not considered by the AAR in its order. Hence, the Appellant would like to plead that the contract for supply of SPGS, as rightly held by the AAR in its order, is a contract for supply of SPGS as a whole, and hence, should be taxable at the rate of 5%. The AAR s findings that the contract for SPGS is an immovable property, and hence, qualifies as works contract taxable at the rate of 18% is without any substance and is bad in law, and hence, the Impugned order should be set aside. In
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olic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person. 7. As per the charging provision, there are five essential ingredients which require to be satisfied in order to give rise to a liability to pay GST: (a) Supply of goods or services or both; (b) At such rates… as may be notified by the Government; (c) On the value determined under section 15; (d) And collected in such manner as may be prescribed; (e) And shall be paid by the taxable person. 8. The scope of supply is set out at Section 7 of the CGST Act, which reads as under: 7. (1) For the purposes of this Act, the expression supply includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made
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the rates for services are prescribed vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 ( Notification 11/2017 ). The said entries are extracted below for ease of reference: Goods: Sl.No. Chapter/Heading/Sub-heading/Tariff item Description of goods 234. 84, 85 or 94 Following renewable energy devices & parts for their manufacture (a) Bio-gas plant (b) Solar power based devices (c) Solar power generating system (d) Wind mills, Wind Operated Electricity Generator (WOEG) (e) Waste to energy plants / devices (f) Solar lantern / solar lamp (g) Ocean waves/tidal waves energy devices/plants (h) Photo voltaic cells, whether or not assembled in modules or made up into panels Services: Sl.No. Chapter, Section or Heading Description of Service Rate (per cent.) Condition Heading 9954 (Construction services) (ii) composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017. 9 – (xii) Construction services other than (i), (i
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pply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary. (52) goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. (102) services means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. (119) 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 propert
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ation mentioned therein as a supply of services at the rate of 18% under Notification 11/2017. 14. Furthermore, in terms of the settled principles for interpretation of contracts, the Hon ble Supreme Court had held time and again that the Department cannot question the commercial wisdom of the parties entering into an agreement, and must proceed on the basis that what is stated in the contract reflects the true nature of the intent and transactions. It is therefore impermissible for the tax authorities to go behind the language of the contract or act contrary to it. Reliance in this regard is placed on the below decisions: Union of India v. Mahindra and Mahindra [1995 (76) E.L. T. 481 (S.C.)] = 1995 (3) TMI 88 – SUPREME COURT OF INDIA The collaboration agreement entered into between the parties is clear and it is not open to the revenue to construe it differently by reading into it something which is not there. Mirah Exports Pvt. Ltd. vs. Collector of Customs [1998 (98) E.L.T. 3 (S.C)]
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arate composite supplies, viz.: A composite supply of goods and services under the Supply Agreement, with the principal supply clearly being the supply of goods, i.e. the PV module and other parts/ components to set up the SPGS. The said Agreement would therefore be taxed at 5%, per the rate for SPGS under Notification 1/2017. A composite supply of goods and services under the Services Agreement, with the principal supply clearly being the supply of services in the form of erection, commissioning and installation of the SPGS. The said Agreement would therefore be taxed at 18% per the rate under Notification 11/2017 for construction services (which includes installation services). Fundamental interpretational error in the Impugned Order: 17. In the present case, the Impugned Order instead seeks to combine both the Supply Agreement and the Services agreement on the basis that both commonly address the setting up of a solar power plant, but have been executed by devising two agreements (r
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pertaining to works contract ; and (ii) the rate prescription for works contract under Notification 11/2017. Both as per Schedule II and Notification 11/2017, the contract in question must first be a composite contract and then it is to be determined whether it is a works contract or not, Hence, the appropriate sequence would be: (f) Whether the contract is a composite contract or not? (g) If yes to (a), whether the contract is a works contract or not. (h) If yes to (b), then to the contract be taxed as a service. 19. If answer to (a) is no , there is no question of treating the transactions as a works contract and consequently taxing as a service. In this regard, the observation in the Impugned Order (that once it has been determined that the transaction is a works contract there is no need to enter into any discussion as to the transactions involving a composite supply ), is patently contradictory. 20. In the present facts, the agreements are separate supplies of goods and services u
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o the foregoing, it is submitted that under Section 9(1), the Government is enabled to issue notifications prescribing the rate qua goods services or both . In the present case, as per S. No. 234 of Notification 1/2017, the Government has chosen to tax solar products in a particular manner: Devices and parts Solar power generating system } all at 5% Photo voltaic cells 22. Hence, the clear legislative intent is that at all levels, from part to system, GST will be payable at 5%. In fact, the effective rate for such contracts even prior to GST was approx. 3%, and an application of the equivalence principle also affirms that the intent of the Government was never to tax the entirety of the goods and services in relation to setting up an SPGS at a significantly higher rate of 18%. 23. Furthermore, S.No. 234 covers a solar power generating system , when it is well known that: A system would cover supply of goods and services necessary to create it; A system could be movable or immovable. 24
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s, as a system , where all the value elements which comprise the system must be taxed at 5%. It is well settled that in interpreting and applying a statute, no position can be adopted which would frustrate the intent of the Legislature or defeat the object and purpose for which the provision was enacted, and a purposive interpretation must be adopted (Coastal Paper Ltd. vs. CCE, Vishakapatnam [2015 (322) ELT 153 (SC)]; = 2015 (7) TMI 895 – SUPREME COURT, Commissioner of Trade Tax, UP vs. Varun Beverages Ltd. [2011 (267) ELT 147 (SC)]; = 2011 (4) TMI 592 – SUPREME COURT OF INDIA, South Eastern Coalfields Ltd. vs. CCE&C, M.P [2006 (200) ELT 357 (SC)]. = 2006 (8) TMI 3 – SUPREME COURT OF INDIA)]. 27. Even though Notification 1/2017 is qua goods , relevant to the entry for system , and likewise for other specified items at S. No. 234 (such as plants, wind mills etc.), the term goods in the context of its use under this entry of the Notification will have to be interpreted consistent wi
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iew taken in the Impugned Order will ensure that the intent of the Government to tax the solar power generating system at 5% is bypassed, and that the said system suffers tax at 18%, contrary to the clearly stated and manifested intention of the Government. The findings in the Impugned Order that the SPGS is immovable property are erroneous and unsustainable: 30. The Impugned Order proceeds on the basis that the SPGS is an immovable property . The said findings are unsustainable in view of: (i) The certificate provided by the expert (i.e. qualified Chartered Engineer) which clearly states that the SPGS is highly moveable as it is capable of being dismantled and re-assembled at another location (refer Pg. 139 of the Appeal Memo). The said expert evidence has not been controverted in any manner, the expert has not been cross-examined and no contrary evidence has been brought on record as well. It is well settled that expert evidence can only be countered with expert evidence and a judici
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expertise on the subject matter, due credence ought to have been given to the said clarification, instead of adopting a divergent view de hors any technical understanding of the SPGS in the Impugned Order. (k) As per the settled law in terms of a long line of judgements of the Hon ble Supreme Court, the relevant test for determining whether a given item is movable or immovable is whether the affixation of the same is for the purposes of the beneficial enjoyment of the movable item (i.e. to ensure full functionality of the movable item by providing structural support, ensuring it is wobble-free etc.) or for the beneficial enjoyment of the immovable property (i.e. construction of a building/ structure to enjoy and utilize the land). In particular, it has been held that where the item can be dismantled and erected at another location without destroying or damaging the item, the said item would be movable and not immovable. Reliance in this regard is placed on the following: Sirpur Paper
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TTG Industries Ltd. vs. CCE, Jaipur [2004 (167) ELT 501 (SC)] = 2004 (5) TMI 77 – SUPREME COURT OF INDIA where a conclusion was reached that hydraulic mudguns were immovable based on the specific processes involved and the manner in which the equipments were assembled and erected. In fact, the decision in Solid and Correct (supra), while laying down the definitive tests on this movability/ immovability, has also distinguished the decision in TTG Industries (supra) at paragraph 32 on this factual basis. (m) In this regard, it is also submitted that the various precedents have not laid down a requirement that the item must be capable of being moved as such to another location without dismantling. The relevant judgements only contemplate that the item must be capable of being dismantled and reassembled at another location without being destroyed in the process. In this regard, the conclusion in the Impugned Order that the SPGS is immovable property as it could not be shifted without first
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hat for GST purposes, a telecommunication tower has specifically been treated as being in the nature of immovable property , and not as plant and machinery . It is, therefore, submitted that the decision in Bharti Airtel Ltd. vs. CCE [2014 SCC Online Bom 907] = 2014 (9) TMI 38 – BOMBAY HIGH COURT is distinguishable on this basis under GST, in as much as the statute itself views telecommunication towers as being in a distinct category from plants (such as a solar power plant). 31. In view of the aforesaid, the SPGS is not in the nature of immovable property , and, therefore, cannot qualify as a works contract . Consequently, the agreements cannot be taxed as a service at 18%. Without prejudice, even if the agreements are read combinedly, the transaction is not a works contract , but is taxable per the principal supply, at a rate of 5%: 32. Without prejudice to the foregoing, even if (contrary to the clear intent of parties), the Supply Agreement and Services Agreement are read combinedl
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n, is clearly the supply of the goods (particularly, the PV module). On this basis, the entire supply would merit taxation at the rate of 5% under S. No. 234 of Notification 1/2017. ISSUE Nos. (ii) & (iii): 35. All parts/ components supplied on a standalone basis or by sub-contractors are liable to GST at 5% as: (ii) The entire solar power generating system is taxable at the rate of 5% as per S. No. 234. Accordingly, any and all goods required for the creation of the system would qualify for the 5% rate under this entry (refer submissions at paragraphs 23 to 28 hereinabove). (iii) In any event, as per a plethora of precedents and CBEC clarification (largely in the context of solar projects and windmill projects), it is settled law that parts/ components of a system would equally merit the rate prescription for the system : Rajasthan Electronics & Instruments Ltd. vs. CCE, Jaipur [2005 (180) ELT 481 (Tri-Dei)] = 2004 (7) TMI 259 – CESTAT, NEW DELHI BHEL vs. CCE, Hyderabad [2008
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as may be, apply to the interpretation of this notification . In relation to the classification of the SPGS under S.No. 234, it would be relevant to refer to the Section Notes to Section XVI of the Customs Tariff, as reproduced below: 2. Subject to Note 1 to this Section, Note 1 to Chapter 84 and to Note 1 to Chapter 85, parts of machines (not being parts of the articles of heading 8484, 8544, 8545, 8546 or 8547) are to be classified according to the following rules :(a) parts which are goods included in any of the headings of Chapter 84 or 85 (other than headings 8409, 8431, 8448, 8466, 8473, 8487, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings; (b) other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 8479 or 8543) are to be classified with the machines of that kind or in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522
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ssified along with the SPGS, and would also be eligible for the 5% rate. Most importantly, where a series of individual components are intended to contribute together to a clearly defined function (in this case, solar power generation), the appropriate classification is under the entry relevant to that function. On this basis as well, all parts/ components which go to create the interconnection SPGS as a system would attract the 5% rate of GST. In view of the foregoing, even a supply of standalone parts/ components or supply of such parts/ components by the sub-contractor would equally merit the 5% rate of GST. HEARING The appellants were heard on 02.07.2018 where the appellant reiterated the written submissions made in the appeal filed. The appellant also made additional written submissions on 02.07.2018 reiterating all the submissions made in the application and certain additional grounds also. Copy of the additional submission was enclosed to the appeal. Both the submissions of the
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o bring about a splitting up of the intended purchases of the system, as a one whole, into purchases of goods and purchases of services. It is further observed that the agreement has been entered into not merely for supply of equipment but also for design and engineering work before supply of equipment and the Supplier is involved in the project from the engineering and design stage. Hence, the agreement is for supply of SPGS as a whole because the responsibility of the supplier also includes execution and implementation of the project. On the basis of the above observations, the Advance Ruling Authority passed the following order: a. The agreements tendered in support of the transaction reveal that the impugned transaction is for setting up and operation of a solar photovoltaic plant which is in the nature of a works contract in terms of clause (119) of Section 2 of the GST Act, and hence, should be taxable at the rate of 18% b. In the absence of any documents, the AAR was not able to
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it is stated that the buyer desires to set-up solar photovoltaic plants with total capacity of 60 MW (AC)/81 MW (DC) and the other is titled ENGINEERING AND CONSTRUCTION AGREEMENT in which it is stated that the Owner desires to set up and operate solar photovoltaic plants with a total capacity of MA AC (81 MW DC). The agreement for SPGS (SOLAR POWER GENERATING SYSTEM) shows that the buyer desires to set up an operation of Solar Photovoltaic Plant with the total capacity of 60MW. The engineering and construction agreement shows that the buyer seeks to entrust the appellant for erection, testing and commissioning of certain equipment and certain services and material for the plant. From the above, it can be seen that the two agreements are proposed to be made for the supply of goods and the rendition of services for the purposes of setting up a SOLAR POWER GENERATING SYSTEM . The agreement for the supply of SPGS covers, amongst other, the supply of Solar Photovoltaic module which is a m
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agreement that though the parties have entered into distinct and separate contracts, one for the transfer of material and other for supply of services, this is in effect a single instrument embodying the intention of the parties. In turnkey projects more particularly of the kind involved in this impugned issue the same person has been entrusted with the responsibility of procuring the material and of erection and installation of equipment. Though as per the contention of the appellant, goods formed a predominant part of the contract, the obligation of the appellant under both the contract ceases only after the turnkey project becomes operational and after the final payment is made both for supply of material and for erection of the system. It is seen from the supply agreement ( B of the beginning of the agreement) that the buyer desires to purchase end to end solar power generating system with various integral components . As per 2.1.1 of the supply agreement the supplier is required t
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uccessful completion and commissioning of the Plant on or before the Work Completion Deadline . Plant is defined as the 60 MW (AC) Solar PV Power Project . As per Clause 13.2 of the Service agreement, upon completion of the plant and only when the plant is fully and properly interconnected and synchronized, can the appellant issue a notice of completion and call upon the buyer to check the plant. It is only upon the joint examination of the plant that the Owner (buyer) can deliver to the appellant a Work Completion Certificate . As per Clause 13.6 of the service agreement, it is agreed that the liability of the appellant shall not terminate upon the commencement of the commercial operations and it shall continue to be liable to rectify if any defect in the plant and be liable and responsible for the works done till the expiry of the defects. Schedule B of the Supply Agreement, which contains the Terms of Payment specifically makes it clear that 5% of the payment will be made only on th
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f the supply. 41. Thus, from the above it is seen that the supply of the goods and the supply of works are inextricably linked with each other. It is not that the appellant has been assigned with the work of supply of goods only. But the appellant has been given the task of setting up the Solar generating system . Thus, though the agreements are made separately, it is one indivisible contract for the setting up of the solar power generating plant. 42. Clause 2.2.1 of the AGREEMENT FOR SUPPLY OF SOLAR POWER GENERATING SYSTEM shows that the document of title of the equipment imported and supplied is directly transferred to the Owner by way of High Seas Sale for commercial convenience. However it is further stated in the clause that, However as per this agreement, the risk and liabilities accruing in relation to all those equipment shall remain with the Supplier till the completion of the Project. After the completion of the project, the risk and liabilities are shifted to the lead Contra
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ect to the supply items are pending as on the date of commencement of commercial operations, the Final Acceptance shall be the date on which all pending supplies are completed in accordance with the terms of this Agreement, which date shall be intimated in writing by the Buyer to the Supplier. Thus, it is clear from the above clause that the insurance is incumbent upon the date of commencement of commercial operations and not on delivery of goods. This also proves that the said Agreement is not an agreement of pure supply of goods as it is sought to be portrayed. It is not that the appellant is appointed by the buyer only for buying equipment but he is given the contract for setting up the plant. The letter sent by the appellant mentions the website as www.canadiansolar.com . The Internet shows that Canadian Solar is one of the three biggest solar power companies in the world. Thus, what the appellant brings to the project is his expertise in procurement as well as erection/setting up
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implementation, operation and maintenance as well. 45. An useful reference can be made to the Andhra High Court judgement in the case of M/s. Larsen And Toubro Ltd (14 September, 2015 Nos. 22960 of 2007) = 2015 (12) TMI 470 – ANDHRA PRADESH HIGH COURT. In the case, all the petitioners had executed turnkey projects for different customers. They claimed that the goods supplied by them, for being used in the turnkey projects, were subsequent sales exempt from tax under Section 6(2) of the CST Act, import sales under Section 5(2) of the CST Act, and the respondents lacked jurisdiction to subject these transactions to tax under the AP VAT Act treating them as intra-state sales. The assessing authority also examined the question whether there can be a sale in transit, or a sale in the course of import, in a transaction of works contract. He held that, from the nature of the contracts awarded, it could be seen that the petitioner was required to supply the goods as per the supply contract; t
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for supply of material and for erection installation of equipment. While a dual role is not impermissible in execution of turnkey projects, its relevance, in determining whether or not the subject contracts are indivisible works contracts, is insignificant. It further referred to a specific clause in the agreement as below- Appendix-H of the L & T Vemagiri supply agreement stipulates that 5% of the price shall be paid on successful test for the identified packages as per the pricing and technical specifications; 5% of the price on provisional acceptance; and 5% of the price on final acceptance. Provisional acceptance is defined under the supply agreement to mean the achievement of provisional acceptance as defined in the civil works and erection agreement, and in accordance with the terms thereof. It is evident, therefore, that 10% of the payment under the supply agreement is required to be made only after provisional and final acceptance as stipulated under the erection agreement
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indivisible. 46. This brings us to the issue of whether the contract for the setting up of the solar power generation plant is a composite supply . The term composite supply is given under clause 30 of Section 2 of the CGST Act. composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; Illustration.- Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply; It is important to see the definition of principal supply and goods along with the same. principal supply means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of t
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nd the other for the supply of services, what can be easily gathered from the tenor of both the agreements is that the buyer has given a contract for setting up SPGS to the appellant and therefore it is a single indivisible contract which involves element of two supplies- one for the supply of goods and other for the supply of services. By making two separate agreements – one for the supply of goods and the other for the supply for services what is purported to be done is an artificial division of contracts which though done, cannot take away the true and inherent nature of the contract. It is a single supply of a SOLAR POWER GENERATING SYSTEM consisting of two or more taxable supplies. This is clearly a case of composite supply of goods and installation thereof. The entire transaction of providing the goods and the services are naturally bundled- it is natural and also a practice to expect that a contractor who will supply the goods may also supply the services along with it. 48. The
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rved the following- it is well settled that while interpreting the terms of the agreement, the Court has to look to the substance rather than the form of it. The mere fact that the word agent or agency is used or the words buyer and seller are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the said status would be conferred. Thus, the mere forma/ description of a person as an agent or buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent. It is clear from the observations made by this Court that the true relationship of the parties in Such a case has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the said relationship. Thus, what the Supreme Court says above is that the form of the agreement is not important. it is rather t
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or 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; Clause 6 of the Schedule II lists the two composite supplies which shall be treated as supply of services. Clause 6(a) of Schedule II of the CGST Act states that Works Contract as defined in Clause (119) of Section 2 of the CGST Act shall be treated as supply of services . . From the definition it is clear that it defines only those supplies as works contract which are contracts for building, construction, fabrication etc of any immovable property. Whether the erection of the Solar Power Generating System amounts to erection of immovable property? In order to answer this question, we have to go through the clauses given in the agreement brought before us. 50. It
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n; for where a chattel is so annexed that it cannot be removed without great damage to the land, it affords a strong ground for thinking that it was intended to be annexed in perpetuity to the land. The English law attaches greater importance to the object of annexation which is determined by the circumstances of each case. One of the important considerations is founded on the interest in the land wherein the person who causes the annexation possesses articles that may be removed without structural damage and even articles merely resting on their own weight are fixtures only if they are attached with the intention of permanently improving the premises. The Indian law has developed on similar lines and the mode of annexation and object of annexation have been applied as relevant test in this country also. If the fixing of the plants to a foundation is meant only to give stability to the plant and keep its operation vibration free then it cannot be called as Immoveable property . If the
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to the earth. Also, it needs to be seen whether the setting up of the plant itself is not intended to be permanent at a given place. The plant can be moved and is indeed moved after the project for which it is set up is completed. Now, that we have discussed the above judgments, we shall see whether the present issue i.e. erection of the SPGS would be termed as immovable property. This needs to be done by criteria given by the various judgements. 52. Let us first understand what is meant by a Solar Power Generating System, The main equipment which as a whole constitutes a solar power generating system are solar panel consisting of solar cells (known as solar PV module), strings (series of multiple PV modules), string inverters, inverter to convert from DC power to AC power, Switchgears, Transformers and transmission lines etc. The entire mechanism of a SPGS is that solar panels/PV modules are connected together to create a solar array. Multiple panels are connected together both in par
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t and all other equipment Site enabling facilities Leveling and grading Erection, commissioning and testing for solar modules, mounting structures, power transformers, inverters, SCADA, complete switchyard, inverter transformers, connectors, earthing lines etc. 53. There are generally two types of Solar Power System 1) Roof mounted 2) Ground mounted. The Solar Polar Generating System in the present case is a ground mounted or ground based Solar Power system. A simple ground mounted system (for a home), requires a customized positioning at the perfect angles for absorbing sunlight. In a ground mounted system, good planning is a big part of placing solar panel ground mounts as the installer has to choose a location that receives the ideal amount of daily sunlight and uses space effectively. Installing ground-mounted solar panels always starts with building a stable base. Traditional ground-mount systems, essentially all work the same-systems anchor to the ground and hold a large number o
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ns looking into or a deep examination of certain soil types, strict building codes, and earthquake risk. In that case, a soil engineer would look at the soil to determine its type and make adjustments to the foundation size and requirements of the design. Once the foundation is ready, then one can start building pole mount systems and metal framing to hold the panels and other components. After building a frame and checking the foundation work, the panels are installed. The panels have to be carefully positioned. Finally, panels are wired to the inverter, trenches are dug and connections between the system and the property s electrical panel or solar home battery is buried. 54. What is described above is a solar power system for a home. What we have in the instance is a WHOLE SOLAR POWER GENERATION SYSTEM. one look at the Agreements gives an idea of the scope of the work. The array of goods includes Solar PV Modules, lnverters and Inverter Transformer, Tracker Components, Module Mounti
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ing layout and details of foundations, trenches, grade slab, plinth beam, equipment foundations, roof etc. and drawings of the module supporting structures. The above itself shows the huge work and detailing of the project. The payment milestones shown in Schedule IV amongst others shows 5% against drawing submissions, 15% on completion of civil works, 15% against transmission line. The Engineering and Construction Agreement ( Services Agreement ) covers: (a) the erection, installation and commissioning of the SPGS; (b) the civil works services in terms of construction of the foundation, roads and drainage, sub-station etc. All of the above ( quoted from the details given by the appellant) goes to show that the erection of the solar power generating system is not as simple or movable as it is made out to be. It is an entire system comprising a variety of different structures which are installed after a lot of prior work which involves detailed designing, ground work and soil survey. As
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to another. In the present case, we have seen that the detailing of the system being what it is, it cannot be called a simple machine by any stretch of imagination. The PV module may be an important part of the system but what is intended to be bought is not the PV module but an entire system. Thus, we affirm the conclusion drawn by the ARA that the Agreements made lead to the erection of a Solar Power generating System. 55. We shall refer to certain judgments in this regard. The Advance Ruling Authority has referred to the Supreme Court judgment in the case of M/s. T.T.G. Industries Ltd., vs Collector Of Central Excise,. on 7 May, 2004 Appeal (civil) 10911 of 1996. = 2004 (5) TMI 77 – SUPREME COURT OF INDIA. The contract here was for the design, supply, supervision of erection and commissioning of four sets of Hydraulic Mudguns and Tap Hole Drilling Machines required for blast furnace and the issue was whether the same is immoveable property. The Apex Court observed- .. Keeping in vi
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scribed as goods within the meaning of the Excise Act and exigible to excise duty. In the above case, the Supreme Court took note of the fact that the various components of the Mudguns and the Drilling machines are mounted piece by piece on a metal frame, and the components are lifted by a crane and landed on a cast house floor 25 feet high. The volume and weight of these machines are such that there is nothing like assembling them at ground level and then lifting them to a height of 25 feet for taking to the case house floor and the to the platform over which it is mounted and erected. It observed that the machines cannot be lifted in an assembled condition and after taking note of these facts, it concluded that the same is immoveable property. The Court further held that it cannot be disputed that such Drilling Machine and Mudguns are not equipment which are usually shifted one place to another nor it is practicable to shift them frequently. The court also referred to its own judgmen
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. We shall also refer to the Supreme Court decision in the case of Duncans Industries Ltd vs State Of U.P. & Ors on 3 December, 1999 = 1999 (12) TMI 857 – SUPREME COURT OF INDIA where the SC had to decide whether the plant and machinery in the fertilizer is goods or immoveable property. The Apex Court held that the same is immoveable property and observed the following- The question whether a machinery which is embedded in the earth is movable property or an immovable property, depends upon the facts and circumstances of each case. Primarily, the court will have to take into consideration the intention of the parties when it decided to embed the machinery whether such embedment was intended to be temporary or permanent. A careful perusal of the agreement of sale and the conveyance deed along with the attendant circumstances and taking into consideration the nature of machineries involved clearly shows that the machineries which have been embedded in the earth to constitute a fertil
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a certificate from a Chartered Engineer stating that the Solar Power Plant is made of equipment which are largely moveable in nature, if required, the equipment can be moved from one land parcel to another. This may happen in cases where there is a requirement to shift the whole Solar Power Plant from one area to another area or is being sold to a party who intends to install/set it up in another area, the equipment installed can be dismantled and reassembled at the new land parcel with material . It may be true that the Solar power plant can be moved from one place to other but for the enjoyment of the equipment or for the smooth generation of electricity the panel is required to be affixed to the earth. Also of paramount importance here is the object of annexation . Is there an intent to move the plant from one place to other? Of course, not. There is no feasibility in moving the plant from one place to another. There can be no intention of both the parties to move the plant from on
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y, equipment, pipes and tubes etc for their assembly /installation/ erection/integration/inter-connectivity on foundation/civil structure etc at site will not be considered as excisable goods for imposition of central excise duty -the components would be dutiable in normal course. The clarification therefore holds the erection of plants as immoveable property and not goods. The appellant has submitted that under Section 9(1), the Government is enabled to issue notifications prescribing the rate qua goods , services or both . In the present case, as per S. No. 234 of Notification 1/2017, the Government has chosen to tax solar products in a particular manner: Devices and parts Solar power generating system } all at 5% Photo voltaic cells Hence, the clear legislative intent is that at all levels, from part to system, GST will be payable at 5%. In fact, the effective rate for such contracts even prior to GST was approx. 3%, and an application of the equivalence principle also affirms that
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designed to do a particular job . The solar power generating system described in the entry is used in the sense of a device. Also, we have decided the instant case on the facts and circumstances of the case. After going through the entire contract/agreement we have come to the conclusion that the agreement leads to an erection of a solar power generating system which is immoveable property. Therefore, merely because schedule entry is provided for the same does not mean that the product would be classified in the same. 60. WHERE OTHER PARTS AND COMPONENTS ARE SUPPLIED BY THE CONTRACTOR (NOT PV MODULES), WHETHER THEY WOULD ALSO BE ELIGIBLE TO CONCESSIONAL RATE OF 5% AS PARTS OF SOLAR POWER GENERATION SYSTEM? 61. The Advance Ruling Authority had not given any ruling on the above on the following grounds, In the absence of any document before us, we would not be able to deal with this question in the present proceedings. 62. The Appellant has not produced any document or agreement before u
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eement which would show what solar parts are supplied by the sub-contractors. Also, it is not known as to whether a complete system is purported to be sold or the parts thereof. Therefore, in the absence of any documents we cannot give any decision in the said case Also, as an appellate authority we can only decide issues already decided and appealed against. There being no decision given by the advance ruling authority, we cannot give any decision in appeal. 66. JUDGEMENTS QUOTED BY THE APPELLANT- Apart from the judgements already discussed above, we also discuss here the other judgements quoted by the appellant. Rajasthan Construction- The judgement is given under the provisions of the Central Excise Law. Also, there was no case of any agreements made which had to be decided on the touchstone of law but a case of classification. Phenix Construction Technology vs. CCE, Ahmedabad-II [2017-TlOL-3281-CESTAT-AHM] = 2017 (8) TMI 307 – CESTAT AHMEDABAD The question here for consideration wa
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erumal Naicker case the issue was whether the engine and pump set were an immoveable property. We have discussed in detail with reference to judgements and the principles enunciated therein as to how the Solar Power System would be an immoveable property. Also, the facts in these cases are different. There is no case of a foundation in the instant case nor is there is any case of merely an engine/pump installed. Gemini Instratech Pvt. Ltd. Vs. Commissioner of Central Excise, Nashik [2014 (300) ELT 446 (Tri. – Mum) = 2013 (7) TMI 464 – CESTAT MUMBAI, Elecon Engineering Co. Ltd. Vs. Commissioner of Customs [1998 (103) ELT 395 (Tri)] = 1998 (3) TMI 359 – CEGAT, MUMBAI, In Pushpam Forging vs. CCE, Raigad [2006 (193) ELT 334 (Tri. – Mumbai)] = 2005 (7) TMI 242 – CESTAT, MUMBAI, CCE vs. Megatech Control Pvt. Ltd. [2002 (145) ELT 379 (Tri. Chennai) = 2002 (5) TMI 112 – CEGAT, CHENNAI, Ballarpur Industries (1995 (56) ECR 646) SC) = 1994 (12) TMI 156 – SUPREME COURT OF INDIA, Sealol Hindustan L
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2 (119) as supply of services .Depending upon the nature of supply, intra-state or inter-state the rate of tax would be governed by the entry no 3(ii) of the Notification No 8/2017-Integrated Tax (rate) under the Integrated Goods and Services Tax Act, 2017 (IGST Act) or the Notification no 11/2017 Central Tax/State Tax (Rate)under the CGST Act and MGST Acts. The rate of tax would be 18% under the IGST Act and 9% each under the CGST Act and the MGST Act, aggregating to 18% of CGST and MGST Act. 68. WHERE OTHER PARTS AND COMPONENTS ARE SUPPLIED BY THE CONTRACTOR (NOT PV MODULES), WHETHER THEY WOULD ALSO BE ELIGIBLE TO CONCESSIONAL RATE OF 5% AS PARTS OF SOLAR POWER GENERATION SYSTEM? The Appellant has not produced any document or agreement before us incorporating such a situation. In the absence of any written agreement showing the terms and conditions, it would be both difficult as well as incorrect for us to determine the same. The situation now is the same as it was before the Advance
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