2018 (9) TMI 693 – AUTHORITY FOR ADVANCE RULING, RAJASTHAN – 2018 (16) G. S. T. L. 623 (A. A. R. – GST) – Works Contract – Supply of goods or services – Turnkey EPC Contract – contract for Erection, Procurement and Commissioning of Solar Power Plant – Whether contract for Erection, Procurement and Commissioning of Solar Power Plant shall be classifiable as Supply of Goods or Supply of Services under the provisions of the Central Goods and Services Tax Act 2017 and Rajasthan State Goods and Services Tax Act 2017?
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If answer to the above question is supply of goods, then under which HSN Classification the said supply of solar power plant would fall and what shall be the rate of tax on it in accordance with the N/N. 01/2017-Central Tax 28-06-2017? – If the answer to the above question is supply of service, then under which HSN Classification the said supply of solar power plant would classify and what shall be the rate of tax in accordance with the N/N. 11/2017-Central Tax (Rate) ,d
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hift base from time to time or locate the plant elsewhere at frequent intervals – The Solar Power Plant cannot be shifted to any other place without dismantling the same. Further it is a tailor made system which cannot be sold as it is to the other person – Solar Power Plant includes civil work such as development of site, structure Structure for 110kv transmission , building cable trenches, foundation, civil work relating to invertors and control buildings, store rooms , canopies and such other civil structure and related activities as set out in Scope of work and the Technical Specifications. Civil structure cannot be dismantled and moved.
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Schedule II of Scope of work of Composite EPC Contract, clearly states that the “design and engineering of the project should be such that it is consistent with a design life of at least 25 years from the COD (commissioning date).” The applicant has himself agreed to be bound by this clause which reflects permanency of the instant Solar Powe
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chedule I of the Notification no. 1/2017 – Central Tax (Rate) both dated 28 June, 2017 and Entry 234 of Schedule I of the Notification no 1/2017 -State Tax (Rate) dated 29 June, 2017. EPC Contract for Solar Power plant comes under the purview of Works Contract as per Section 2(119) of GST Act – The contract for Erection, Procurement and Commissioning of Solar Power Plant falls under the ambit “Works Contract Services” (SAC 9954) of Notification no. 1 1/2017 Central Tax (Rate) dated 28 June, 2017 and attracts 18% rate of tax under IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%.
– Raj/AAR/2018-19/08 Dated:- 1-7-2018 – NITIN WAPA AND SUDHIR SHARMA MEMBER Present for the applicant: CA Yash Dhadda, Counsel (Authorised Representative). CA Rajeev Tiwari Note: Under Section 100 of the RGST Act 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of RGST Act 2017, within a period of 30 days from the dat
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the provisions of the Companies Act 2013 and is also registered under the provisions of the Central Goods and Services Tax Act 2017 read with the provisions of the Rajasthan State Goods and Services Tax Act 2017 ( Assessee ). It will undertake itself in executing 'Engineering Procurement and Commissioning EPC contacts for Solar Power Generation System commonly known as Solar Power Plants . The contract between the assessee and its clients flows in a way wherein firstly they (assessee) shall agree and enter into 'Terms of Engagement' with each other defining the scope of work to be executed by assessee for client, the commercials for and timelines for EPC work as a whole to be undertaken. Thereafter in some cases, for the sake of convenience and clarity for steps to be undertaken specific terms are agreed and executed for Procurement and Supply of Goods and components forming part of solar power plant and for Installation & Commissioning to be undertaken for the Solar P
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and Transformers to be installed by assessee on any piece of land. A solar Power Plant is affixed to land or roof (depending upon the nature of the Solar Power Plant). For the same some civil work is undertaken to affix the Solar Power Plant for its efficient functioning. However almost all ingredients of the Solar Power Plant (except some civil work) can be effectively shifted from one location to another in case it is required to do so. No substantial damage shall be caused to any of the components of the Solar Power Plant. Thus the plant is effectively movable and can be reinstalled on any other piece of land. The assessee wants to understand that whether supply under consideration is Supply of Goods or Supply of Service. That Section 9 of the CGST Act 2017 which is charging section of Goods & Services Tax states: 9(1) Subject to provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services
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ection of the CGST Act 2017 provides for the activities which shall be treated as either supply of goods or supply of services in accordance with Schedule II of the Act. The point no 6 of the Schedule Il is read as under: The following composite supplies shall be treated as a supply of services, namely:- (a) works contract as defined in clause (119) of section 2. The term works contract has been defined under Section 2(119) as (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 property in goods (whether as goods or in some other form) is involved in execution of such contract. Since given work executed by the assessee includes supply of goods and also performance of services hence it can be treated as amalgamation of 2 supplies. To decide whether the given amalgamation is composi
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ing through the terms of the terms of the contract and definition of composite and mixed supply, the given work can be classified as composite supply only. Since the contract is in relation to solar plant (supply and installation) they are bundled in ordinary course of business. To further decide whether the principal supply is of goods or service, the concept of works contract can be explored first. Works contract in itself is a composite supply in which construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning etc. are involved along with transfer of property in goods. However under GST, there is a monumental shift in concept of Works Contract which was prevalent under erstwhile VAT and Service Tax regime. In GST, as per definition of works contract service if construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenanc
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ovable property. The given terms have not been defined under the Act and hence the reliance needs to be placed on other laws and judicial precedents. Under the General Clauses Act 1897 the term immovable property has been defined under Section 3(26) as immovable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth. As per the definition the term permanently fastened or attached to earth can be treated as immovable property. Any attachment with earth which is temporary in nature or can be shifted from part of earth to another without causing substantial damage to it cannot be treated as immovable property. Further, on the given issue, CBEC has also clarified in its circular number 58/1/2002-CX dated 15/1/2002 where in para (e) it was clarified that e) If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components
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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. Further in case of Municipal Corporation of Greater Bombay & Ors. v. Indian Oil Corporation Ltd. [1991 Suppl. (2) SCC 181, = 1990 (11) TMI 407 – SUPREME COURT one of the questions SC Court considered was whether a petrol tank, resting on earth on its own weight without being fixed with nuts and bolts, had been erected permanently without being shifted from place to place. It was pointed out that the test was one of permanency: if the chattel was movable to another place of use in the same position or liable to be dismantled and re-erected at the later place. if the answer to the former is in the positive it must be a movable property but if the answer to the latter part is in the positive then it would be treated a permanent
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hus the plant is effectively movable and can be reinstalled on any other piece of land. Thus there is no substantial damage in the movement of solar power plant from one location to another location. Hence in the view of the assessee the given composite supply cannot be treated as supply of works contract service since the property coming into existence Shall not result into immovable property and will remain a movable property only. Next point for consideration is if it is supply of goods then what shall be principal supplies. It is important to note that various items from panels, batteries, cables, transformer etc are supplied for the solar power plant. Whether it can be treated as supply Of individual items or supply of solar power plant as a whole remains a question. In this regard the decision in case of Shree Venkateswara Engg. Corporation Versus C.C.E., Coimbatore reported in 2016 (335) E.LT. 62 (Tri. -Chennai) = 2016 (2) TMI 65 – CESTAT CHENNAI can be referred. It was held by
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SUPREME COURT OF INDIA. items cleared in parts have individual identity, it cannot be said that product cleared is not a device for purpose of generating non- conventional energy – Appellant eligible for exemption under Notification No. 6/2002. The ultimate intention of parties is also to supply the Solar Power Plant and not the individual components. Hence in view of above precedence and facts of the case, the given supply should be treated as supply of Solar Power Plant Only. Further under notification No 01/2017-CT (Rate) dated 28.06.2017, at S.No. 234, under HSN Classification 84, 85 and 94, for description. Following renewable energy devices parts for their manufacture (c) Solar Power Generating System The rate Of CGST has been mentioned as 2.5%. In given case also, it has been specified that intention of parties was to supply solar power plant only. Hence according to assessee, the correct classification of given supply should be Chapter 84: Solar Power Generating System at the r
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CA (Dealer Firm) who appeared for personal hearing on 25.06.2018. During the PH they submitted a written additional statement containing the applicant's interpretation of law and facts in respect of the aforesaid questions which was placed on record. They reiterated the submission already made in the application for Advance Ruling and further requested that the case may be decided as per the submission made earlier in Advance Ruling Application. 4. Findings and analysis: As per copy of contract submitted by the applicant the contractor i.e. M/S RFE Solar Private Limited has to execute a Composite EPC Contract . After going through the Written submissions, copy of contract and Other additional statements following findings and analysis is made: a) It is a composite EPC contract Which has been entered between Kushtagi Solar Power Private Limited (owner) and RFE Solar Private Limited (contractor) on 01.03.2018 for setting up of Solar Power Plant where the contractor has to, inter alia
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s of solar power plant including designing, engineering, supplies, installation to technical specification, testing and commissioning of a functional solar power plant as well as laying of transmission lines for transmission of the electricity generated up to storage or the grid. e) In clause 4.26 of the Contract, all risk and liabilities accruing in relation of works (temporary or permanent), and of all equipments, machinery, materials, shall be with contractor until occurrence of the Final Acceptance. f) Schedule 2 – Scope of works clearly spells out the terms and condition of Composite EPC Contract where contractor has to undertake works of installation, testing and commissioning of Solar Power Plant as per specific demands of owner. So it is not something sold out of shelf. g) There is a single lump sum price for the entire contract. h) The applicant has laid claim under notification No. 01/2017-CT (Rate) dated 28.06.2017, at S.No. 234, under HSN Classification 84, 85 and 94, for d
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nt, modification, repair, maintenance, renovation, alteration or commissioning is for immovable property only, then it will classify as works contract only. Hence it means that aforesaid activities if they are undertaken for a movable property then it will not be a works contract service. j) Applicant has relied upon following judgments in furtherance of their arguments of solar power plant being movable property and not immovable: i) Sirpur Paper Mills Ltd. v. Collector – 1998 (97) E.L.T. 3 (S.C.) = 1997 (12) TMI 109 – SUPREME COURT OF INDIA ii) Municipal Corporation of Greater Bombay & Ors. v. Indian Oil Corporation Ltd. [1991 Suppl. (2) SCC 181, = 1990 (11) TMI 407 – SUPREME COURT iii) Shree Venkateswara Engg. Corporation Versus C.C.E., Coimbatore reported in 2016 (335) E.LT. 62 (Tri. -Chennai) = 2016 (2) TMI 65 – CESTAT CHENNAI iv) CBEC circular number 58/1/2002-cx dated 15/1/2002 v) Board of Revenue, Chepauk, Madras v. K. Venkataswami Naidu (AIR 1955 Mad 620, 1955 CriLJ 1369)
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ing of the system. The transaction is a 'work contract' but it is for us to decide whether it is a 'work contract' in terms of GST Act. So, we come to the crux of the issue, which is as to whether the transaction results into any immovable property. The term 'immovable property' has not been defined under the GST Act. However, there are a plethora of judgments of the Hon. Supreme Court and the Hon. High Coutts which have helped understand the term 'immovable property'. 1. In decision of Allahabad High Court in Official Liquidator v. Sri Krishna Deo and Ors. [AIR 1959 All. 247], = 1958 (5) TMI 35 – HIGH COURT OF ALLAHABAD wherein, the Court held that a machinery fixed to their bases with bolts and nuts although easily removable are not movable property when they have been set up with definite object of running an oil mill and not with intention of being removed after a temporary use. 2. In decision of M/s. T.T.G. Industries Ltd., vs Collector of Central E
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n 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 capacity and the size of its outer diameter is 10.6 metres, and the height 31.25 metres. Hot air at 1200 degrees centigrade is fed into the blast furnace at various levels to melt the
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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 machine approximately 11 tons. The volume of the mudgun is 1.5 x 4.5 x 1 metre and that of the drilling machine 1 x 6.5 x 1 metre. Having regard to the volume and weight of these machi
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g the fact that there is no space available for moving the machines in assembled condition due to their volume and weight. She considered the authorities on the subject and came to the conclusion that erection of mudgun and tap hole drilling machine results in erection of immovable property. She noticed the judgment of this Court in Narne Tulaman Manufacturers Pvt. Ltd. (supra) and also noticed the judgment of the Tribunal in Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd. v. CCE – 1993 (65) E.L.T. 121; = 1992 (10) TMI 188 – CEGAT, NEW DELHI which held that the issue of immovable property was never raised before the Supreme Court in Narne Tulaman Manufacturers Pvt. Ltd. She found support for her conclusion in the decision of this Court in Municipal Corporation of Greater Bombay & Ors. v. The Indian Oil Corporation Ltd. (1991) Supp. (2) SCC 18; = 1990 (11) TMI 407 – SUPREME COURT and held that the twin tests laid down by this Court to determine whether assembly/erection would re
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e thereon". The core question that still survives for consideration is whether the processes undertaken by the appellant at Bhilai for the erection of mudguns and drilling machines resulted in the emergence of goods leviable to excise duty or whether it resulted in erection of immovable property and not "goods". The appellant has placed considerable reliance on the principles enunciated and the test laid down by this Court in Municipal Corporation of Greater Bombay (supra) to determine what is immovable property. In that case the facts were that the respondent had taken on lease land over which it had put up, apart from other structures and buildings, six oil tanks for storage of petrol and petroleum products. Each tank rested on a foundation of sand having a height of 2 feet 6 inches with four inches thick asphalt layers to retain the sand. The steel plates were spread on the asphalt layer and the tank was put on the steel plates which acted as bottom of the tanks which
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ace? If the answer is yes to the former it must be a movable property and thereby it must be held that it is not attached to the earth. If the answer is yes to the latter it is attached to the earth. If the answer is yes to the latter it is attached to the earth." Applying the permanency test laid down in the aforesaid decision, counsel for the appellant contended that having regard to the facts of this case which are not in dispute, it must be held that what emerged as a result of the processes undertaken by the appellant was an immovable property. It cannot be moved from the place where it is erected as it is, and if it becomes necessary to move it, it has first to be dismantled and then re-erected at another place. This factual position was also accepted by the Adjudicating Authority. The technical member, however, held that the aforesaid decision was of no help to the appellant inasmuch as a leading international manufacturing firm had offered such machines for export to diffe
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2) TMI 75 – SUPREME COURT OF INDIA the facts were that a tube mill and welding head were erected and installed by the appellant, a manufacturer of steel pipes and tubes by purchasing certain items of plant and machinery in market and embedding them to earth and installing them to form a part of the tube mill and purchasing certain components from the market and assembling and installing them on the site to form part of the tube mill which was also covered in the process of welding facility. After noticing several decisions of this Court, the Court observed that the twin tests of exgibility of an article to duty under the Excise Act are that it must be a goods mentioned either in the Schedule or under Item 68 and must be marketable. The word "goods" applied to those which can be brought to market for being bought and sold and therefore, it implied that it applied to such goods as are movable. It noticed the decisions of this Court laying down the marketability tests. Thereafte
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al on record described the functions and manufacturing process. A mono vertical crystaliser is fixed on a solid RCC slab having a load bearing capacity of about 30 tons per square meter. It is assembled at site in different sections and consists of bottom plates, tanks, coils, drive frames, supports, plates etc. The aforesaid parts were cleared from the premises of the appellants and the mono vertical crystalliser was assembled and erected at site. The process involved welding and gas cutting. The mono vertical crystalliser is a tall structure, rather like a tower with a platform at its summit. This Court noticed that marketability was a decisive test for dutiability. It meant that the goods were saleable or suitable for sale, that is to say, they should be capable of being sold to consumers in the market, as it is, without anything more. The Court then referred to the decision in Quality Steel Tubes (supra) and distinguished the judgment in Narne Tulaman (supra) holding that the conte
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rm constructed on the land would be immovable property, as such it cannot be an excisable goods falling within the meaning of Heading 85.02. In reaching this conclusion this Court considered the earlier judgments of this Court in Municipal Corporation of Greater Bombay, Quality Steel Tubes and Mittal Engineering Works Pvt. Ltd. (supra) as also the earlier judgment of this Court in Sirpur Paper Mills Ltd. v. Collector of Central Excise, Hyderabad – 1998 (97) E.L.T. 3 (S.C.). = 1997 (12) TMI 109 – SUPREME COURT OF INDIA This Court observed :- "There can be no doubt that if an article is an immovable property, it cannot be termed as "excisable goods" for purposes of the Act. From a combined reading of the definition of 'immovable property' in Section 3 of the Transfer of Property Act, Section 3(25) of the General Clauses Act, it is evident that in an immovable property there is neither mobility nor marketability as understood in the Excise Law. Whether an article is
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the appellant on a specially made concrete platform at a level of 25 feet above the ground on a base plate secured to the concrete platform, brought into existence not excisable goods but immovable property which could not be shifted without first dismantling it and then re-erecting it at another site. We have earlier noticed the processes involved and the manner in which the equipments were assembled and erected. We have also noticed the volume of the machines concerned and their weight. Taking all these facts into consideration and having regard to the nature of structure erected for basing these machines, we are satisfied that the judicial member of the CEGAT was right in reaching the conclusion that what ultimately emerged as a result of processes undertaken and erections done cannot be described as "goods" within the meaning of the Excise Act and exigible to excise duty. We find considerable similarity of facts of the case in hand and the facts in Mittal Engineering and
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ng of the term in the Excise Act. Thus, it can be seen that the Hon. Supreme Court while holding the machines as immovable property took into account facts such that the machines could not be shifted without first dismantling it and then re-erecting it as another site. It was also sought to distinguish as to how a concrete base meant just to prevent wobbling of the machine would not place the machine in the category of 'immovable property' as something attached to the earth. 5. In light of above judgements and scope of work it is observed: 1) That the Solar Power Plant is a big project and has a permanent location as it is meant for onward sale of power to the consumer. Such plant would therefore have an inherent element of permanency. 2) The output of the project i.e. power, would be available to an identifiable segment of consumer. Thus this output supply would involve an element of permanency for which it would not be possible and prudent to shift base from time to time or l
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ontractor and the counter-party is entered into on the premise that the plant would continue to be situated at the place of construction. 6) Case laws citied by applicant have to be understood in terms of the facts as available therein. As in the case of M/s. Solid and Correct Engineering Works (cited Supra) the plant was not intended to be permanent and was to be shifted after completion of road repair and Construction work hence it was regarded as moveable. But in the instant case the solar power plant has an element of permanency. 7) An Overview of all makes us observe that the impugned transaction for EPC Contract for the Solar Power Plant which includes engineering, design, procurement, supply, development, testing and commissioning is a works contract in terms of clause (119) of section 2 of the GST Act. 8) Since the impugned transaction for EPC Contract for the Solar Power Plant is a works contract under section 2(119) as supply of services hence question of principal supply doe
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