In Re: M/s. Fermi Solar Farms Private Limited
GST
2018 (9) TMI 1339 – APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA – 2018 (17) G. S. T. L. 297 (App. A. A. R. – GST), [2019] 69 G S.T.R. 387 (AAAR)
APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA – AAAR
Dated:- 4-9-2018
MAH/AAAR/SS-RJ/07/2018-19
GST
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 provisions, a reference to the CGST Act would also mean a reference to the same provisions under the MGST Act.
The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2
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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 applied through appeal dated 6.6.2018. As the appellant had filed letters within 30 days of the communication of the advance ruling, and it was only because the Appellate authority was not formed that he could not file an appeal as also because the appella
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ication 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 FOR ADVANCE RULING – MAHARASHTRA (hereinafter referred to as 'Impugned Order') observed as under:
a. The intent of the purchaser according to the agreement is to purchase the solar power generating system with various components and not o
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o 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 should be at 5%
1.1. Rate of solar power generating system
Under GST regime, various rates have been prescribed for goods and services. Per, Notification No. 1/2017 – Integrated tax (Rate) (The notification is attach
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d 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 point'.
Typically the term system has a wide ambit. As per the Oxford Dictionary, the definition of the term 'system' is 'a complex whole, a set of things working together as a me
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ets (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) Equipment for utilising ocean waves energy (18) Solar lantern (19) Ocean thermal energy conversion system (20) Solar photovoltaic cell (21) Parts consumed within the factory
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aimed 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.'
Furthermore, in M/s. Phoenix Construction Technology vs. Commissioner of Central Excise and Service Tax, Ahmedabad-II [2017-TlOL-3281-CESTAT-AHM] = 2017 (8) T
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educed 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 Appellant most humbly submits that, Section 2(30) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as 'the CGST Act') defines
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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 is the principal supply is treated as the main supply and the entire transaction is taxed as per the principal supply.
Concept
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e 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 composite transaction then the nature of such transaction would be determined by the application of the dominant nat
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n 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 actually receive or use
* The elements are normally advertised as a package
* The differe
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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 vehicle. Although, for instance, the motor, or ind
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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 not constitute for customers an aim in it
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e (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 onshore and offshore modes for the purpo
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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 Agreement.
…..
2. Complete
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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 SPGS, and hence, the contrac
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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 or availing trade credi
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e 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 principal supp
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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 componen
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truments 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 Modul
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CGST Act 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 th
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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 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 t
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ect. By relying on the 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
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nder the contract qualify to be works 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
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e it from its base and sell it.
In view 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 w
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enue, Chepauk, Madras v. K. Venkataswami Naidu (AIR 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.'
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67 (9) TMI 147 – MADRAS HIGH COURT, wherein the Madras High Court, 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.'
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e nature of the contract to qualify as 'works contract'. Further, in the 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
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se they are transported in dismantled condition. ………'
A conjoint 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 equipment
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de land, benefits to arise out of land, and things attached to the earth or permanently 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,
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the decision of TTG Industries as the facts of the case are not applicable to our case. 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 blas
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the said concrete platform by means of foundation bolts. The base plate is 80 mm mild 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.
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undertaken under the contract are merely services in relation to supply of the goods. Further, 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 co
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at a given place and the plant can be moved and is indeed moved after the road construction 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
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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. 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
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igible to concessional rate of 5% as the entry covers 'Renewable energy devices and parts for their 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)
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he erstwhile excise law, wherein various judgments have been pronounced in case of wind operated electricity generators 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
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l and will be eligible for benefit.
* Vide Circular No. 1005/15/2015 – CX dated October 20, 2015, the CBEC had clarified that tower, nacelle, 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 t
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, 2(a), (b) and (c) of Section XVI. The relevant para of the judgement is reproduced as under:
'13. Coming to Rule (a) of Note 2 to Section XVI which 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
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chine of paper making machinery. Therefore, “Granite Press Roll', the imported article, in our view, warrants its classification under Chapter Heading 84.31, 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 stoo
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ing as that of the machine. In view of the above, the Appellant submits that the parts of solar power generating system can be used only in setting up of solar power generating 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
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ch provides concessional rate on solar power generating system does not specify the persons who would be eligible for concessional rate of 5% i.e. developer, contractor or manufacturer/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 t
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er will have a right to accept or reject a Affiliates or Subcontractor at its discretion and Owner's decision in this regards would be binding on the Contractor, provided such acceptance shall not be unreasonable 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
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ch means that supply of SPGS is not works contract. Further, it has been stated therein that contracts for contract for SPGS can qualify as composite supplies, wherein principal supply would be of SPGS, which is 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 tha
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ion 9.
9. (1) Subject to the 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 or both, except on the supply of alcoholic 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 unde
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ely:-
(a) works contract as defined in clause (119) of section 2; and
10. In terms of the applicable rates of GST, the rates for goods are prescribed vide Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017 (“Notification 1/2017”), while 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 Head
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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.
(90) “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 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
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n for each supply, at the rates prescribed for goods/ services by way of notification. In the present case, under Section 7(1)(a), the Supply Agreement would be taxed qua the consideration mentioned therein, as a supply of goods at the rate of 5% under Notification 1/2017. The Services Agreement would be taxed as a supply qua the consideration 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
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question of taking recourse either to Schedule Il or to Section 8 of the CGST Act in order to determine taxability. The Supply Agreement is consequently taxable at 5% and the Services Agreement at 18%.
16. Without prejudice to the foregoing, to the extent that Section 8 dealing with composite supply is applicable, there can at best be said to be two separate 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 construct
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mined that the transaction is a “works contract”, there is no need to enter into any discussion as to the transactions involving a “composite supply” (refer Pg. 74 of the Appeal Memo).
18. It is submitted that the aforesaid findings under the Impugned Order are completely unsustainable and bad in law, as the same completely misread the provisions of:
(i) Schedule II to the CGST Act 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 transaction
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acts and intent of parties, and the agreements must be read as they have been executed by the parties (viz. as separate agreements for separate supplies with distinct consideration). In this background, there can be no question of treating the supplies as a “works contract”
View taken in the Impugned Order frustrates the intent of the Legislature and renders the entry for SPGS otiose:
21. Without prejudice to 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 applica
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tha Aiyar's Advance Law Lexicon (5th Edition)
“System” means a set of inter-related or interacting elements
25. In terms of the aforesaid, given that S. No. 234 refers to the fully interconnected SPGS, the said entry refers to all of the parts/ components as well as the necessary services to achieve such interconnection.
26. Accordingly, the clear intention of the Legislature is that the “system” must be taxed at an aggregated level in whatever form it is, 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 (S
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s Ltd. vs. CCE [1993 (66) ELT 37 (SC)]; = 1993 (4) TMI 73 – SUPREME COURT OF INDIA, Akbar Badruddin Jiwani vs. CC [1990 (47) ELT 161 (SC)]). = 1990 (2) TMI 50 – SUPREME COURT OF INDIA.
29. In the present case, the clear intent of the Legislature/Government is to tax SPGS at 5%, being a source of renewable energy. Accordingly, no such interpretation can be adopted which would defeat this intention and place all SPGS contracts under the 18% rate bracket. However, the view 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 provid
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5 – SUPREME COURT. Accordingly, the view of the expert on the movability of the SPGS ought to have been accepted.
(j) The Ministry of New and Renewable Energy (MNRE), which is the parent Ministry for solar projects, has also clarified, vide No. 283/11/2017-GRID SOLAR dated 03.04.2018 (refer Pg. 109 of the Appeal Memo), that the structurals in relation to SPGS are not in the nature of “immovable property”. Being the governing Ministry qua solar projects, and having the relevant 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 functiona
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Kone and Anr. [AIR 1969 Mad 346] = 1967 (9) TMI 147 – MADRAS HIGH COURT
* CBEC Circular No. 58/1/2002-CX dated 15.01.2002
(l) It is submitted that the last judgement in the aforesaid line of decisions on the issue, which prescribed the overarching tests for determining whether an item is movable or immovable, is the judgement in Solid and Correct Engineering (supra). It is this judgement which requires to be followed and applied, as opposed to the strong reliance placed by the Impugned Order in 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 fac
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d. vs. CCE [2000 (120) ELT 273 (SC)]) = 2000 (8) TMI 86 – SUPREME COURT OF INDIA.
(o) Even under GST (for the purposes of disallowing input tax credit under Section 17(5) of the CGST Act), a distinction has been drawn between “immovable property” and “plant and machinery”. The term “plant and machinery” is defined to mean “apparatus, equipment, and machinery fixed to earth by foundation or structural support… and includes such foundation and structural supports”. In this regard, it is also to be noted that 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).
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be satisfied.
33. Furthermore, works contract being a specie of composite contract (which determines taxability qua the principal supply), in order to be taxed as a service, it is a natural corollary that a “works contract” must principally be for the supply of services. In view thereof, in the instant case even if the two agreements are taken together, as service is not the principal supply, it cannot be treated as a “works contract”
34. Rather, the principal supply, in terms of both customer perception and as a value proposition, 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 cr
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[1998 (103) ELT 395 (Tri)] = 1998 (3) TMI 359 – CEGAT, MUMBAI
* Pushpam Forging vs. CCE, Raigad [2006 (193) ELT 334 (Tri-Mum)] = 2005 (7) TMI 242 – CESTAT, MUMBAI
* CCE vs. Megatech Control Pvt. Ltd. [2002 (145) ELT 379 (Tri-Chennai)] = 2002 (5) TMI 112 – CEGAT, CHENNAI
* Circular No. 1005/15/2015-CX dated 20.10.2015
(iv) Notification 1/2017 states that “The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far 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
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early defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function.
In terms of the aforesaid Chapter Notes, it is submitted that:
* Under Note 2(a), parts which are goods covered under any heading are to be classified thereunder. As the SPGS (i.e. as a system) is covered under S. No. 234, all parts/ components necessary to create the said interconnected “system” would qualify for the 5% rate.
* Under Note 2(b), parts suitable for use solely or principally with the SPGS would be classified 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
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g Works Contract u/s.2(119) as supply of services. It was observed in the ARA that the though the appellant tendered two agreements – one for the supply of goods to be used in Solar Power Plant and other for the supply of services they are separate agreements, the buyer has expressed a clear intention to purchase the solar power generating system with the various components and the impugned contract is for supply of solar power generating system as a whole. After going through the various clauses of the Agreements, the ARA came to the conclusion that the buyer by devising certain clauses sought to 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
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The ARA referred to Supreme Court and High Court judgments to understand the term 'movable property' and relying on the principles enunciating in the judgment. It came to the conclusion that the transaction results into transfer of immovable property.
FINDINGS
37. 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%?
38. It is seen that Agreement is proposed to be made in two parts. One is titled as 'AGREEMENT FOR SUPPLY OF SOLAR POWER GENERATING SYSTEM' in which 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
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s are purported to be made and in both the agreements, one of them is for the supply of goods and the other is for supply of services. It is submitted by the appellant that the 'AGREEMENT FOR SUPPLY OF SOLAR POWER GENERATING SYSTEM' is a composite supply wherein the principal supply is for SPGS and hence the entire contract should be taxable @ 5%. As for the 'ENGINEERING AND CONSTRUCTION AGREEMENT', it is argued that it is an independent contract for pure services and hence the said contract should be read and considered independent of the contract for supply of SPGS and should be taxable @18%.
39. It is seen from the 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
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However, the schedule-III of the 'Services' agreement defines the scope of work which includes-
a. Land development activity.
b. Construction of necessary roads and drainage system, boundary wall fencing, Bore wells.
c. All Civil and foundation works for Switchyard, solar plant and all other equipment.
d. Site enabling facilities.
e. Levelling and grading.
It Iso includes erection, testing and commissioning of solar modules, power transformer, invertor etc.
* As per Clause 13 of the Service agreement, the appellant has agreed that it shall be responsible for carrying out all the tasks and responsibilities associated with the successful 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 co
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e 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 of material and the rendering of services of erection and installation are integrally connected and interdependent. The terms of supply clearly show that the implementation schedule is not only for supply but also for erection, testing and commissioning of the plant. Schedule A of the supply agreement part II makes it clear that the complete supplies required for the construction of the 60MW (AC/81 MW DC) Solar PV project shall be in the scope of 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
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e distinctly, are intertwined and interdependent.
43. Clause 11.2 of the 'AGREEMENT FOR SUPPLY OF SOLAR POWER GENERATING SYSTEM' says that the Supplier shall bear the risk of physical loss or destruction of or damage to the Equipment, Spare Parts and Material, regardless of whether the Buyer has title thereto until the date of Final Acceptance. If there is any loss or damage of the Equipment and Material till the date of Final Acceptance all amounts recoverable under the insurance shall be paid over to the buyer.” The 'Final Acceptance' is defined in the Agreement as “the date of commencement of commercial operations of the Plant, provided that if at any point with respect 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 th
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to supply equipment but there is design and engineering work. Schedule J says that 'Specifications/Design basis for various equipment shall be mutually agreed between Supplier and Buyer during the early engineering period'. Thus, the involvement of the appellant is from the engineering stage. The definition of 'Other Contractors' is also touched upon. This is defined as 'other contractors engaged by the Supplier to implement, operate and maintain the Plant'. We agree with the observations of the Advance Ruling Authority that this clause shows that the Supplier (appellant) would implement, operate and maintain the plant and thus the agreement does not stop at supply but extends to 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 pro
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d involved in this batch of Writ Petitions, the same person has been entrusted with the responsibility of procuring material, and of erection and installation of equipment. While in-built safeguards are provided in all the contracts to ensure quality of the material, and effective performance of the erection contract, the supply contracts, in substance, do not absolve the petitioners-contractors of their obligations of erection and installation of equipment after the goods are sold by them to the owner. The petitioners-contractors obligations, under both the supply and erection contracts, cease only after the turn-key project becomes operational, and after final payment is made both 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
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ainly for their expertise in erection and installation of plants in the execution of turn-key projects. As they were entrusted with the work of erection and installation, the petitioners-contractors have also been entrusted with the task of procuring material therefor. The functions relating to the supply of material, and rendering services of erection and installation, are integrally connected and are inter-dependent”
The above observations of the Hon'ble High court are clearly applicable in the present case. The functions relating to the supply of goods and the installation thereof are clearly inter-dependent and though distinct agreements are made they are linked to each other and are 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 reci
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other;
e. In the ordinary course of business.
f. One of which is a principal supply.
47. The Contracts are two – one for the supply of goods and the other for the supply of services. The contract or the agreement fulfills the conditions of the 'composite supply'. There is supply of goods and services. They are naturally bundled in the sense that both the goods and services may require to fulfill the intention of the buyer in giving the contract. The supply of goods and services are provided as a package and the different elements are integral to flow of supply i.e. one or more is removed, the nature of the supply would be affected. Thus, we hold that though there are two agreements made one for the supply of goods and 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 supplie
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and transaction and that 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 by the appellant on the decisions in the case of Union of India v. Mahindra and Mahindra [1995 (76) E.L.T. 481 (S.C.)] = 1995 (3) TMI 88 – SUPREME COURT OF INDIA and Mirah Exports Pvt. Ltd. vs. Collector of Customs [1998 (98) E.L.T. 3 (S.C.)] = 1998 (2) TMI 124 – SUPREME COURT OF INDIA. In this respect we refer to the Supreme Court judgement in the case of Bhopal Sugar Industries Ltd vs Sales Tax Officer, Bhopal on 14 April, 1977 (Equivalent citations: 1977 AIR 1275, 1977 SCR (3) 578) =1977 (4) TMI 151 – SUPREME COURT OF INDIA. The Apex Court has observed 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 de
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ons.
WHETHER IMMOVEABLE PROPERTY
49. Now, though, we have come to the conclusion that the same is a composite supply, we have to decide the issue about what would be the principal supply and whether it would be a supply of services or supply of goods. The ARA has held that the impugned transaction 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%. The moot question, therefore, is whether the agreement before us is a 'works contract' as defined in clause (119) of section 2 of the CGST Act or otherwise. The definition of works contract is reproduced below.
(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 good
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r 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. However, these activities should be in respect of immovable property. In order to decide whether the transaction is a works contract it is for us to decide whether it is in respect of immovable property. The term 'immovable property' has not been defined under the GST Act. The appellant has submitted certain judgments in his favour in defining the term and after going through same, we find that the following principles emerge:-
* If a machine is attached for operational efficiency, it does not become immoveable property.
* “The degree and nature of annexation is an important element for consideration; 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 attach
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then also it cannot be termed as 'Immoveable property'.
51. So, what to be seen above is that in deciding whether a property is movable property or otherwise, we have to see what is the mode of necessary annexation and the object of annexation. If object is so annexed that it cannot be removed without causing damage to the land then it gives a reasonable ground for holding that it was intended to be annexed in perpetuity. Also whether the intention of the parties while erecting the system was that the plant has to be moved from place to place in the near future would also make a difference. We have to see by relying upon the above principles i.e. 1) mode of object of annexation 2) mode of annexation whether the plant was installed merely to make it wobble free or it is affixed 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
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Current and connection to utility grid is made through High Voltage Transformer.
The appellant has submitted in the write up that in setting up of a solar power generation plant, the following steps are involved:
* Soil and Topo Survey
* Plant coordinate fixing, Boundary fencing and Plant layout
* T/L Survey, Piling, Building Construction
* Structure erection, inverter erection, equipment foundation Charging transmission, DC system erection, module mounting
* DC cabling
* Commissioning of the solar power plant.
As part of the services contract, various services are provided including the following:
* Construction of complete buildings including control rooms and inverter rooms, roads and drainage system, boundary walls/ fencing, bore wells
* All civil and foundation works for switchyard, solar plant and all other equipment
* Site enabling facilities
* Leveling and grading
* Erection, commissioning and testing for solar modules, mounting structures, power tr
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nchoring to the ground is the tough part of these installations, as there are many different types of foundations. If the soil is clear of debris, steel beams are driven into the ground and the racking system is attached to the beams. If ground conditions are not suited for smoothly driven beams, anchor systems may be used- helical piles, ground screws. These can take more time to install as they have to power through boulders and other large debris. It is usually a more complicated installation process than putting solar panels on a roof. When you have a roof installation, half of the structure is already built. All one has to do is to install racking and the solar array. However, with a ground mounted system, you essentially have to build the structure of the roof from scratch, so the solar panels have something to sit on. This means 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 so
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lete switchyard, Inverter transformers and auxiliary transformers, Battery and battery charger, SCADA system, Module cleaning system, Illumination and ventilation system, Earthing system ,Site enabling facilities and Mandatory spares. The initial steps include the drawings and detailing of the system. As per Annexure A of the Services agreement, the list of drawings includes drawings of the site map which shows the solar equipment/switchyard/site office/access, the Solar Plant Layout showing the module and string layout/inverters/major cables/switchyard equipment evacuation point and transmission line, the Earthing layout, the Electrical diagrams/documents and drawings , the construction drawings which include the solar panel foundation arrangement/layout and detail of roads and drains, Architectural details and finishing schedule, building layout and details of foundations, trenches, grade slab, plinth beam, equipment foundations, roof etc. and drawings of the module supporting struct
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sions and orientation of the needs of the project. It is not easy to move them from one place to the other. Rather moving them from one place to other would be imprudent. Moving them to a new location would mean retrofitting the system on to a property they simply weren't designed for, meaning that they would be much less efficient. It would not be in the interest of the buyer to move it from one place to the other. Thus, the project fulfills both the conditions of an immoveable property – The mode of annexation shows that the groundwork, being the necessary foundation, is an important part of the project. The object of annexation, as said earlier, cannot be to make it movable from one place to the other. It simply cannot be equated to the Asphalt mix (the issue in Solid &Concrete Engg case) which was intended to be moved from one place 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
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guns and the drilling machines erected at site by 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.”
In the above case, the Supreme Court took note of the fact
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. 1996 (88) ELT 622 (SC) = 1996 (11) TMI 66 – SUPREME COURT OF INDIA. In the case of Quality Steel Tubes (cited supra), the court held that goods which are attached to -earth and thus become immovable did not satisfy the test of being goods within the meaning of the Act. It held that tube mill or welding head is immovable property. In the case of Mittal Engineering Works, the issue was whether mono vertical crystallisers is goods (in which case it would be excisable or immovable property). The mono vertical crystallisers is fixed on solid RCC Slab. It consists of bottom plates, tanks, coils, drive frames, supports etc. It is a tall structure rather like a tower with a platform. It was decided by the Court that the said product has to be assembled, erected and attached to the earth by a foundation and therefore not goods but immovable property.
56. 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 (
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of the machines as seen in the Schedule attached to the deed of conveyance also shows without any doubt that they were set up permanently in the land in question with a view to operate a fertilizer plant and the same was not embedded to dismantle and remove the same for the purpose of sale as machinery at any point of time. The facts as could be found also show that the purpose for which these machines were embedded was to use the plant as a factory for the manufacture of fertiliser at various stages of its production. Hence, the contention that these machines should be treated as movables cannot be accepted.”
Thus, what can be seen from the above is that when machines are embedded with no visible intention to dismantle them and they are intended to be used for a fairly long period of time, they are 'immoveable property.
57. The appellant has produced a certificate from a Chartered Engineer stating that the 'Solar Power Plant is made of equipment which are largely moveable in nature
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New and Renewable Energy' dt 3.4.2018. However, the same denotes the understanding of the Ministry regarding the GST treatment for solar sector and cannot be taken as legal advice/opinion. The letter itself clarifies in the end that the same is not a legal advice or an opinion. The issue of classification or determination of the agreements have to be done with respect to the laws and relevant provisions which are certainly not in the domain of Ministry of New and Renewable Energy.
59. The appellant has also produced order of the CBEC under Section 37B (Order No 58/1/2002 – CX dt 15.1.2002). The order gives directions as to what would be excisable goods and what would not (immoveable property). The clarification says in Para 5 (i) that 'Turnkey projects like Steel plants, Cement Plants, Power plants etc involving supply of large number of components , machinery, equipment, pipes and tubes etc for their assembly /installation/ erection/integration/inter-connectivity on foundation/civil
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SPGS at a significantly higher rate of 18%.
The said notification is reproduced below:
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
The above description in the notification shows the description of goods as 'Following renewable energy devices and parts for their manufacture'. The term 'devices' is very important here. A device means an object. The Oxford dictionary defines 'device' as 'an object or a piece of equipment that has been designed to do a particular job'. The 'solar power generating system' described in the entry
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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 ruling authority. There being no change in situation, there is nothing we can add. Also, as an 'appellate authority' we can decide issues already decided and appealed against. There being no decision given by the advance ruling authority, we cannot give any decision in appeal.
63. WHETHER BENEFIT OF CONCESSIONAL RATE OF 5% OF SOLAR POWER GENERATION SYSTEM AND PARTS THEREOF WOULD ALSO BE AVAILABLE TO SUB CONTRACTORS?
64. 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.'
65. This is also a situation where the facts and circumstances are not clearly delineated. We do not have any document/agreement which would show what solar parts are supplied by the sub-contractors.
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r power plant and eligible for the benefit of Notification. This issue is also different from the issue before us.
* Jindal strips Ltd. vs. CC, Bombay [2002-TIOL-347-CESTAT-DEL-LB] = 1997 (5) TMI 152 – CEGAT, NEW DELHI-This decision is on the classification of components and not germane to the issue before us.
* Sri Velayuthaswamy Spinning Mills vs. The Inspector General of Registration and the Sub Registrar [2013 (2) CTC 551] = 2013 (3) TMI 681 – MADRAS HIGH COURT Perumal Naicker vs. T. Ramaswami Kone and Anr. [AIR 1969 Mad 346] = 1967 (9) TMI 147 – MADRAS HIGH COURT- In the Velayuthaswamy case the issue was whether setting up of windmills can be treated as movable property for the purpose of payment of stamp duty. It was decided that windmills were installed on the cemented platform on the land for running of windmills and not for the benefit of the land and hence the same are to be considered as movable property. In the Perumal Naicker case the issue was whether the engine
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74 – HIGH COURT OF JUDICATURE AT BOMBAY. All these cases are quoted with respect to the 2nd question posed by the appellant. As we have not given any decision in the said case in the absence of arguments, we do not feel the need to discuss the cases.
Accordingly, we pass the following order:
ORDER
In view of the above discussions and findings and in terms of Section 101(1) of the CGST Act 2017 and MGST Act 2017, we hold that-
67. 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%?
The agreements tendered in support of this question are for setting up and operation of a solar photovoltaic plant and are in the nature of a 'works contract' in terms of clause (119) of section (2) of the GST Act. Schedule II ( Activities to be treated as supply of goods or supply of services) treats 'works contract' u/s 2 (119) as supply of services .Depe
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o change in situation, there is nothing we can add. Also, as an appellate authority' we can decide issues already decided and appealed against. There being no decision given by the advance ruling authority, we cannot give any decision in appeal.
69. WHETHER BENEFIT OF CONCESSIONAL RATE OF 5% OF SOLAR POWER GENERATION SYSTEM AND PARTS THEREOF WOULD ALSO BE AVAILABLE TO SUB CONTRACTORS?
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 ruling authority. There being no change in situation, there is nothing we can add. Also, as an 'appellate authority' we can decide issues already decided and appealed against. There being no decision given by the advance ruling authority, we cannot give any decision in appeal.
Case laws, Decisio
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