In Re: M/s. Solairedirect India LLP (Solai Redirect India LLP)
GST
2018 (10) TMI 1046 – AUTHORITY FOR ADVANCE RULING, RAJASTHAN – 2018 (18) G. S. T. L. 314 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, RAJASTHAN – AAR
Dated:- 15-9-2018
RAJ/AAR/2018-19/16
GST
NITIN WAPA, AND SUDHIR SHARMA
Present for the applicant: Mr. Sumit Rahi (C.F.O.) and Ms Sagar Shah (G.S.T.P)
Note: Under Section 100 of the CGST/RGST ACT 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act 2017, within a period of 30 days from the date of service of this order.
The Issue raised by the applicant is fit to pronounce advance ruling as it falls under ambit of the Section 97(2) (a), it is given as under:
(a) Classification of any goods or services or both;
Further, M/s. Solairedirect India LLP the applicant being a registered person, GSTIN is 08ADEFS5194G1ZR, as per the declaration given by him in Form ARA-01
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system and access is granted to the Applicant for executing the project on turnkey basis.
1.4 The steps involved in execution of a contract by the Applicant are as below:
1.4.1 Planning for the project
The Applicant submits the Implementation schedule which is approved by the purchaser. The Applicant remains responsible for ensuring compliance with the documentation, related drawings, data sheets, technical specifications, measurements while discharging obligations under the contract.
1.4.2 Procurement of materials
The solar panels and other ancillary materials are then procured by the Applicant and delivered to the power generating system's site, The risk of loss for all equipment and material is transferred to the purchaser on delivery at the project site.
1.4.3 Civil works at the site
Post receiving the access to the project site, applicant Starts with the civil works which involves creating of foundations for erection of the solar panels.
1.4.4 Erection, commissioning and
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ntracts in question is a working solar power generating system, duly connected with the grid for transmission of electricity and the electricity being generated seamlessly as per the technical specifications (like voltage, etc) of the Applicant's customer.
1.6 Applicant has sought to classify the supply of solar power generating system as a composite supply with solar panels being the principal supply under HSN 8541 basis the nature of the product and after considering relevant chapter notes and section notes. Notification No 1/2017 – Integrated Tax (Rate) dated June 28, 2017 prescribes applicable rate of IGST). Photovoltaic cells supplied by Applicant classifiable under Chapter Heading 8541are covered under Schedule I of the said Notification and accordingly liable to 5% IGST.
1.7 Applicant wishes to understand whether the solar panels could be said to be the principal supply and the supply of solar power generating system along with all components could be said to composite supply
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els (5% under the heading 8541) should be applicable on the entire contract value. According to him in the instant case, the individual components (like solar panels, inverters, cables, etc.) are not being sold individually. The intention of the parties is to enter into a contract for set up of a power generating system and not for the purchase of the individual components as such. Also, the individual components would not be of use as such unless they are assembled at the site (which would involve element of service) to work as a unit resulting in set up of the power generating system. This implies that the individual components or the services are supplied in conjunction with each other as these are not being sold as such but as a complete unit.
The Applicant submitted that the contract undertaken is for supply of goods to customer and setting up power generating system wherein the installation/ assembly services are also included for the supply of goods. Accordingly, it can be seen
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or the services are supplied in conjunction with each other as these are not being sold as such but as a complete unit.
The Applicant submitted that the contract undertaken is for supply of goods to customer and setting up power generating system wherein the installation/ assembly services are also included for the supply of goods. Accordingly, it can be seen that the goods and services are naturally bundled in the ordinary course of business with the primary intention being to get a complete and operational solar power generating system.
The Applicant in support of his submission has also stated certain overseas GST and VAT jurisdictions like United Kingdom ('UK'), European Union ('EU') and Australia.
3.2 The Applicant submitted that the supply of solar panels is the principal supply in the composite supply of solar power generating system hence the tax rate applicable on the solar panels is 5% under the heading 8541 should be applicable to the entire contract value and has relied
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ew of entry 234 and hence would be liable to 5% IGST.
3.3 The Applicant has further submitted that if the contract is not to be considered as composite supply, it should be considered as two separate supplies of goods and services with goods being taxed at the rate of 5% and services being taxed at the rate of 18%.
The two parts in the contract in question are the supply of solar panels and ancillary equipment like invertors, transformer, wires, cables, etc and the allied services supplied under the contract. He submitted that applicable tax rates on these products should be 5% under heading 8541 as detailed in our submissions in Para 3.
Another element of the contract is the allied services. The services involved in the contract in question should be taxed at 18% in terms of the notification no 8/2017 -Integrated Tax (Rate) dated 28 June 2017.
3.4 The Applicant stated that the EPC Contract cannot be classified as a works contract in relation to immovable property or a mixed supply
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y Spinning Mills (P) Ltd Vs The Inspector General of Registration =2013 (3) TMI 681 – MADRAS HIGH COURT.
* Commissioner of Central Excise, Ahmedabad Vs Solid & Correct Engineering Works =2010 (4) TMI 15 – SUPREME COURT.
* Selvel Advertising Private Limited Vs Commercial Tax Officer, Alipore Charge = 1992 (5) TMI 182 – WEST BENGAL TAXATION TRIBUNAL.
* Jaiprakash Industries Limited Vs Commissioner of Commercial Taxes, Uttarakhand = 2010 (7) TMI 884 – UTTARAKHAND HIGH COURT.
* Sirpur Paper Mills Ltd. Vs Collector of Central Excise, Hyderabad =1997 (12) TMI 109 – SUPREME COURT OF INDIA.
* Essar Telecom Infrastructure Pvt. Ltd. Vs Union of India etc = 2011 (4) TMI 234 – KARNATAKA HIGH COURT.
In the light of the above discussion, the Applicant submitted that that the solar power generating system cannot be said to be “attached to the earth” within the meaning of that expression as defined in section 3 of the Transfer of Property Act. Further it is attached to the land for its effe
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queries and sought clarification on them. He wanted to know that in case the above contract is not considered as composite supply, can it be split into two i.e. one of supply of goods and another of service and taxed accordingly. Secondly he wanted to know which goods would fall under entry no. 234 of the rate notification as solar generating system. They submitted few judicial precedents in support of their argument. Both these additional queries have been addressed in detail under the 5. Findings, Analysis and Conclusion of the order. Further they reiterated the submission already made in Advance Ruling Application pleaded that the case may be decided as per above submissions and requested the issue to be decided at the earliest.
4.2 The jurisdictional officer in his comments has stated that the applicant is executing the project on turnkey basis which involves planning, procurement, civil work, erection, commissioning, installation and project management services. Hence the nature
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cant is required to supply goods and services stated above, except solar panels. Solar panels procured by the customer are made available by the customer to the Applicant for assembly and erection.
As per submissions made in Advance Ruling Application the applicant undertakes Engineering, Procurement and Construction ('EPC') activities for Group companies as well as third parties for setup of solar power generating system where contract for commissioning of solar power generating system involves simultaneous supply of goods and services.
a) Applicant has not submitted copy of any specific EPC contract along with the Advance Ruling Application on which he would like to seek the Ruling. As per submission made by applicant in Advance Ruling Application and based on discussions during PH, the nature of work undertaken by applicant clearly falls under category of “Composite turnkey EPC contract”.
b) In a composite EPC contract the contractor has to, inter alia design, engineer, procure,
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issioning, Performance tests, Defect rectification.
vi. Generation of electricity and connection with the grid i.e. related interconnection facilities and other related infrastructure for evacuation of power (Evacuation Infrastructure).
vii. Apart from installation the contractor has to successfully test run the plant over certain period of time to check and ensure the optimum output (generation of electricity) as agreed upon in contract.
viii. Final acceptance and payment is done only after successful test run as per condition laid down in contract.
d) Under composite EPC turnkey contracts the intention of the owner is not to procure goods of solar power generating system but to procure a completely functional solar power plant as a whole wherein applicant undertakes end to end responsibility of supply of equipments of solar power plant including designing, engineering, supplies, installation to technical specification, testing and commissioning of a functional solar power plan
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ith the principal supply being the solar panels and accordingly, the tax rate of solar panels (5% under the heading 8541) should be applicable on the entire contract value.
i) As can be seen, the above entry is under the notification describing the Tax rate on 'Goods'. The entry reads as “renewable energy devices & parts for their manufacture”. If the transaction is only of supply of goods then the applicable Schedules would have to be seen but the intent of parties is always for supply of Solar Power Generating System as a whole which includes supply, installation, testing and commissioning and it is not chattel sold as chattel. It is not a contract of supply of solar power generating system or its parts but an EPC contract where the contractor has to, inter alia design, engineer, procure, transport, deliver, develop, erect, install, test and commission the project. Under composite EPC turnkey contracts the intention of the owner and the contractor is not to procure goods of solar po
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sferred from one place to another without substantial damage hence same should qualify as movable property. Hence in view of above precedence and facts of the case, the given supply should be treated as supply of Solar Power Plant Only.
I) As per the terms and conditions usually laid in EPC Contract the contractor i.e. the applicant has to undertake activities from engineering, design, to procurement of the material and has also to test and commission a functional plant before Final Acceptance. In contracts of such a nature, the liability of the contractor doesn't end with the procuring of materials but it extends till the successful testing and commissioning of the system. The transaction is not of mixed or composite supply but is of a 'work contract' but it is for us to decide whether it is a 'work contract' in terms of GST Act also, 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
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upervision of erection and commissioning of four sets of Hydraulic Mudguns and Tap Hole Drilling Machines required for blast furnace Nos. 4 and 6 of the Bhilai Steel Plant. For this purpose, it imported several components and also manufactured some of the components at their factory in Marai Malai Nagar, Chennai. These components were transported to the site at Bhilai where the manufacture and commissioning of the aforesaid machines took place. It is undisputed that duty was paid in respect of the components manufactured at its workshop in Chennai, but no duty was paid on manufacture of the aforesaid Mudguns and Drilling Machines which were erected and commissioned on site.
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
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tform described as the cast house floor which is in the nature of a concrete platform around the furnace. The cast house floor is at a height of 25 feet above the ground level. On this platform concrete foundation intended for housing drilling machine and mudgun are erected. The concrete foundation itself is 5 feet high and it is grouted to earth by concrete foundation. The first step is to secure the base plate on 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 t
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it is a physical and engineering impossibility to assemble mudguns or the drill tap hole machines elsewhere in a fully assembled condition and thereafter erect or install the same at a height of 25 feet on the cast floor of the blast furnace. She found that even the Adjudicating Authority conceded the fact that the equipments have to be assembled/erected on the base frame projection of the furnace. She also accepted the submission urged on behalf of the appellant that if the machines are to be removed from the blast furnace, they have to be first dismantled into parts and brought down to the ground only by using cranes and trolley ways considering the size, and also considering 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 judgm
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be dismantled and reassembled or re-erected at another place for such use, such chattel would be immovable. In the present appeal, even according to the finding of the Collector, mudguns and drill tap hole machines have to be dismantled and disassembled from the cast floor before being erected or assembled elsewhere. We have also arrived at the same conclusion independently, in para 10 above.
Accordingly applying the test laid down by the Supreme Court we hold that the erection and installation of mudguns and drill tap hole machines result in immovable property. In the light of the ratio of the above case law, we hold that the mudguns and tap hole drilling machines do not admit of the definition of goods and, therefore, excise duty is not leviable 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
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each tank being about 30 feet in height 50 feet in diameter weighing about 40 tons. The tanks were connected with pump house with pipes for pumping petroleum products into the tank and sending them back to the pump house. The question arose in the context of ascertaining the rateable value of the structures under the Bombay Municipal Corporation Act. The High Court held that the tanks are neither structure nor a building nor land under the Act. While allowing the appeal this Court observed :-
“The tanks, though, are resting on earth on their own weight without being fixed with nuts and bolts, they have permanently been erected without being shifted from place to place. Permanency is the test. The chattel whether is 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 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 th
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d erection at the site in the steel plant, they must nevertheless be deemed as individual machines having specialized functions. We are not impressed by this reasoning, because it ignores the evidence brought on record as to the nature of processes employed in the erection of the machine, the manner in which it is installed and rendered functional, and other relevant facts which may lead one to conclude that what emerged as a result was not merely a machine but something which is in the nature of being immovable, and if required to be moved, cannot be moved without first dismantling it, and then re-erecting it at some other place. Some of the other decisions which we shall hereafter notice clarify the position further.
In Quality Steel Tubes (P) Ltd. v. Collector of Central Excise, UP – 1995 (75) E.L.T. 17 (S.C.) = 1994 (12) 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 t
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le or capable of being brought to market. Goods which are attached to the earth and thus become immoveable do not satisfy the test of being goods within the meaning of the Act nor it can be said to be capable of being brought to the market for being bought and sold. Therefore, both the tests, as explained by this Court, were not satisfied in the case of appellant as the tube mill or welding head having been erected and installed in the premises and embedded to earth they ceased to be goods within meaning of Section 3 of the Act.”
In Mittal Engineering Works Pvt. Ltd. v. CCE – 1996 (88) E.L.T. 622 (S.C.) = 1996 (11) TMI 66 – SUPREME COURT OF INDIA; this Court was concerned with the exigibility to duty of mono vertical crystallisers which are used in sugar factories to exhaust molasses of sugar. The material 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 mete
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hat the mono vertical crystalliser has to be assembled, erected and attached to the earth by a foundation at the site of the sugar factory. It is not capable of being sold as it is, without anything more. This Court, therefore, concluded that mono vertical crystallisers are not “goods” within the meaning of the Act and, therefore, not exigible to excise duty. In Triveni Engineering & Indus. Ltd. v. CCE – 2000 (120) E.L.T. 273 = 2000 (8) TMI 86 – SUPREME COURT OF INDIA; a question arose regarding excisability of turbo alternator. In the facts of that case, it was held that installation or erection of turbo alternator on a concrete base specially constructed on the land cannot be treated as a common base and, therefore, it follows that installation or erection of turbo alternator on the platform 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 ear
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facts and circumstances of each case.”
It was also held that the decision 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. must be viewed in the light of the findings recorded by the CEGAT therein, that the whole purpose behind attaching the machine to a concrete base was to prevent wobbling of the machine and to secure maximum operational efficiency and also safety. In view of those findings it was not possible to hold that the machinery assembled and erected by the appellant at its factory site was immovable property as something attached to earth like a building or a tree.
Keeping in view the principles laid down in the judgments noticed above, and having regard to the facts of this case, we have no doubt in our mind that the mudguns 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 ba
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e in hand. It cannot be disputed that such drilling machines and mudguns are not equipments which are usually shifted from one place to another, nor it is practicable to shift them frequently. Counsel for the appellant submitted before us that once they are erected and assembled they continue to operate from where they are positioned till such time as they are worn out or discarded. According to him they really become a component of the plant and machinery because without their aid a blast furnace cannot operate, it is not necessary for us to express any opinion as to whether the mudgun and the drilling machines are really a component of the plant and machinery of the steel plant, but we are satisfied that having regard to the manner in which these machines are erected and installed upon concrete structures, they do not answer the description of “goods” within the meaning of the term in the Excise Act.
Thus, it can be seen that the Hon. Supreme Court while holding the machines as immo
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mp sum price for the entire contract. Hence the said EPC contract cannot be split in two separate contracts one of supply of goods and another that of services and taxed accordingly.
n) Explanations covered under point i) and m) of 5. Findings, Analysis and Conclusion satisfactorily addresses additional queries raised by applicant during personal hearing.
6. Based on above facts along with provision of law 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. Contract between an EPC contractor and the counter-party is entered into on the premise that the plant would continue to be situated at the place of construction. Such plant would therefore have an inherent element of permanency.
2) The output of the project i.e. Electricity, 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 a
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which there is a single lump sum price for the entire contract. Hence for convenience of contractor the said EPC contract cannot be split in two separate contracts one for supply of goods and another for supply of services and taxed accordingly.
6) 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.
7) 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 does not arise and so GST tax rate of Solar power Generating System under notification No 01/2017-CT (Rate) dated 28.06.2017, at S. No. 234, under HSN Classification 84, 85 and 94 is not applicable.
RULING
As per the statement of facts submitted by the applicant, the scope of work in respec
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