2018 (10) TMI 1144 – AUTHORITY FOR ADVANCE RULING, RAJASTHAN – TMI – Rate of GST – supply of solar power generating system and its installation at the site – Classification of supply – EPC Contract – Composite supply – works contract services – What is the applicable GST Rate on supply of Solar Power Generating System?
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Held that:- The applicant in his Advance Ruling Application and later in additional statement has stated that they are engaged in supply of solar power generating system and its installation at the site which involves simultaneous supply of goods and services under a single contract.. As per submissions made by them the nature of work undertaken by them can be best categorized as Composite turnkey EPC contract . All arguments and submission put forth by applicant categorically classify the nature of work to be supply of solar power generating system and its installation at the site.
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It is not clear whether the applicants wants clarification of GST rate appli
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vice the project after installation. Hence Applicant intends to undertake an ” EPC contract” and not a “Supply Contract”.
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The installation of the Solar Power generating system 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.
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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 and prudent to shift base from time to time or locate the plant elsewhere at frequent intervals.
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The Solar generating system cannot be shifted to any other place without dismantling the same. Further it is a tailor made system as per technical specification which cannot be sold as it is to the
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The impugned transaction for EPC Contract for the Solar Power generating system 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 – Since the impugned transaction for EPC Contract for the Solar Power generating system 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.
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Ruling:- The nature of work is of Erection, Procurement and Commissioning of Solar Generating System which falls under the ambit “Works Contract Services” (SAC 9954) of Notification no. 11/2017 Central Tax (Rate) dated 28 June, 2017 and shall attract 18% rate of tax under IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%. – ADVANCE
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cant : l. The present application for advance ruling has been filed to seek decision on the rate of GST applicable on the installation of solar power generating system. 2. Ws. Frizo India Private Limited (hereinafter referred to as the "Applicant") is engaged in supply of solar power generating system and its installation at the site. The applicant submitted that the solar power generating system is covered under entry no. 234 of the notification no. 01/2017-Central Tax (Rate) dated 28.06.2017 which prescribes the CGST rate of 2.5% on the supply of solar power generating system. 3. The applicant stated that if the definition of composite supply of works contract is pursued, it is found that in the GST regime, only works contract services of immovable property are covered under section 2(119) of the CGST Act, 2017. 4. Applicant stated that installation of solar power generating system which is affixed to Earth is not of any immovable property and so cannot be considered as sup
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ply is that of solar power generating system and not of installation of the said system. Consequently, it is submitted that it should be pronounced that the GST rate applicable for installation and commissioning of solar power generating system is 5% and not 18% as applicable to composite supply of works contract. 6. The applicant further submits that they are supplying 'solar power generating system' which is specific entry under notification no. 01/2017 Central Tax (Rate) dated 28.06.2017. The applicant submits that the specific entry always prevail over the general description. The applicant submits that the entry no. 3(ii) of notification no. 11/2017 Central Tax (Rate) dated 28.06.2017 is very general entry prescribing GST rate of 'composite supply of works contract as defined in section 2(119) of the CGST Act, 2017.' 7. The applicant further submits that they have made composite supply involving supply of solar power generating system and its installation thereof a
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this regard, the applicant places reliance on the following judicial pronouncements:- BALWANT SINGH VERSUS JAGDISH SINGH [2010(262) E.L.T. 50 (S.C.)]:- COMMISSIONER OF CENTRAL EXCISE, LUDHIANA VERSUS RALSON INDIA LTS. [2006(202) E.L.T. 759 (P&H)] The analysis of above decisions of hon'ble Supreme Court and High Court makes it clear that the intention of the law makers is to be kept in mind while interpreting any provision. If any interpretation defeats the intention of the law makers, it should be avoided. In the present case also, if the interpretation that supply of solar power generating system is works contract attracting GST rate of 18% is taken, it will be against the intention of the government to promote and encourage use of solar energy as means of power generation. Therefore, the pronouncement as regards applicable GST rate on solar power generation system should be given in favour of the applicant being 5% covered by serial no. 234 of the notification no. 01/2017 – C
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sional GST rate of 5% specified for solar power generating system is applicable and the installation of the plant should not be treated as works contract service. The Applicant further stated the installation is ancillary to the principal supply of solar power generating system. Consequently, the GST rate applicable to the solar power generating system being 5% should be considered and not the GST rate applicable for works contract services. On point of solar power generating system being a movable property the Applicant has placed reliance on following judicial pronouncements: 1. SIRPUR PAPER MILLS LTD. VERSUS COLLECTOR OF CENTRAL EXCISE, HYDERABAD [1998(97) E.L.T. 3 (S.C.)] 2. COMMR. OF C. EX., AHMEDABAD VERSUS SOLID & CORRECT ENGINEERING WORKS [2010 (252) E.L.T. 481 (S.C.)] Applicant argued that solar power generating system is usually accompanied with its installation and so in each and every case if the supply of solar power generating system is considered as works contract se
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he site and involves simultaneous supply of goods and services. Various kinds of contracts usually prevalent for execution of the nature of work specified by applicant can broadly be categorized as under: i) Turnkey EPC Contract in which the Applicant is required to undertake all activities ,civil or otherwise, designing, procurement and supply of all equipment / components for the power plant their Assembly, erection, and commissioning and Operations and Maintenance of the plant . ii) Other EPC Contract in which the Applicant is required undertakes all activities of turnkey projects except civil work. iii) In supply contract, the Applicant is required to supply the power plant on complete knocked down condition in piecemeal at project site. Customer engages third party contractor or the Applicant for assembly, erection and commissioning of the plant under a separate contract. iv) In balance of plant supply contract, the Applicant is required to supply goods and services stated above,
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iii. Under take Civil works at the site such as development of site, structure foundation, install structure for transmission , build cable trenches, complete civil work relating to invertors and control buildings, store rooms , canopies and such other civil structure and related activities – as needed iv. Erection, commissioning and installation of the solar panels as per technical specification. v. Project management services such as Engineering services of layout and foundation, Erection of the structure, Installation services of all components, Precommissioning, Commissioning, 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 agre
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ct" contractor has to undertake works of installation, testing and commissioning of solar power generating system as per specific demands of owner. So it is not something sold out of shelf. g) Under these kind of contracts there is a single lump sum price for the entire contract where supply of goods and installation is undertaken by a single person under a single non divisible contract. h) The applicant has laid claim under notification No 01/2017-CT (Rate) dated 28.06.2017, at S.N0. 234, under HSN Classification 84, 85 and 94 and has argued that under agreement he has to supply Solar Power Generating System which is the principal supply in the composite supply where installation services are supplied in conjunction. With 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 '
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ct as supply of goods of Solar Power Generating System is not rational. j) Applicant has submitted that under GST, there is a monumental shift in concept of Works Contract which was prevalent under erstwhile VAT and Service Tax regime. In GST, as per definition of works contract service if construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning is only for immovable property, then it will classify as works contract only. Hence it means that aforesaid activities if they are undertaken for a movable property then it will not be a works contract service. k) Relying on judgements and citations submitted in Advance Ruling Application the applicant contends that as the solar generating system, once installed is capable of being removed and transferred from one place to another without substantial damage hence same should qualify as movable property. Thus in view of above precedence and
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h Courts which have helped understand the term 'immovable property'. 1. In decision of Allahabad High Court in Official Liquidator v. Sri Krishna Deo and ors. [AIR 1959 All. 2471, wherein, the coun held that a machinery fixed to their bases with bolts and nuts although easily removable are not movable property when they have been set up with definite object of running an oil mill and not with intention of being removed after a temporary use. 2. Case laws citied by applicant have to be understood in terms of the facts as available therein. As in the case of M/S Solid and Correct Engineering Works (cited Supra) the plant was not intended to be permanent and was to be shifted after completion of road repair and construction work hence it was regarded as moveable. But in the instant case the solar power generating system has an element of permanency. 3. In decision of M/S. T.T.G. Industries Ltd., vs Collector of Central Excise, 2004 (167) ELT 501 (SC) on 7 May, 2004. The facts of t
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equipments were assembled and erected as also their specifications in terms of volume and weight. It was explained that the function of the drilling machine is to drill hole in the blast furnace to enable the molten steel to flow out of the blast furnace for collection in ladles for further processing. After the molten material is taken out of the blast furnace, the hole in the wall of the furnace has to be closed by spraying special clay. This function is performed by the mudgun which is brought to its position and locked against the wall for exerting a force of 240 – 300 tons to fill up the hole in the furnace. The blast furnace in which the inputs are loaded is a massive vessel of 1719 m cubic metre capacity and the size of its outer diameter is 10.6 metres, and the height 31.25 metres. Hot air at 1200 degrees centigrade is fed into the blast furnace at various levels to melt the raw materials. With a view to protect the shell against heat, the blast furnace is lined with refractor
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ieved 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 metalframe, which is welded to the base plate. The components are stored in a store-house away from the blast furnace and are brought to site and physically lifted by a crane and landed on the cast house floor 25 feet high near the concrete platform where drilling machine and mudgun has to be erected. The weight of the mudgun is approximately 19 tons and the weight of the drilling machine approximately 11 tons. The volume of the mudgun is 1.5 x 4.5 x 1 metre and that of the drilling machine 1 x 6.5 x 1 metre. Having regard to the volume and weight of these machines there is nothing like assembling them at ground level and then lifting them to a height of 25 feet for
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lume and weight. She considered the authorities on the subject and came to the conclusion that erection of mudgun and tap hole drilling machine results in erection of immovable property. She noticed the judgment of this Court in Name Tulaman Manufacturers Pvt. Ltd. (supra) and also noticed the judgment of the Tribunal in Gwalior Rayon Silk Manufacturing (Weaving) co. Ltd. vs. CCE 1993 (65) ELT 121; which held that the issue of immovable property was never raised before the Supreme Court in Narne Tulaman Manufacturers Pvt. Ltd. She found support for her conclusion in the decision of this Court in Municipal Corporation of Greater Bombay & Ors. Vs. The Indian Oil Corporation Ltd. (1991) Supp. (2) SCC 18; and held that the twin tests laid down by this Court to determine whether assembly/ erection would result in immovable property or not were fully satisfied in the facts of this case. She concluded :- The test laid down by the Supreme Court is that if the chattel is movable to another
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in the emergence of goods leviable to excise duty or whether it resulted in erection of immovable property and not "goods". The appellant has placed considerable reliance on the principles enunciated and the test laid down by this Court in Municipal Corporation of Greater Bombay (supra) to determine what is immovable property. In that case the facts were that the respondent had taken on lease land over which it had put up, apart from other structures and buildings, six oil tanks for storage of petrol and petroleum products. Each tank rested on a foundation of sand having a height of 2 feet 6 inches with four inches thick asphalt layers to retain the sand. The steel plates were spread on the asphalt layer and the tank was put on the steel plates which acted as bottom of the tanks which rested freely on the asphalt layer. There were no bolts and nuts for holding the tanks on to the foundation. The tanks remained in position by its own weight, each tank being about 30 feet in he
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the answer is yes to the latter it is attached to the earth . Applying the permanency test laid down in the aforesaid decision, counsel for the appellant contended that having regard to the facts of this case which are not in dispute, it must be held that what emerged as a result of the processes undertaken by the appellant was an immovable property. It can not be moved from the place where it is erected as it is, and if it becomes necessary to move it, it has first to be dismantled and then re-erected at another place. This factual position was also accepted by the Adjudicating Authority. The technical member, however, held that the aforesaid decision was of no help to the appellant inasmuch as a leading international manufacturing firm had offered such machines for export to different parts of the world. He further observed that though on account of their size and weight, it may be necessary to shift or transport them in parts for assembly and erection at the site in the steel plant
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and installing them to form a part of the tube mill and purchasing certain components from the market and assembling and installing them on the site to form part of the tube mill which was also covered in the process of welding facility. After noticing several decisions of this Court, the Court observed that the twin tests of exgibility of an article to duty under the Excise Act are that it must be a goods mentioned either in the Schedule or under Item 68 and must be marketable. The word "goods" applied to those which can be brought to market for being bought and sold and therefore, it implied that it applied to such goods as are movable. It noticed the decisions of this Court laying down the marketability tests. Thereafter this Court observed :- "The basic test, therefore, of levying duty under the Act is twofold. One, that any article, must be a goods and second, that it should be marketable or capable of being brought to market. Goods which are attached to the earth
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tc. The aforesaid parts were clearedfrom the premises of the appellants and the mono vertical crystalliser was assembled and erected at site. The process involved welding and gas cutting. The mono vertical crystalliser is a tall structure, rather like a tower with a platform at its summit. This Court noticed that marketability was a decisive test for dutiability. It meant that the goods were saleable or suitable for sale, that is to say, they should be capable of being sold to consumers in the market, as it is, without anything more. The Court then referred to the decision in Quality Steel Tubes (supra) and distinguished the judgment in Name Tulaman (supra) holding that the contention that the weigh bridges were not goods within the meaning of the Act was neither raised nor decided in that case. After considering the material placed on the record it was held that the mono vertical crystalliser has to be assembled, erected and attached to the earth by a foundation at the site ofthe suga
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gment of this Court in Sirpur Paper MiIls Ltd. V. Collector of Central Excise, Hyderabad 1998 (97) EL T 3 (SC). This Court observed . – There can be no doubt that if an article is an immovable property, it cannot be termed as "excisable goods" for purposes of the Act. From a combined reading of the definition of 'immovable property' in Section 3 of the Transfer of Property Act, Section 3 (25) of the General Clauses Act, it is evident that in an immovable property there is neither mobility nor marketability as understood in the Excise Law. Whether an article is permanently fastened to anything attached to the earth require determination of both the intentions as well as the factum of fastening to anything attached to the earth. And this has to be ascertained from the facts and circumstances of each case It was also held that the decision of this Court in Sirpur Paper Mills Ltd. must be viewed in the light of the findings recorded by the CEGAT therein, that the whole pu
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ve also noticed the volume of the machines concerned and their weight. Taking all these facts into consideration and having regard to the nature of structure erected for basing these machines, we are satisfied that the judicial member of the CEGAT was right in reaching the conclusion that what ultimately emerged as a result of processes undertaken and erections done cannot be described as "goods" within the meaning of the Excise Act and exigible to excise duty. We find considerable similarity of facts of the case in hand and the facts in Mittal Engineering and Quality Steel Tubes (supra) and the principles underlying those decisions must apply to the facts of the case 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
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'immovable property' as something attached to the earth. m) The applicant in his Advance Ruling Application and later in additional statement has stated that they are engaged in supply of solar power generating system and its installation at the site which involves simultaneous supply of goods and services under a single contract.. As per submissions made by them the nature of work undertaken by them can be best categorized as Composite turnkey EPC contract . All arguments and submission put forth by applicant categorically classify the nature of work to be supply of solar power generating system and its installation at the site. But the query raised by Applicant in Advance Ruling Application is regarding "Applicable GST Rate on supply of Solar Power Generating System." Hence it is not clear whether the applicants wants clarification of GST rate applicable on "supply of Solar Power Generating System" under a supply contract or wants clarification of GST rate
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ion. Hence Applicant intends to undertake an " EPC contract" and not a "Supply Contract". 6. Based on scope of work to be undertaken along with provision of law it is observed : 1) That installation of the Solar Power generating system 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 and prudent to shift base from time to time or locate the plant elsewhere at frequent intervals. 3) The Solar generating system cannot be shifted to any other place without dismantling the same. Further it is a tailor made system
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two separate contracts, one for supply of goods and another that of services and taxed accordingly. 6) An overview of all makes us observe that the impugned transaction for EPC Contract for the Solar Power generating system 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 generating system 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. Based on above facts along with provision of law, we pronounce the ruling is as follows: RULING In instant case the nature of work is of Erection, Procurement and Commissioning of Solar Generating System whi
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