In Re: M/s. Frizo India Private Limited
GST
2018 (10) TMI 1144 – AUTHORITY FOR ADVANCE RULING, RAJASTHAN – TMI
AUTHORITY FOR ADVANCE RULING, RAJASTHAN – AAR
Dated:- 24-9-2018
ADVANCE RULING NO. RAJ/AAR/2018-19/19
GST
Nitin Wapa Member And Sudhir Sharma Member
ORDER
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/RGSTAct 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) (e) which is as given under:
(a) Classification of any goods or services or both
(e) Determination of the liability to pay tax on any goods or services or both
Further, the applicant being a registered person, GSTIN is 08AABCF2533P1ZF as per the declaration given by him in Form ARA-01, the issue raised by the applicant is neither p
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9) 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 supply of composite works contract attracting GST rate of 18%.
5. The applicant further contents that the GST rate prescribed at serial no. 3(ii) under notification no. 11/2017-Central Tax (Rate) dated 28.06.2017 is with reference to Chapter heading no. 9954 pertaining to construction services. They submit that this indicates that the rate of 18% is not specified for all kinds of composite supply of works contract and rather it is only with respect to construction related composite works contract. The supplicant submits that in the present case, they will supply solar power generating system which cannot be considered as construction service because in general parlance construction service indicates construction done with respect to land or building and not with respect to any plant and machinery. Li
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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 and so the specific provisions contained in section 8 of the CGST Act, 2017 regarding tax liability on composite supplies would be applicable. It is provided in section 8(a) of the CGST Act, 2017 that 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. In the present case, since the supply of solar power generating system is principal and its installation is ancillary, the GST rate applicable on solar power generating system being 5% is relevant.
8. The applicant further submits that the intention of the government is to promote and encourage use of solar energy for power generation and consequently, lower rates have been prescribed for the solar power generating system. If the interpretation that installa
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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 – Central Tax (Rate) dated 28.06.2017.
2. Issue Requiring Advance Ruling :
The Applicant submits the following questions for Advance Ruling and its interpretation on the question as under:
“Applicable GST Rate on supply of Solar Power Generating System.”
7. Personal Hearing (PH):
In the matter, personal hearing was given to the applicant 24.09.2018. Applicant's Authorized Representative Mr. Pradeep Jain, CA showed his inability to appear in person for hearing and instead submitted an online written additional statement containing certain arguments and judicial precedents in support of their application which has been placed on record.
He stated that the installation of solar power generating system should not be considered as works contract so as to attract GST rate of 18% but should r
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ar 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 service attracting GST rate of 18% then it would lead to the entry no. 234 as redundant.
They reiterated the submission already made in the application for Advance Ruling and further requested that the case may be decided as per the submission made earlier in Advance Ruling Application.
The jurisdictional officer in his comments has stated that the contract given to the applicant is of supply, installation, commissioning of Solar power generating system in which the dealer has to deliver a functional solar system which in turn is immovable property. Hence it is to be treated as works contract as per section 2(119) of the RGST Act and taxed @ 18% under GST.
9. Findings and analysis:
Applicant has not submitted any specific copy of contract along with the Advance Ruling Application on which he would like
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ant 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, except solar panels. Solar panels procured by the customer are made available by the customer to the Applicant for assembly and erection.
a) Applicant has not submitted any specific copy of contract along with the Advance Ruling Application and 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, transport, deliver, develop, erect, install, test commission and at times maintain & service the project after installation.
c) In contract of these kind applicant has to undertake following activities during execution of Composite Turnkey EPC Contra
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astructure).
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 these contracts the intention of the owner is not to procure goods (devices and parts) of solar power generating system but to procure a completely functional solar power generating system as a whole wherein applicant undertakes end to end responsibility of supply of equipments of solar power generating system including designing, engineering, supplies, installation to technical specification, testing and commissioning of a functional solar power plant as well as at times laying of transmission lines for transmission of the electricity generated up to storage or the grid.
e) Under contract like these all risk and liabilities accruing in relatio
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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 i.e. of “renewable energy devices & parts ” 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 which is restricted to supply of devices & parts of solar power generating system but is a 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 devi
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ing 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 facts of the case, the given supply should be treated as supply of Solar Power Plant Only.
l) 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 does not end with the supplying 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
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ystem 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 the case are as follows:
The facts of the case are not in dispute. The appellant- Company pursuant to the acceptance of its tender, entered into an agreement with M/S SAIL, Bhilai Steel Plant for design, supply, supervision 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
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s 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 refractory brick of one metre thickness. Thus, the drilling machine has to drill a hole through one metre thickness of the refractory brick lining. The drilling machine as well as the mudgun are erected on a concrete platform 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 offoundation 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 fabricati
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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 taking to the cast house floor and then to the platform over which it is mounted and erected. These machines cannot be lifted in an assembled condition.
The judicial member noticing these facts observed that 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 of25 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 b
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mmovable 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 place as such for use, it is movable but if it has to 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 thereo
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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 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? Ifthe answer i
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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, 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. vs. Collector ofCentra1 Excise, UP 1995 (75) ELT 17 (SC); the facts were that a tube mill
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r 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 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. Vs. CCE 1996 (88) ELT 622 (SC); 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 loa
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g 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 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. Vs. CCE 2000 (120) ELT 273; 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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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 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 base plate secured to the concrete platform, brought into existence not excisable goods but immovable property which could not be shifted without first dismantling
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cable 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 immovable property took into account facts such that the machines could not be shifted without first dismantling it and then re-erecting it as another site.
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ication of GST rate applicable on “supply of Solar Power Generating System” under a supply contract or wants clarification of GST rate applicable on execution of contract of “supply of solar power generating system along with its installation at the site .
n) In case, if the clarification is sought for “Applicable GST Rate on supply of Solar Power Generating System.” then the goods should be supplied under a single “Supply Contract” subject to condition of eligibility of them being “devices and parts” of solar generating system and only then it would be covered under Entry 234 under notification No 01/2017-CT (Rate) dated 28.06.2017 and would attract 5% rate of tax .
o) As per submission made in application the scope of work in instant case is of supply of solar power generating system and its installation at the site which involves simultaneous supply of goods and services under a single contract where Applicant has to inter alia, design, engineer, procure, transport, deliver, devel
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o 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 other person.
4) Installation of solar power generating system necessarily includes civil work such as development of site, structure foundation, building cable trenches, civil work relating to invertors and control buildings, store rooms , canopies and such other civil structure and related activities as set out in Scope of work and the Technical Specifications. Civil structure cannot be dismantled and moved.
5) Based on submission made by applicants , instant case is a single composite turnkey EPC contract of design, engineer, procure, transport, deliver, develop, erect, install, test and commission of project. Contracts of this kind are entered on premise to procure a functional solar power generating system as per specification of the owner for which there is a single lump sum price for the entire contract. Hence on demand of contr
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