In Re : Giriraj Renewables Private Limited
GST
2018 (5) TMI 854 – AUTHORITY FOR ADVANCE RULING – MAHARASHTRA – 2018 (12) G. S. T. L. 538 (A. A. R. – GST), [2018] 59 G S.T.R. 363 (AAR)
AUTHORITY FOR ADVANCE RULING – MAHARASHTRA – AAR
Dated:- 17-2-2018
GST-ARA-01/2017/B- 05
GST
Shri B.V. Borhade, Joint Commissioner of State Tax and Shri Pankaj Kumar, Joint Commissioner of Central Tax
PROCEEDINGS
(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
NO.GST-ARA-01/2017/B- 01 Mumbai, dt. 17/02/2018
The present application has been preferred under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by Giriraj Renewables Private Limited, the applicant, seeking an advance ruling in respect of the following questions :
* Whether supply of turnkey Engineering, Procuremen
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
would be mentioned as being under the “GST Act”.
02. FACTS AND CONTENTION – AS PER THE APPLICANT
The submissions, as reproduced verbatim, could be seen thus-
[A] AS SUBMITTED ALONGWITH APPLICATION
Statement of the relevant facts having a bearing on the aforesaid clarification(s)/ transaction(s)
1. “The Applicant is an EPC contractor and enters into contract with various Developers who desire to set up and operate solar photovoltaic plants for supply of power generated. In various cases, the Applicant also is a Project developer wherein it is engaged in operation of renewable energy power plant projects.
2. Typically a turnkey contract is entered into by the Applicant to do end to end setting up of a solar power plant which includes supply of various goods (such as modules, structures, inverter transformer etc) as well as complete design, engineering and studies transportation, unloading, storage and site handling, installation and commissioning of all equipments and materia
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
Applicant prefers to present the application before this Hon'ble Authority on the following, among other, grounds, each of which is taken in the alternative and without prejudice to the others:
1. Legal provisions and applicability
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 attached herewith as Annexure-A), dated 28 Jun 2017, solar power generating systems and parts for their manufactures are taxable at 5%. The relevant entry reads as follows:
Chapter Heading
Description
84 Or 85 Or 94
Following renewable enter devices and arts for their manufacture
a)
Bio-gas plant
b)
Solar power based devices
c)
Solar power generating system
d)
Wind mills and wind operated electricity generator
e)
Waste to energy plants/devices
f)
Solar lantem/solar lamp
g)
Ocean
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ch is a principal supply'. Section 2(90) defines principal supply as “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' , Further, mixed supply has been defined under the Act as “mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply”. Hence, for mixed supply there should be a single price and entire contract gets taxed at the supply with highest rate of tax.
1.3 Concept of works contract
Works contract has been defined under Section 2 (1 19) Of CGST Act as follows:
“a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commis
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ds and Services Tax Act, 2017 as 'composite supply means a supply 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;'
Further, Principal Supply has been defined in Section 2(90) of the CGST Act as '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'
Thus, principal supply refers to the supply which is the predominant element in a composite supply.
Illustration as provided in GST law is that In case goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.
Further, in terms
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
as the main supply and the entire transaction is taxed as per the principal supply.
In the present case, the Applicant would like to submit that the main intent of the contract is provision of the solar power generation system which consists of various components such as modules, structures, inverter transformers, cables, SCADA, transmission lines, etc. Services like civil construction are merely incidental to provision of such goods and form an ancillary part of the contract.
It is submitted that service portion of the contract is only ~10 to 15% and balance is supply of goods. This also substantiates the fact that provision of services is incidental to supply of goods and hence, the supply of goods should form the principal supply and the entire contract should be taxed as supply of goods itself. It is submitted that the entire contract including goods supplied used in AC electrical, DC electrical, transmission lines as well as other ancillary parts/ goods and services should get
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
lly are the systems which absorb sunlight and convert it into electricity which can be put to further use. 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 mechanism or interconnecting network”. Similarly, the system is defined in Chambers 20th Century Dictionary as “anything formed of parts placed together or adjusted into a regular and connected whole”. Hence, system typically includes various components/ parts which are manufactured/ assembled together for performing a function. In the present case, the term system should include all goo
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
impugned order is set aside and the appeals are allowed'
Further, in the case of Bangalore Tribunal in the case of B.H.E.L. vs. Commissioner of Central Excise, Hyderabad it was held that “In the present case, the appellants have claimed exemption in respect of “inverter charger card” as solar power generating system. The appellants actual Iy manufactured SPV lantern. The above lantern required electricity for its working. 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 Sun-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 the impugned item can be considered as solar power generating system and is entitled for the benefit
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
under:
I. If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character'
2. If various elements of a bundled service are not naturally bundled in the ordinary course of business, it shall be treated as provision of a service which attracts the highest amount of service tax.
The concept of naturally bundled services was explained in the Education Guide issued by the CBEC in the year 2012 ('the Education Guide'). The relevant extract of the Education Guide 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
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
n a business can be ascertained from several indicators some of which are listed below –
* The perception of the consumer or the service receiver, If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package then such a package could be treated as naturally bundled in the ordinary course of business
* Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines
* The nature of the various services in 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
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
supplied under the composite supply are supplied in conjunction with each other. Also, such composite supply is supplied in the ordinary course of business.
* The composite supply would qualify as supply of the principal supply. Taxes would be applicable as on such principal supply.
Drawing reference to the above, it is submitted that the customer perceives 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, the entire contract (both goods and services) and bundled and linked wherein the main intent is provision of the goods which constitute solar power generating system.
2.4. Global Jurisprudence – Meaning of Composite Supply
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:
2.4.1. Australia
In terms Of Goods and S
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
eted article and in such circumstances are treated as such by the purchaser. The fact that either the frame or the lenses may be purchased separately is not to the point. Similarly the fact that one component, the lenses, is GST-free or that one component is subject to a discount does not alter the characterisation.
* In the case of Saga Holidays, Stone J focused on the 'social and economic reality' of the supply and found that there was a single supply of accommodation and the adjuncts to that supply (including the use of the furniture and facilities within each room, cleaning and linen services, access to common areas and facilities such as pools and gymnasiums and various other hotel services such as porterage and concierge) were incidental and ancillary to the accommodation part of the supply.'
Per the above, composite supply is taxed as supply of the dominant activity to which others are merely ancillary. In
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
in the present case also, what the customer wishes or intends to obtain is the main supply of solar power generating system and services are only a means to enjoy the same and hence, services are incidental to the main supply of goods.
2.4.3. United Kingdom
Under the UK VAT laws, a multiple supply (also known as a combined or composite supply) involves the supply of a number of goods or services. The supplies may or may not be liable to the same VAT rate. If a supply is seen as insignificant or incidental to the main supply, then for the purposes of VAT it is usually ignored – the liability is fixed by the VAT rate applicable to the main supply (or supplies).
In the case of Tumble Tots (UK) Ltd v R & C Commrs [2007] BVC 179. Members of a playgroup received a T-shirt (children's clothing is potentially zero rated) and a magazine (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 s
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
r Section 8, in case of composite supply, the taxes applicable on principal supply would be applicable on the composite supply.
In the present case, the intention of both the parties is to supply the whole of solar power generating system in totality' which consists of various goods and services are incidental to provision of such goods. What the customer wants is a functional solar power system and services such as erection, commissioning etc are only a means to provide the main supply of goods.
4. Contract does not constitute works contract
It is submitted additionally that works contract is also defined as a composite contract and includes a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
upply the goods to such contractor or engage in provisioning of certain portion of the turnkey contract.
5.2 Further, there may be cases wherein the Developer divides the EPC contract between two separate EPC Contracts of construction of solar power generation system.
5.2 Notification no. 1/2017-lntegrated Tax (Rate), which 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, EPC contractor or manufacturer/ supplier/ sun-contractor.
5.3 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.
6. Conclu
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
cluding all goods as well as services) should qualify as solar power generating system taxable at 5%.
* Concessional rate of 5% for supply of solar power generating system or its parts should also be available to sub-contractors.”
[Bl AS SUBMITTED DURING HEARING
“1.5. Without prejudice and in addition to the submissions already made, the Applicant hereby make the following additional submissions.
The Proposed transactions/ Contract is one for supply of 'Solar Power Generating System' as a whole and hence the rate of GST should be 5%.
1.6. It is submitted that the intent of the parties is always for supply of Solar Power Generating system as a whole
1.7. Reference is made to the draft contract (annexed herewith as Annexure A), which is a Contract for Supply of 60Mw Solar Power Plant. Further, Clause B of the draft Agreement provides as following:
“B. Owner has appointed the Contractor for supply of the Solar Power Plant which includes engineering, design, procureme
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
f goods, claiming of payment or availing trade credits etc., however, as a general trade practice all the equipment which are being supplied under the agreement are supplied together for setting up/ supply of a solar power generating system.
Contract does not constitute works contract
1.10. It is submitted additionally that works contract is defined as a composite contract and includes a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.
1.11. Therefore, in order to determine whether the supply made by the Applicant is of works contract, it is imperative to understand (i) the essence of the contract and the intention of the parties involved in the contract to determine whether the parties intend to u
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
better 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 meant to give stability to the plant and where there is no intention to make such plant permanent, the foundation would not change the nature of the plant and make it an immovable property.
1.13.2 Reliance is placed on a judgment by the Hon'ble Supreme Court in the matter of Sirpur Paper Mills Ltd. v. Collector of Central Excise, 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 wanted to sell such goods, it could always remove it from the base and sell it. Relevant extract from the judgment is reproduced below for ease of reference:
'The Tr
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
f 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.'
1.13.3 Relying on the aforesaid judgment, the Hon'ble Supreme Court, in the year 2010, in the matter of 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 were held to be movable. Relevant extract of the judgement is reproduced as under for ease of reference:
'Applying the ab
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
rily 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.'
1.13.5. Further, it is worthwhile to note that the Madras High Court in the matter of Sri Velayuthaswamy Spinning Mills v. The Inspector General of Reg
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
e 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.'
A copy of all the judgements is collectively marked and attached as Annexure – B.
1.13.7. In view of the aforesaid judgments, it is submitted that in the instant case
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
Chartered Engineer Certificate which clearly provides that Solar Power Plant if required can be shifted to another location and is highly moveable. The same is annexed herewith as Annexure C.
1.13.10 The Central Board of Customs and Excise ('CBEC'), vide 37B Order No. 58/1/2002 – CX issued under F.No.154/26/99 – CX4 dated 15 January, 2002 ('the Circular'), after realizing the anomaly in case of plant d machinery assembled at site, issued the Circular clarifying the following:
'(v) If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot he reassembled, then the items would not be considered as moveable and will, therefore, not be excisable goods.
(vi) If any goods installed at site (example paper making machine) are capable of being sold or shifted as such after removal from the base and without dismantling into its components/parts, the goods would be considered to be
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ficial enjoyment of the solar power plant, and hence, solar power plant should not be considered as an immovable property.
Without prejudice to the above and in the alternative, even if the agreement is construed as a Composite Supply, the most critical compo Major component of Solar Power System – Solar Photovoltaic module
1.14. Section 2(30) of CGST Act defines composite supply to mean 'a supply 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'.
1.15. Section 2(90) defines principal supply as “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'.
1.16. Further, in terms of Section 8 of the CGST
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
e entire transaction is taxed as per the principal supply.
1.18. The Applicant would like to highlight that mounted Photovoltaic module (PV module) comprises around 60%-70% of the entire Solar Power Plant, and the rest of the components constitute for around 30-34% and are merely parts or sub parts which are required for 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 6×10 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. Hence, PV module is the most important component of solar power generating system and therefore, would squarely qualify as the 'principal supply' as per the provisions of the GST law.
1.19. Accordingly, it is submitted that the GST rate
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
supplies, the most critical part of the Plant are the supply of the mounted PV Module which constitute 60%- 70% of the total contract value. Further, it is also agreed that the Contractor is responsible for the whole of the contract that is for getting-up/ supply of the Plant.
For the purpose of undertaking compliances under Laws constituted in India, the parties may agree to define prices of the equipment to be supplied as part of the contract. The same shall not in any manner exceed the lump sum price agreed between the Parties and also does not in any manner dilute the responsibility of the Contractor.”
1.23. Further, there is a definition in the draft agreement, “Major Equipment” [1.1.67] which clearly identifies PV Modules as the Major Equipment
“Major Equipment(s) ” means PV solar modules which is an assembly of solar cells that helps in converting solar power into electricity and all other Equipments specified in Schedule 3 (Contract Price and Payment Milestones) for facilita
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
site supply should be liable to tax considering it to be supply of PV Modules, which is liable to GST at the rate of 5%.
2. Whether benefit would also be available to sub-contractor
2.1. In certain cases, the contractor engages various sub-contractors (manufacturers/ supplies/ sub-contractors) who further supply the goods to such contractor or engage in provisioning of certain portion of the contract.
2.2. Further, there may be cases wherein the Developer divides the contract between two separate contracts of construction of solar power generation system.
2.3. Notification no. 1/2017-lntegrated Tax (Rate), which 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/ sun-contractor.
2.4. 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 produ
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
03. CONTENTION – AS PER THE CONCERNED OFFICER
The submission, as reproduced verbatim, could be seen thus-
“In support to their claim that EPC contract for construction of solar power plant is purely a Composite Supply and it should not be treated as works contract, they have submitted draft agreement, various case laws. In this connection, I am submitting by submission as under:
* M/s Giriraj Renewables Pvt Ltd is engaged in the work of construction of a solar power plant. This work is taken on Engineering, Procurement and Construction (EPC) basis. The dictionary meaning of ECP contract is “Engineering, Procurement, and Construction” (EPC) is a particular form of contracting arrangement used in some industries where the EPC Contractor is made responsible for all the activities from design, procurement, construction, to commissioning and handover of the project to the End-User or Owner.”
* Section 2(1 19) of GST Act defines works contract as “a contract for building construction
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
involve both, a contract for work and labour and a contract for sale. In such composite contract, the distinction between contract for sale of goods and contract for work or services is virtually diminished.
ii) The term “Works Contract” is broad and includes all obligations and all types of contracts. Even if some obligations are imposed in addition to supply of goods and materials and performance of services, such contract is still a “works contract”.
iii) Works contract is a contract for undertaking or bringing into existence some works.”
Once there is a composite contract for supply and installation it has to be treated as works contract as it is not chattel sold as chattel. The solar power system cannot be shifted to any other place without dismantling the same. Further it is tailor-made system, which cannot be sold as it is to the other person.
In the chapter 99 Service Code 995426 specifies the Services Description as “General Construction services of Power Plants and its re
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
. Prashant Agarwal (Partner, PricewaterhouseCoopers Pvt. Ltd.) attended and reiterated the contention as made in the written submission. During the hearing on dt.12.02.2018, a sample copy of the agreements in such types of contracts was submitted and our attention was invited to various clauses therein. Sh. Pravin Chavan, the concerned officer holding the post of State Tax Officer was also present during both the hearings. He requested time till dt.15.02.2018 to give a written submission in the matter
05. OBSERVATIONS
We have gone through the facts Of the case. The issue put before us is the classification of a future transaction which would be effected on the lines of a sample agreement copy as tendered during hearing. It has been submitted by the applicant that the sample agreement is customarily the way in which transactions of the nature as is before us are effected.
As we go through the submission, we find that the applicant has been stressing that the impugned contract i
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
'composite supply'. 'Works contract' is defined in clause (119) of section 2 of the GST Act as –
“works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, 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;
It can be seen that works contract involves activities of building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning. However, these activities are in terms of an immovable property. This is the highlight in the definition. We have known a 'works contract' in the Sales Tax regime to be activities as building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, m
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
n relevant schedule of this Contract, as per Applicable Law and Technical Specifications.
* The Contractor is an entity involved in the business of supply and setting up of complete solar power generating system in various states of India.
* The document in title of the equipment imported and supplied is directly transferred to the Owner by way' of High Seas Sale for commercial convenience and in order to avail benefit of concessional customs duty as the benefit of concessional rate of customs duty is only available to the Owner. However, as per this agreement, the risk and liabilities accruing in relation to all those equipment shall remain with the Contractor till the completion of the Plant. After the setting up/supply of the Plant, the risk and liabilities are shifted to the Owner.
* The Owner has undertaken an independent due diligence of the Contractor and based on such due-diligence, agreed to award this Contract for the Supply of Equipment (which in common trade parla
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
eaning under Clause 15.4;
1.1.39. “Equipment” shall mean and include all the equipment and Major Equipment (as defined later) along with its associated accessories, conductors, electrical cables, instruments, apparatus and other items/ equipment required to be supplied by the Contractor for completing and integrating the SPP, as per the Technical Specification, excluding Free Issue Equipment;
1.1.43. “Execution Schedule” means the schedule of Supply of Equipment, construction, installation and Commissioning of the SPP as elaborated under the Schedule 4 (Execution Schedule);
1.1.67. “Major Equipment(s) ” means P V solar modules which is an assembly of solar cells that helps in converting solar power into electricity and all other Equipments specified in Schedule 3 (Contract Price and Payment Milestones) for facilitation of Payment under this Contract;
1.1.77. “Plant” shall have its meaning under Recital B;
1.1.78. “Plant Site” shall have its meaning under Recital B;
1.1.80. “pun
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
hedule, to the Plant Site and complete development, installation and Commissioning of the Works in accordance with Technical Specifications, Applicable Law, Applicable Permits and the terms of this Contract, in addition to the detailed drawings/documents finalized during engineering. The detailed Scope of the Contract (including the Supply of Equipment and the performance of Works) is set out under Schedule 1.
4.2. Obligations of Contractor
The Contractor shall be obligated under this Contract in respect of the following:
* design and engineering of the Plant as per the Schedule 2 (Technical Specifications);
* procure the Equipment's as per the Schedule 4 (Execution Schedule) and the terms of this Contract;
* construction of civil structures or buildings asper the Schedule 2 (Technical Specifications) approved/agreed between the Parties;
* The Contractor shall be responsible for providing or causing the provision of skilled Personnel, skilled/unskilled labour, specialists
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
Scope of the Contract and all obligations as set out under this Contract.
6.5. Effect of Payment
No payment of the Contract Price or part thereof made by the Owner, shall be deemed to constitute acceptance by the Owner of the performance of (any part or whole) of the Scope of Contract by the Contractor, and shall not relieve the Contractor of any of its obligations under this Contract, solely on the basis of such aforesaid payments being made by the Owner.
6.6. Final Payment
The Contractor expressly agrees that the final payment shall be released by the Owner only upon completion of the necessary obligations as set out in the final Payment Milestone as set out under Schedule 3 (Contract Price and Payment Milestones).
7.4. Performance Bank Guarantee
Upon Commissioning of the Plant, the Contractor shall provide an unconditional and irrevocable performance bank guarantee to the Owner for 5% (five percent) of the Contract Price from a nationalized or scheduled commercial bank (“PBG”
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
15 days prior to SCOD
9. FREE ISSUE EQUIPMENTS
9.1 The Owner___ agree to provide Free Issue Material as___ agreed between the Parties. The said material would be over and above the Plant being supplied by the Contractor under this contract. The Parties would identify and define such Free issue Material in an annexure as and when such case arises and the same would form part of this contact
12. SUB-CONTRACTING
12.1. The Contractor shall have right to sub-contract part of its obligations under this Contract, with the approval from the Owner, provided, if the vendors sub-contracted is not reflecting in the list set out in Schedule 13 (List of Approved Vendors). In this regard, the Contractor____ only sub-contract its obligations (in respect of Supply of Equipment) under this Contract to one of the pre-approved Sub-Contractors as set out under Schedule 13 (List of Approved Vendors).
14.1. Time Schedule
The Owner and the Contractor agrees that the time is of essence of this Contract
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ty;
(d) that the Plant has been continuously running for a minimum period of 3 days except for minor faults and Grid non- availability.
(ii) Upon receipt of the Notice of Commissioning, the Owner or Owner's Representative shall remain available for witnessing Commissioning. Upon inspection of the Commissioning, the Owner shall either:
* endorse the commissioning certificate (“Commissioning Certificate”) certifying that the Works (or the Works in respect of any particular unit of the Plant) is Commissioned, as per the format in Schedule 9; or
* notify the Contractor in writing, detailing the shortfall or Defect and/or deficiencies within 5 (five) days thereof.
(iii) In the event that if the Owner discovers any Defect during the Commissioning of the Plant and furnishes a notice as per Clause 15.5(ii)(b), Contractor shall, promptly correct/ rectify the Defects detailed in Owner 's notice by repairing or rectifying the said Defects within 5 (Five) days and notify the Owner
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
, the Contractor shall issue a self-endorsed Commissioning Certificate (“Deemed Commissioning Certificate “), as per the Schedule 9 for facilitating the milestone payment under the LC. However, Deemed Commissioning Certification shall not relieve the Contractor from its Obligations for Commissioning of SPP as per Technical Specification
15.6. Punch List and Completion
(i) Parties shall within 15 (fifteen) Business Days from the date of Commissioning of the Entire SPP, jointly prepare a punch list of the outstanding items/works to be performed by the Contractor as per the Technical Specification (“Punch List”). The Contractor shall perform all the Punch List within 30(thirty) Business Days of the finalising the Punch List or the timeline mutually agreed and notify the Owner of such rectification and/or completion (“Punch List Completion “). It is hereby clarified that the Punch List shall not comprise any such items or Works the lack of completion of which would prevent the operation
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
SPP is finally accepted by the owner (“Final Acceptance Date “). However, if the Punch List items have not been completed within the aforesaid time period, the Contractor shall be required to complete the same within 15 (fifteen) Business Days of a notice to this effect issued by the Owner detailing the deficiencies in completion of the Punch List items by the Contractor.
(iii) If the Owner fails to inspect the relevant Punch List after rectification or fails either to endorse the Punch List Completion Certificate or provide Contractor with the list of Punch List items not rectified within the period of 15 (fifteen) Business Days as per the Clause 15.5(i) or the Grid is not available for Commissioning the SPP on or before_____, in such event, the Contractor shall issue a self-endorsed Punch List Completion Certificate (“Deemed Punch List Completion Certificate”) as per the Schedule 10 for facilitating the relevant milestone payment under the LC. However, Deemed Punch List Completion C
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ies pertaining to all the equipment provided and to the development, design, procurement, supply, development, construction, testing and commissioning of the Plant shall be borne by the Contractor till the completion of the Plant. This is notwithstanding the fact that the document in title of the equipment imported and supplied is directly transferred to the Owner by way Of High Seas Sale, or the other equipment domestically supplied by the Contractor are priced separately under this contract for commercial convenience, but the risk and liabilities accruing in relation to all those equipment shall remain with the Contractor tilt the completion of the Plant.
20.2. After the completion of the Plant, the risk and liabilities shall shift to the Owner after completion certificate is duly issued.
22.1. Risk, Custody and Care
All risk of the Contractor in the Equipment's, Work and SPP shall stand transferred to the Owner from and upon Commissioning of the Relevant MW size of the Plan
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
.
For the purpose of undertaking compliances under Laws constituted in India, the parties may agree to define prices of the equipment to be supplied as part of the contract, The same shall not in any manner exceed the lump sum price agreed between the Parties and also does not in any manner dilute the responsibility of the Contractor.
As can be seen, the owner expects the contractor i.e. the applicant to perform all activities from engineering, design to procurement of the materials and also perform the testing and commissioning. 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 a 'works contract' but it is for us to decide whether it is a 'works contract' in terms of the GST Act. So, we come to the crux of the issue and which is as to whether the transaction results into any immovable property. The term 'immov
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
acture 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.”
We can now look at how the judgment has been delivered –
“8. 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 ag
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
it is grouted to earth by concrete foundation. The first step is io 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 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 storehouse away from the blast furnace and are brought to site and physically lifted by a crane and landed on the cast house floor
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
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 judgment of this Court in Narne Tulaman Manufacturers (P) Ltd. [(1989) 1 SCC 172 : 1989 SCC (Tax) 64 : (1988) 38 ELT 566 : 1988 Supp (3) SCR 1] and also noticed the judgment of the Tribunal in Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. CCE [(1993) 65 ELT 121 (cegat) = 1992 (10) TMI 188 – CEGAT, NEW DELHI ] which held that
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
antled 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 tap hole-drilling 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.”
18. The core question that still survives for consideration is whether the processes undertaken by the appellant at Bhilai for the erection of mudguns and drilling machines resulted in the emergence of goods leviable to excise duty or whether it resulted in erection of immovable property and not “goods”.
21. The appellant has placed considerable reliance on the principles enunciated and the test laid down by this Court in Municipal Corpn. of Greater Bom
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
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: (SCC p. 33, para 32)”32. 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 latter 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 the latter it is attached to the earth.”
22. 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
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
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.
24. In Quality Steel Tubes (P) Ltd. v. CCE [(1995) 2 SCC 372 : (1995) 75 ELT 17 = 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 tubes, by purchasing certain items of plant and machinery in market and embedding them to earth and installing them to form a part of the tube mill and purchasing certain components from the market and assembling and installing them on the site to form part of the tube mill which was also covered i
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
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 ceased to be goods within meaning of Section 3 of the Act.”
25. In Mittal Engg. Works (P) Ltd. v. CCE [(1997) 1 SCC 203 : (1996) 88 ELT 622 = 1996 (11) TMI 66 – SUPREME COURT OF INDIA ] this Court was concerned with the exigibility to duty of mono vertical crystaIIisers which are used in sugar factories to exhaust molasses of sugar. The material on records described the functions and manufacturing process. A mono vertical crystallizer is fixed on a solid RCC slab having a load-bearing capacity of about 30 tons per square metre. It is assembled at site in different sections and consists of bottom plates, tanks, coils, drive frames, , support, plates, etc. The aforesaid parts were cleared from the premises of the appellants and the mono vertical crystallizer was assembled and erected at site
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
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 Engg. & Industries Ltd. v. CCE [(2000) 7 SCC 29 : (2000) 120 ELT 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 earlier judgments of this Court in Municipal Corpn. of Gr
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
earth requires determination of both the intention 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.”
26. It was also held that the decision of this Court in Sirpur Paper Mills Ltd. [(1998) 1 SCC 400 : (1998) 97 ELT 3] must be viewed in the light of the findings recorded by 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 the earth like a building or a tree.
27. 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 app
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ELT 622] and Quality Steel Tubes [(1995) 2 SCC 372 ; (1995) 75 ELT 17] 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 is it 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 mudguns 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 descr
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
asphalt drum/hot mix plants and asphalt paver machines, etc. M/s Solex Electronics Equipments is, however, a proprietary concern engaged in the manufacture of electronic control panel boards. It is not in dispute that the three partnership concerns mentioned above are registered with the Central Excise Department nor is it disputed that the proprietary concern is a small-scale industrial unit that is availing exemption from payment of duty in terms of the relevant exemption notification.
4. M/s Solidmec Equipments Ltd. (hereinafter referred to as “Solidmec for short), the fifth unit with which we are concerned in the present appeals is a marketing company engaged in the manufacture of asphalt drum/hot mix plants at the sites provided by the purchasers of such plants. It is common ground that Solidmec advertises its products and undertakes contracts for supplying, erection, commissioning and after-sale services relating thereto. It is also admitted that all the five concerns referred
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
parts and components of the plants had availed benefit of exemption wrongly and in breach of the provisions of Rules 9(1) and 173-F and other rules regulating the grant of such benefit.
6. Insofar as Solidmec marketing company was concerned, the show-cause notice alleged that Solidmec was engaged in the manufacturing of asphalt batch mix and drum mix/hot mix plants by assembling and installing the parts and components manufactured by the manufacturing units of the group. According to the notice the process of assembly of the parts and components at the site provided by the purchasers of such plants was tantamount to manufacture of such plants as a distinct product with a new name, quality, usage and character emerged out of the said process. Resultantly, the end product, namely, asphalt drum/hot mix plants became exigible to Central excise duty, which duty Solidmec had successfully avoided. The notice also proposed to levy penalties upon all the five concerns under appropriate provisi
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
earth in as much as they are fired to a foundation imbedded in earth no matter only 1 = feet deep. That argument needs to be tested on the touch stone of the provisions referred to above.
24. Section 3(26) of the General Clauses Act includes within the definition of the term “immovable property” things attached to the earth or permanently fastened to anything attached to the earth. The term “attached to the earth” has not been defined in the General Clauses Act, 1897. Section 3 of the Transfer of Property Act, however, gives the following meaning to the expression “attached to the earth”:
(a) rooted in the earth, as in the case of trees and shrubs;
(b) imbedded in the earth, as in the case of walls and buildings;
(c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached.”
25. It is evident from the above that the expression '”attached to the earth” has three distinct dimensions, viz. (a) rooted in the earth as in the case of
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
e plant especially because the attachment is not permanent and what is attached can be easily detached from the foundation. So also the attachment of the plant to the foundation at which it rests does not fall in the third category, for an attachment to fall in that category it must be for permanent beneficial enjoyment of that to which the plant is attached.
It is no body's case that the attachment of the plant to the foundation is meant for permanent beneficial enjoyment of tee either the foundation or the land in which the same is imbedded.
26. In English law the general rule is that what is annexed to the freehold becomes part of the realty under the maxim quidequid plantatur solo, solo cedit. This maxim, however, has no application in India. Even so, the question whether a chattel is imbedded in the earth so as to become immovable property is decided on the same principles as those which determine what constitutes an annexation to the land in English law. The English law has evo
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
xation and object of annexation have been applied as relevant test in this country also. There are cases where machinery installed by monthly tenant was held to be moveable property as in cases where the lease itself contemplated the removal of the machinery by the tenant at the end of the tenancy. The mode of annexation has been similarly given considerable significance by the courts in this country in order to be treated as fixture. Attachment to the earth must be as defined in Section 3 of the Transfer of Property Act. For instance a hut is an immovable property, even if it is sold with the option to pull it down. A mortgage of the super structure of a house though expressed to be exclusive of the land beneath, creates an interest in immovable property, for it is permanently attached to the ground on which it is built.
30. The courts in this country have applied the test whether the annexation is with the object of permanent beneficial enjoyment of the and or building. Machinery fo
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ation hence cannot be termed as immovable property for the following reasons:
(i) The plants in question are not per se immovable property.
(ii) Such plants 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.
(iii) The fixing of the plants to a foundation is meant only to give stability to the plant and keep its operation vibration free.
(iv) 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.”
It can be seen that the Hon. Supreme Court has reiterated the same principles as were seen in the earlier decision of T.T.G. Industries Ltd. v. CCE (cited supra). The Hon. Court observed that the expression “attached to the earth” has three distinct dimensions – (a) rooted in the earth as in the case of trees and shrubs (b) imbedded in the earth a
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
, 1944. The argument advanced on behalf of the assessee was that since the machine was embedded in a concrete base the same was immovable property even when the embedding was meant only to provide a wobble free operation of the machine. Repelling that contention this Court held that just because the machine was attached to earth for a more efficient working and operation the same did not per se become immovable property.
34. The Court observed: (Sirpur Paper Mills Ltd. case [(1998) I SCC 400] , SCC p. 402, para 5)
“5. Apart from this finding of fact made by the Tribunal, the point advanced on behalf of the appellant, that whatever is embedded in earth must be treated as immovable property is basically not sound. For example, a factory owner or a householder may purchase a water pump and fix it on a cement base for operational efficiency and also for security. That will not make the water pump an item of immovable property. Some of the components of the water pump may even be assemble
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
duary Tariff Item 68 of the Schedule being excisable goods. Answering the question in negative this Court held that tube mill and welding head erected and installed in the premises and embedded to earth ceased to be goods within the meaning of Section 3 of the Act as the same no longer remained movable goods that could be brought to market for being bought and sold.
39. We do not see any comparison between the erection and installation of a tube mill which involved a comprehensive process of installing slitting line, tube rolling plant, welding plant, testing equipment and galvanizing, etc. referred to in the decision of this Court in Quality Steel Tubes case [(1995) 2 SCC 372 ; (1995) 75 ELT 17] With the setting up of a hot mix plant as in this case. As observed by this Court in Triveni Engg. & Industries Ltd. case [(2000) 7 SCC 29 : (2000) I20 ELT 273] , the facts and circumstances of each case shall have to be examined for determining not only the factum of fastening/attachment to
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
have to be assembled, erected and attached to the earth on a foundation at the site of the sugar factory and are incapable of being sold to the consumers in the market as it is without anything more.
41. Relying upon the decision of this Court in Quality Steel Tubes (P) Ltd 2 SCC 372 : (1995) 75 ELT 17] , the erection and installation of mono vertical crystallisers was held not dutiable under the Excise Act. This court observed that: [Mittal Engg. Works (P) Ltd. case [(1997) 1 SCC 203 : (1996) 88 ELT 622] , SCC p. 208, para 10]
“10… The Tribunal ought to have remembered… that mono vertical crystallisers had, apart from assembly, to be erected and attached by foundations to the earth and, therefore, were not, in any event, marketable as they were.”
This decision also, in our opinion, does not lend any support to the case of the assessee in these appeals as we are not dealing with the case of a machine like mono vertical crystallisers which is permanently embedded in the structu
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
se. The machines in question were by their very nature intended to be fixed permanently to the structures which were embedded in the earth. The structures were also custom-made for the fixing of such machines without which the same could not become functional. The machines thus becoming a part and parcel of the structures in which they were fitted were no longer movable goods. It was in those peculiar circumstances that the installation and erection of machines at the sites were held to be by this Court to be immovable property that ceased to remain movable or marketable as they were at the time of their purchase. Once such a machine is fixed, embedded or assimilated in a permanent structure the movable character of the machine becomes extinct. The same cannot thereafter be treated as movable so as to be dutiable under the Excise Act. But cases in which there is no assimilation of the machine With the structure permanently, would stand on a different footing.
44. In the instant case a
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ion in the correct sense.
Though not issued for the purposes of the GST Act, we may as well mention herein the reference by the Hon. Bombay High Court in M/s. Bharti Airtel Ltd. (Earlier known as Bharti Tele-Ventures Ltd.) v. The Commissioner of Central Excise (2014 SCC OnLine Bom 907 : (2015) 77 VST 434) with regard to a Circular being issued by the Central Board of Excise & Customs in a decision of the same Hon. Bombay High Court –
“(i) In the decision of the Division Bench of this Court in the case of “Commissioner of C.Ex, Mumbai-IV v. Hutchison Max Telecom P. Ltd., (2008 (224) E.L.T 191 (Bom.) “, the issue which fell for consideration of the Division Bench inter alia was pertaining to transmission tower set up by the assessee and whether the setting up of the towers amounted to manufacture as the towers being a new product with a distinct name, characteristics and use and is distinct from the components used in the manufacture as contended on behalf of the Revenue. The Division
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
bsp;f) Air conditioners.
g) Transmission tower was erected at the top of the building.
h) The tower was fitted with microwave antennas.
i) The BTS/BSC was installed in prefabricated building object.
Based on this material the Commissioner held that what emerges is a new commodity. The argument advanced that only “Base station controller/Base trans-receiver station, cell site/Mobile Switching centre” were connected with the transmission and reception signals and other equipments were not part of the same, the argument was held as not acceptable as without the tower, UPS, Cable trays, AC., etc., the BTS would not be in a position to function as transmitting and receiving apparatus. The contention of the assessee that various equipments installed at site were individual machine was rejected. The Commissioner further held that with the assembly of various equipment installed what emerges is a commodity with a distinct name, identity, character and use; distinct from inputs and classifi
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
h networked with the Public network. The entire sub systems of BTSs and BSCs or MSCs and the number of constituents would depend on the Geographical area covered by the Cellular Network and there is no fixed designation numbers to constitute a component of transmission apparatus. It is not necessary to set out the other facts in detail considering the the Tribunal has in extenso set out the facts. The Tribunal relying on para 20 in the case of Triveni Engineering & India Ltd (supra) on the test of marketability, held that the so called BTS/BSC site erected, installed and commissioned by the contractors of the company cannot be construed as marketable goods manufactured by the appellant since they cannot go to the market as such BTS/BSC site are not marketable. It also held that the test of marketability would also not be satisfied for another reason being that for the installation of every BTS/BSC, licence from WPC/SACFA a wing of Department of Telecommunications, Government of India h
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
op the aforesaid reasons, the appeal was allowed and accordingly, the orders were set aside.
9. It is not necessary for us to answer the issue as to whether the activities is purely service and consequently, the appellants are not manufacturers. We proceed on the footing that what has been assembled and installed is a commodity having a distinct name from the components from which it was assembled. The question is whether this new commodity is marketable. We have already considered the test of marketability as laid down by the Supreme Court in Triveni Engineering & India Ltd. (supra) and also Moti Laminates Pvt. Ltd. (supra). At this stage, we also note that we proceed on the footing by ignoring the second finding of marketability recorded by the Tribunal namely that BTS/BSC is not marketable as licence is required from the Department of Telecommunication, Government of India. The facts on record would indicate that the equipments erected are embedded in the earth or on a building. Th
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ning team after survey identified the location as per the requirements of the local coverage needs, determining the shelter location, fabrication of I-beam and pole location. It may be possible for us to agree that by installing or erecting, a new product comes into being with a different name in the market from its components. However, as discussed the test of marketability is not satisfied. The product cannot he shifted without damage. Apart from that various items and components are embedded in the earth. The product, therefore, is immovable The order dated 15/1/2002 of Central Board of Excise & Customs, New Delhi itself regards items assembled and erected on the site and attached to the foundation On earth which cannot be dismantled without substantial damage to their components and thus, cannot be reassembled, as non excisable. The new product would not be considered as movable and, therefore, will not be an excisable good. Para 6 of the said circular will not apply to the facts o
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
and has a permanent location. Such a plant would, therefore, have an inherent element of permanency.
Further, here the output of the project i.e the power would be available to an identifiable segment of consumers. 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.
The project would be using goods which would be imported. Are such high end equipments frequently dislocated? Would there not be damage to the materials if moved places frequently and if so, would it perform as effectively as it would have when without damage? The questions itself would give the answers.
The definition of the word “Commissioning” as found in the agreement brings out the enormity of the scale of operations and how the transaction would fall in the scope of an immovable property –
* The agreement clauses also refer to a definition of “GO” – means government or
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
taking the Project to a different location. It would be farfetched an argument that the Project could be shifted to a different location just to prove that the Project is movable.
The Owner has also to obtain approvals and permits (as per Applicable Law) required for Commissioning and operation of the Plant. Do such permits and documents have a frequent changeover in terms of the place, the owner and project name being constant? Such permissions definitely have an element of permanency.
Under the clause about 'Obligations of the Contractor', we find that the contractor is responsible for the construction of civil structures or buildings as per the Schedule 2. The construction of a civil structure is a part of the Project, the transaction to be executed by the applicant. A civil structure cannot be moved. It has to be demolished. Does one still have to offer the argument that the transaction results into a moveable property?
Any provision in the agreement to the effect tha
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
by the applicant. And we have observed earlier that the applicant has not understood the case law in the correct sense. Further, we have to observe that each judgment has to be understood in terms of the facts as available therein. The applicant has not appreciated the case laws in the sense in which they should have been understood. Like in Solid and Correct Engineering Works (cited supra), the Hon. Court has held the product as 'movable property' for the reason that the plant was not intended to be permanent 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. Such are not the facts of the instant case as has been explained above. We see that the applicant has not come up with any decision which overrules the laws laid down by the decisions of the Hon. Courts that we have discussed. Nor have we come across any adverse case laws.
Having seen that the impugned transaction is a “works
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
s posed before us –
Question 1
Whether supply of turnkey Engineering, Procurement and Construction ('EPC') Contract for construction of a solar power plant wherein both goods and services are supplied can be construed to be a Composite Supply in terms of Section 2(30) of the Central Goods and Services Tax Act, 2017?
The applicant poses for us to decide if the Engineering, Procurement and Construction ('EPC') Contract falls within the definition of 'composite supply' as found in the GST Act. Since we have elaborately discussed and observed above that the impugned transaction is a “works contract u/ s 2(119) the GST Act, we need not even enter into the discussion as to whether the impugned transaction is a 'composite supply” u/ s 2(30) the GST Act. In view thereof, we are constrained, with reasons, to answer the first question in the negative. We move on to the second question.
Question 2
If yes, whether the Principal Supply in such case can be said to be
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
generation system and parts thereof would also be available to sub-contractors?
We find that the applicant has informed that in certain cases, the contractor engages various sub-contractors (manufacturers/ supplies/ sub-contractors) who further supply the goods to such contractor or engage in provisioning of certain portion of the contract. It is also informed that there may be cases wherein the Developer divides the contract between two separate contracts of construction of solar power generation system, In this regard, the applicant argues that since the concessional rate of 5% [as clarified to be under Notification no. 1/ 2017-lntegrated Tax (Rate)] 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.
The applicant has laid claim to sr. no.234 of Schedule I of Notification No
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
y documents before us, we would not be able to deal with this question in the present proceedings.
05. In view of the extensive deliberations as held hereinabove, we pass an order as follows :
ORDER
(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
NO.GST-ARA-01/2017/B- 05 Mumbai, dt. 17/02/2018
For reasons as discussed in the body of the order, the questions are answered thus –
Q.1 Whether supply of turnkey Engineering, Procurement and Construction ('EPC') Contract for construction of a solar power plant wherein both goods and services are supplied can be construed to be a Composite Supply in terms of Section 2(30) Of the Central Goods and Services Tax Act, 2017?
A.1 The question is answered in the negative.
Q.2 If yes, whether
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
