In Re: Giriraj Renewables Private Limited
GST
2018 (9) TMI 1183 – APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA – [2019] 64 G S.T.R. 303 (AAR)
APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA – AAAR
Dated:- 5-9-2018
MAH\/AAAR\/03\/2018-19 – MAH\/AAAR\/SS-RJ\/08\/2018-19
GST
SMT. SUNGITA SHARMA, AND SHRI RAJIV JALOTA, MEMBER
\nPROCEEDINGS
\n(under Section 101 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
\nAt the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the MGST Act.
\nThe present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGS<\/p>\n
= = = = = = = =<\/p>\n
Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n med that he could not file an appeal as also because the appellant filed within one month of formation of the authority, the delay is condoned. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n : = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n nd wind operated electricity generator = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n all goods provided under the contract which help in end to end generation as well as transmission of electricity. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ther parts are only panel housing consisting of controllers and switches. Hence the whole system is a Solar Power Generating System and is entitled for the benefit of notification. Therefore, the denial of benefit of notification by the adjudicating authority is not sustainable. The impugned order is set aside and the appeals are allowed.' = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n t case being a composite supply of SPGS has been provided hereunder in detail. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ble supplies should be supplied in conjunction with each other = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n element of provision of service and an element of transfer of title in goods in which various elements are so inextricably linked that they essentially form one composite transaction then the nature of such transaction would be determined by the application of the dominant nature test. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n tive but indicative of bundling of services in ordinary course of business are: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n to characterisation'. It was observed that while 'Supply' is defined broadly, it nevertheless invites a commonsense, practical approach to characterisation. An automobile has many parts which are fitted together to make a single vehicle. Although, for instance, the motor, or indeed the tyres, might be purchased separately there can be little doubt that the sale of the completed vehicle is a single supply. Like a motor vehicle, spectacles are customarily bought as a completed 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. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n of composite supply under European Union Value Added Tax laws ('EU-VAT'). = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n both, goods and services, the entire contract would qualify as composite supply of SPGS. It is further submitted that the supply of SPGS should form the principal supply and the entire contract should be taxed as supply of SPGS itself since service portion of the contract including civil works is only 6% and is only incidental to supply of goods. Therefore, principal supply in such case is provision of SPGS and hence, the entire contract (including the services portion) should be taxable at the rate of 5%. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ration of electricity. Hence, the entire contract (both goods and services) are bundled and linked wherein the main intent is provision of SPGS. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ndertaken and provides that the Appellant would be responsible for supply of solar power generating system. Schedule I of the Draft Contract reads as under: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n nary course of business will depend on the facts of the case. If such (EPC contracts) supplies could be treated as 'composite supply' with supply of solar power generating systems as the principal supply, then such supplies may be eligible for 5% GST rate as a whole….' = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n he intention of the parties involved in the contract to determine whether the parties intend to undertake works contract or supply of solar power plant and = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ump sum price agreed between the parties and also does not in any manner dilute the responsibility of the contractor.' = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n h goods, it could always remove it from the base and sell it. Relevant extract from the judgment is reproduced below for ease of reference: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n d to be movable. Relevant extract of the judgement is reproduced as under for ease of reference: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n , it is worthwhile to note that the Madras High Court in the matter of Sri Velayuthaswamy Spinning Mills v. The Inspector General of Registration and the Sub Registrar (2013 (2) CTC 551) = 2013 (3) TMI 681 – MADRAS HIGH COURT, while deciding whether setting up of windmills can be treated as movable property for the purpose of payment of stamp duty, held that windmills were installed on the cemented platform on the land for running of windmills and not for the benefit of the land, and hence the same are to be considered as movable property. The judgment was passed on the basis of the principle that if, in the nature of things, the property is a movable property and for its beneficial use or enjoyment, it is necessary to imbed it or fix it on earth though permanently that is, when it is in use, it should not be regarded as immovable property for that reason. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n \nIn view of the aforesaid judgments, it is submitted that in the instant case, the solar power plants supplied by the Appellant is commissioned and installed only for the beneficial enjoyment and for the purposes of better functioning of the plant and are capable of being removed and transferred from one place to another. Hence, the fact that the plant is installed but not permanently affixed to the land means that the same is not an immovable property. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n e by the owner. Such costs incurred would be charged by the contractor from owner separately and does not form part of the Contract price highlighted in Schedule 3 of the contract. The amount to be charged due to the changes will be mutually decided between the parties.' = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ed at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as moveable and will, therefore, not be excisable goods. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n 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. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n tion situated at and in the state of Karnataka, India = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n is only installed together to the grid sub-station so that the same is capable of functioning as a system together. It is further submitted that though SPGS may be shifted from one place to another only in rare circumstances, the same is still capable of being removed and hence cannot, by any stretch of imagination, be said to be an immovable property. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n not immovable property.' = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ere attached to a concrete base just to prevent wobbling of the machine, it would be classified as immovable property. In it is submitted that AAR has grossly erred in relying on the decision of TTG Industries as the facts of the case are not applicable to the Appellant's case. The level of construction work in case of TTG (T.T.G. Industries Vs. CCE, Raipur [(2004) 4 SCC 751] = 2004 (5) TMI 77 – SUPREME COURT OF INDIA) is intense. The relevant extracts of the judgement which shows that the level of construction is intense is reproduced below: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n at a height of 25 feet above the ground level. On this platform concrete foundation intended for housing drilling machine and mudgun are erected. The concrete foundation itself is 5 feet high and it is grouted to earth by concrete foundation. The first step is to secure the base plate on the said concrete platform by means of foundation bolts. The base plate is 80 mm mild sheet of about 5 feet diameter. It is welded to the columns which are similar to huge pillars. This fabrication activity takes place in the cast house floor at 25 feet above ground level. After welding the columns, the base plate has to be secured to the concrete platform. This is achieved by getting up a trolley way with high beams in an inclined posture so that base plate could be moved to the concrete platform and secured. The same trolley helps in the movement of various components to their determined position. The various components of the mudgun and drilling machine are mounted piece by piece on a metal frame, w<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n achines were rightly held to be immovable property. However, the Appellant would like to draw the attention to the fact that the setting up of solar power plant does not require this degree of construction work. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n of dismantling the system from the permanent site would render the goods non- marketable and hence the goods cannot said to be immovable property. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n n the instant case. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n . This is due to the fact that PV module is a packaged, connect assembly of typically photovoltaic solar cells, which constitute the photovoltaic array of a photovoltaic system that generates and supplies solar electricity. In other words PV modules are nothing but an assembly of solar cells that helps in converting solar power into electricity. The fact that solar PV modules constitutes 60-70% of the total contract can also be substantiated with the help of the Draft Contract which is reproduced below for the ease of reference: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ncillary to such supplies (such as erection, civil work etc.) to ensure complete supply of solar power plant. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n and the appeals are allowed'. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n , misinterpretation of the facts and hence is incorrect and bad in law. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n the principal supply can be said to be that of PV modules (forming 60-70% of the contract value and being the most critical component of a SPGS), which is taxable at the rate of 5% = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n change, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n Central Goods and Services Tax Act, 2017. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n provement, 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. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n sm 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”. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n as a “works contract” and taxed at 18% on the full value, will render the taxing entry of SPGS wholly otiose\/ nugatory. As per the settled law, any such interpretation is always to be avoided (Oswal Agro Mills Ltd. vs. CCE [1993 (66) ELT 37 (SC)]; = 1993 (4) TMI 73 – SUPREME COURT OF INDIA, Akbar Badruddin Jiwani vs. CC [1990 (47) ELT 161 (SC)]). = 1990 (2) TMI 50 – SUPREME COURT OF INDIA. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n works contract”, it would be taxable as a “works contract”. Since we have elaborately discussed and observed that the impugned transaction is a “works contract” u\/s 2(119) of the GST Act, we need not even enter into the discussion as to whether the impugned transaction is a 'composite supply' u\/s 2(3) of the GST Act. (refer Pg. 78 of the Appeal Memo). = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n d Engineer) which clearly states that the SPGS is “highly moveable” as it is capable of being dismantled and re-assembled at another location (refer Pg. 139 of the Appeal Memo). The said expert evidence has not been controverted in any manner, the expert has not been cross-examined and no contrary evidence has been brought on record as well. It is well settled that expert evidence can only be countered with expert evidence and a judicial\/ quasi-judicial authority cannot substitute his own views for that of the expert (Inter Continental (India) vs. Union of India [2003 (154) ELT 37 (Guj) =2002 (2) TMI 129 – HIGH COURT OF GUJARAT AT AHMEDABAD] maintained in Union of India vs. Inter Continental (India) [2008 (226) ELT 16 (SC)] = 2008 (4) TMI 23 – SUPREME COURT; Abraham J. Thakaran vs. CCE, Cochin [2007 (210) ELT 112 (Tri-Bang)] = 2006 (10) TMI 51 – CESTAT,BANGALORE upheld in CCE vs. Innovative Foods Ltd. [2015 (236) ELT 20 (SC)]) = 2015 (12) TMI 665 – SUPREME COURT. Accordingly, the view <\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n uctural support, ensuring it is wobble-free etc.) or for the beneficial enjoyment of the immovable property (i.e. construction of a building\/ structure to enjoy and utilize the land). In particular, it has been held that where the item can be dismantled and erected at another location without destroying or damaging the item, the said item would be movable and not immovable. Reliance in this regard is placed on the following: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n so submitted that the various precedents have not laid down a requirement that the item must be capable of being moved as such to another location without dismantling. The relevant judgements only contemplate that the item must be capable of being dismantled and reassembled at another location without being destroyed in the process. In this regard, the conclusion in the Impugned Order that the SPGS is “immovable property” as it could not be shifted without first dismantling it and the reerecting it at another site, is wholly erroneous, and contrary to the test established by the Hon'ble Apex Court. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n s not in the nature of “immovable property”, and, therefore, cannot qualify as a “works contract”. Consequently, the agreements cannot be taxed as a service at 18%. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n larification (largely in the context of solar projects and windmill projects), it is settled law that parts\/ components of a system would equally merit the rate prescription for the “system”: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n 503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings; = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n e appellants were heard on 02.07.2018 where the appellant reiterated the submission made in the application filed before the Advance Ruling Appellate Authority. The appellant also made additional written submissions on 02.07.2018 reiterating all the submissions made in the application and certain additional grounds also. Copy of the additional submission was enclosed to the appeal. Both the submissions of the appellant are -kept on record. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n \n33. The total scope of the contract is set out under schedule-I which says the following: ..”The contractor would be responsible for Supply of Equipment and undertake all necessary activities ancillary to such supplies (such as erection, civil work etc.) to ensure complete supply of Solar Power Plant. ” = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n sent at the Commissioning (“Notice of Commissioning”). In this regard, the following shall be the pre-requisites for achievement of Commissioning: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n 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; = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n as a 'composite supply', the CBIC has published an e-flier on the subject. As per the e-filer, 'Composite supply' entails the concept of 'naturally bundled supply', and whether services are bundled in the ordinary course of business would depend upon the normal or frequent practice followed in the area of business. It also says that in order to qualify for a composite supply one of the characteristic would be that 'none of the individual constituents are able to provide the essential character of the service'. What is the normal frequent practice in the trade can be ascertained from the following indicators, = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n axable supplies- one of goods and the other of services and they both are naturally bundled and it is natural and also a practice to expect that the contractor who will supply the goods will also supply the services alongwith it. In the business of contracts for the Solar Power Generating System, it is a practice to provide a Plant as a whole along with the supply of services. We differ with the order of the Advance Ruling Authority in this respect. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n tion of the 'Solar Power Generating System' amounts to erection of immovable property? In order to answer this question, we have to go through the clauses given in the agreement brought before us. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n untry also. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n AC power, Switchgears, Transformers and transmission lines etc. The entire mechanism of a SPGS is that solar panels\/PV modules are connected together to create a solar array. Multiple panels are connected together both in parallels and in series to achieve higher current and higher voltage. The electricity produced by solar array is direct current, and therefore, inverters are required to convert Direct Current into Alternating Current and connection to utility grid is made through High Voltage Transformer. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n on that receives the ideal amount of daily sunlight and uses space effectively. Installing ground-mounted solar panels always starts with building a stable base. Traditional ground-mount systems, essentially all work the same-systems anchor to the ground and hold a large number of stacked panels, often two but sometimes three or four panels high. Two rails usually support each panel, whether oriented in landscape or portrait. The anchoring to the ground is the tough part of these installations, as there are many different types of foundations. If the soil is clear of debris, steel beams are driven into the ground and the racking system is attached to the beams. If ground conditions are not suited for smoothly driven beams, anchor systems may be used – helical piles, ground screws. These can take more time to install as they have to power through boulders and other large debris. It is usually a more complicated installation process than putting solar panels on a roof. When you have a ro<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n solar power system for a home. What we have in the instance is a 'WHOLE SOLAR POWER GENERATION SYSTEM.' one look at the Agreements gives an idea of the scope of the work. The array of goods includes Solar PV Modules, inverters and Inverter Transformer, Tracker Components, Module Mounting Structure, Switchyard Supply, Transmission Line Supply, AC\/DC Cables ,Chain Link Fencing ,Battery Charger, Power Transformer, LD Switchgear and complete switchyard, Inverter transformers and auxiliary transformers, Battery and battery charger, SCADA system, Module cleaning system, Illumination and ventilation system, Earthing system ,Site enabling facilities and Mandatory spares. The initial steps includes the drawings and detailing of the system. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n laying down of the OHT line which includes line survey, procurement of materials and erection of poles. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ompleted meeting the functional, technical and safety requirement. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n mportant part of the system but what is intended to be bought is not the PV module but an entire system. Thus, we affirm the conclusion drawn by the ARA that the Agreements made lead to the erection of a Solar Power generating System. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n uns and the Drilling machines are mounted piece by piece on a metal frame, and the components are lifted by a crane and landed on a cast house floor 25 feet high. The volume and weight of these machines are such that there is nothing like assembling them at ground level and then lifting them to a height of 25 feet for taking to the case house floor and the to the platform over which it is mounted and erected. It observed that the machines cannot be lifted in an assembled condition and after taking note of these facts, it concluded that the same is immoveable property. The Court further held that it cannot be disputed that such Drilling Machine and Mudguns are not equipment which are usually shifted one place to another nor it is practicable to shift them frequently. The court also referred to its own judgments in the case of Quality Steel Tubes (P) Ltd. 75 ELT 17 (SC) = 1994 (12) TMI 75 – SUPREME COURT OF INDIA and Mittal Engineering Works (P) Ltd. 1996 (88) ELT 622 (SC) = 1996 (11) TM<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ere the SC had to decide whether the 'plant and machinery' in the fertilizer is goods' or 'immoveable property. The Apex Court held that the same is immoveable property and observed the following,” = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n hey say that the definition of Solar Power Plant – “mean 60MWAC\/81MWDC Solar Power Plant to be Supplied, installed and Commissioned at the Plant Site by the Contractor, which is forming part of the solar power generating system”. The contract would be is to develop a 60 MWAC\/81 MWDC solar power plant for onward sale of power to its consumers. It is a big project 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. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n denotes the understanding of the Ministry regarding the GST treatment for solar sector and cannot be taken as legal advice\/opinion. The letter itself clarifies in the end that the same is not a legal advice or an opinion. The issue of classification or determination of the agreements have to be done with respect to the laws and relevant provisions. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n tem = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n The ARA has held that no details were brought before them and therefore in the absence of documents they have expressed their inability to deal with the question. As no fresh documents were produced before us and also there being no original ruling of the ARA, we hold that we will not deal with the question in the present proceedings. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n immoveable property. We have discussed in detail with reference to judgements and the principles enunciated therein as to how the 'Solar Power System' would be an immoveable property. Also, the facts in these cases are different. There is no case of a foundation in the instant case nor is there is any case of merely an engine\/pump installed. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n","protected":false},"excerpt":{"rendered":" In Re: Giriraj Renewables Private LimitedGST2018 (9) TMI 1183 – APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA – [2019] 64 G S.T.R. 303 (AAR)APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA – AAARDated:- 5-9-2018MAH\/AAAR\/03\/2018-19 – MAH\/AAAR\/SS-RJ\/08\/2018-19GSTSMT. SUNGITA SHARMA, AND SHRI RAJIV JALOTA, MEMBER PROCEEDINGS (under Section 101 of the Central Goods and Services Tax Act, 2017 and the … Continue reading “In Re: Giriraj Renewables Private Limited”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-13845","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/13845","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=13845"}],"version-history":[{"count":0,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/13845\/revisions"}],"wp:attachment":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=13845"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=13845"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=13845"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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\nBrief Facts of the case
\nA. Appellant enters into contracts with various Developers who desire to set up and operate solar photovoltaic plants for supply of power generated. In various cases, the Appellant also is a Project developer wherein it is engaged in operation of renewable energy power plant projects.
\nB. Typically a contract is entered into by the Appellant 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 transportation, unloading, storage and site handling, installation and commissioning of all equipments and material, complete project management as well as civil works\/construction related services for setting up of a functional solar power plant.
\nC. Accordingly, the contract entered into by t<\/p>\n
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\na. Whether contract for supply of\/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.
\nb. If yes, whether the principal supply in such case can be said to be of 'solar power generating system' which is taxable at 5% GST.
\nc. Whether benefit or concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors.
\nG. The Authority for Advance Ruling, Maharashtra (hereinafter referred to as 'the AAR') vide Advance Ruling No. GST-ARA-01\/2017\/B-01 dated 17 February, 2018. = 2018 (5) TMI 854 – AUTHORITY FOR ADVANCE RULING – MAHARASHTRA passed the following order:
\na. The Contract for construction of SPGS wherein both goods and services are supplied is a 'works contract'.
\nb. Since the transaction is treated as works contract and not composite supply, there arises no question of determining what w<\/p>\n
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\ne) Waste to energy plants\/devices
\nf) Solar lantern\/solar lamp
\ng) Ocean waves\/tidal waves energy devices\/plants
\nh) Photo voltaic cells, whether or not assembled in modules or made up into panels
\nAs per the above, concessional rate of 5% has been provided to the following (when covered under heading 84, 85 or 94):
\n * PV modules
\n * Solar power generating system – This term has not been defined under GST. However, a reference can be made as per paragraph 1.2 below
\n * Parts for manufacture of solar power generating system and PV modules – There is no restriction provided on what would qualify as parts and in such case all goods which qualify as 'parts' of solar power generating system would be eligible for concessional rate of tax
\n1.2. Wide ambit of term 'solar power generating system' (“SPGS”)
\n1.2.1. The Appellant submits that the term 'solar power generating system' has not been defined under GST. Generally, solar power generating systems a<\/p>\n
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\n1.2.3. Furthermore, under erstwhile law also, solar power generating systems were not defined. However, under erstwhile excise law, various exemptions were extended to non-conventional energy devices which included solar power generating systems List 8 of Notification no. 12\/2012-Central Excise, dated 17 March 2012 reproduced below for ease of reference:
\n'(1) Flat plate solar Collector (2) Black continuously plated solar selective coating sheets (in cut length or in coil) and fins and tubes (3) Concentrating and pipe type solar collector (4) Solar cooker (5) Solar water heater and system (6) Solar air heating system (7) Solar low pressure steam system (8) Solar stills and desalination system (9) Solar pump based on solar thermal and solar photovoltaic conversion (10) Solar power generating system (11) Solar photovoltaic module and panel for water pumping and other applica<\/p>\n
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\nFurther, in the judgement of Bangalore Tribunal in the case of B.H.E.L. vs. Commissioner of Central Excise, Hyderabad = it was held that:
\n'In the present case, the appellants have claimed exemption in respect of “inverter charger card” as solar power generating system. The appellants actually manufactured SPV lantern. The above lantern required electricity for its It is possible to convert solar energy to electricity with the help of inverter charger manufactured by the appellants. The Dy. General Manager has certified that the inverter merger constitutes solar power generating system as it performs the function of generating the required hig<\/p>\n
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\n1.3 Concept and taxability of composite supply
\nConcept under GST Laws:
\n1.3.1. The Appellant most humbly submits that, Section 2(30) of the Central Goods and Services Tax Act, 2017 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'.
\nFurther, principal supply is defined in Section 2(90) of the CGST Act to mean '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.
\nIn this regard, the GST law provides an illustra<\/p>\n
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\n d. One taxable supply should be a principal supply
\nIn such case, the supply which is the principal supply is treated as the main supply and the entire transaction is taxed as per the principal supply.
\nConcept under erstwhile Service tax Laws:
\n1.3.2. The Appellant submits that the concept of composite supply under GST is identical to the concept of naturally bundled services prevailing in the erstwhile Service Tax regime.
\nUnder Section 66F (3) of the Finance Act, 1994 ('the Finance Act') two rules have been prescribed for determining the taxability of such services. The rules prescribed are explained as under:
\n1. 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'
\n2. If various elements of a bundled service are not naturally bundled in the ordinary course of business, i<\/p>\n
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\nFurther, the following was provided in the Education Guide:
\n'9.2.4 Manner of determining if the services are bundled in the ordinary course of business Whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below –
\n * 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 or<\/p>\n
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\n * There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use
\n * The elements are normally advertised as a package
\n * The different elements are not available separately.
\n * The different elements are integral to one overall supply – if one or more is removed, the nature of the supply would be affected.
\nPer the above, the following conclusions can be drawn:
\n * In case more than two supplies are supplied together wherein one of the supply is principal supply, the same would qualify as composite supply.
\n * Further, goods supplied under the composite supply are supplied in conjunction with each other. Also, such composite supply is supplied in the ordinary course of business.
\n * The composite supply would qualify as supply of the principal supply. Taxes would be applicable as on such principal supply.
\nIt is worthwhile to note that the G<\/p>\n
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\n * 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 u<\/p>\n
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\nIn the case of Card Protection Plan Ltd. Vs. C & E Commrs [1994] BVC 20, the ECJ held that 'a service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied'.
\nPer the above principal, 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.
\nUnited Kingdom
\nUnder 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.
\nIf 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 ap<\/p>\n
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\nIt is further submitted that Ministry of New and Renewable Energy (hereinafter referred to as 'MNRE') in various instances has also approved entire BOQ consisting of various parts e.g. cables, module mounting structures, spares, transmission lines etc. as essential to solar power generating system and hence the concessions applicable have been extended to all goods to be used in solar power plant. Drawing a corollary, concessional rate of 5% should be applicable on all the goods ap<\/p>\n
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\nFurther, the Appellant would like to make a reference to the Draft Contract for supply of 60Mw Solar Power Plant (hereinafter referred to as 'the Draft Contract'). Clause B and E of the Draft Contract reads thus:
\n'B. Owner has appointed the Contractor for supply of the Solar Power Plant which includes engineering, design, procurement, supply, development, testing and Commissioning of the Plant as per scope defined in relevant schedule of this Contract, as per Applicable Law and Technical Specifications'
\nE. 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 parlance, are supplied together for setting up of solar power generating plant) and performance of Works so as to complement such Supply naturally bundled<\/p>\n
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\n'The Contractor would be responsible for Supply of Equipment and undertake all necessary activities ancillary to such supplies (such as erection, civil work etc) to ensure complete supply of Solar Power Plant….'
\nIn view of the aforesaid clauses, it is submitted that the said contract is entered into for supply of 'solar power generating system' which involves supply of equipment and undertaking certain services. Separate prices are specified for different equipment which are supplied under the agreement for commercial convenience such as movement of goods, claiming of payment or availing trade credit 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 solar power generating system.
\n1.3.5. Additionally, the Appellant would like t<\/p>\n
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\nAccordingly, in the instant case, the contract should qualify as a composite supply wherein the principal supply is of solar power generating system and hence, entire contract should be taxable at 5%.
\n1.3.6. In view of the above mentioned principles and submissions, the Appellant submits that the Draft Contract qualifies as a composite supply of SPGS, and hence should be taxable at the rate of 5%. The AAR in its order has completely disregarded the facts and the Appellant's submissions in the matter and has grossly erred in holding that the impugned Draft Contract relates to provision of both goods and services, which qualify to be works contract, as the SPGS once installed becomes permanent in nature and hence is an<\/p>\n
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\n(ii) whether the activities are undertaken on an immovable property for the contract to qualify as works contract.
\nEssence of the contract and intention of the parties involved in the contract is clearly to supply SPGS
\n2.2. The Appellant submits that the intention of the parties entering into the contract is to supply SPGS wherein the. Appellant undertakes end to end responsibility of supply of equipment for solar power plant including designing, engineering, supply, installation, testing and commissioning of the solar power plant. The relevant clauses of the Draft Contract which indicate the intention of the parties entering into the contract are reproduced below for ease of reference:
\n'B. Owner has appointed the Contractor for supply of the Solar Power Plant which includes engineering, design, procurement, supply, development<\/p>\n
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\nHence, as also discussed in point 1 above, it is amply clear that the intention of the parties is to supply\/procure a completely functional SPGS, and the intention is not to undertake any activity which will create an 'immovable property'. The Appellant's detailed submissions in this regard are provided below.
\nThe solar power generating system is movable in nature, and hence, is not an immovable property to qualify. as works contract
\n2.3 The Appellant submits the AAR has grossly misinterpreted the facts and Appellant's submissions in the instant case and has passed an order on a pre-meditated assumption that typically such contracts (as proposed to be entered into by the Appellant) qualify to be works contract. The Appellant would like to reiterate that the SPGS, as proposed to be supplied by the Appellant is not an immovable property, and hence, cannot qualify to b<\/p>\n
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\n'The Tribunal held that the machine was attached to earth for operational efficiency. 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 for safety. The Tribunal further held that the paper making was saleable and observed “if somebody to purchase, the whole machinery could be dismantled and sold to him in parts”.
\nIn view of this finding of fact, it is 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. The tribunal has pointed out that it was for the operational efficiency of the machine that it was attached to earth. If the appellant wanted to sell the paper making machine it could always remove it from its base <\/p>\n
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\n'Applying the above tests to the case at hand, we have no difficulty in holding that the manufacture of the plants in question do not constitute annexation hence cannot be termed as immovable property for the following reasons:
\n (i) The plants in question are not per se immovable property.
\n (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.
\n (iii) The fixing of the plants to a foundation is meant only to give stability to the plant and keep its operation vibration free.
\n (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.'
\nIn furtherance to the aforesaid judgment, the Madras High Court in the case of Board of Revenue, C<\/p>\n
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\nSimilar principles were also adopted in the matter of Perumal Naicker v. T. Ramaswami Kone and Anr. (AIR 1969 Mad 346) = 1967 (9) <\/p>\n
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\nFurther, the AAR nowhere distinguishes the above referred case of Sri Velayuthaswamy Spinning Mills v. The Inspector General of Registration and the Sub Registrar (2013 (2) CTC 551) = 2013 (3) TMI 681 – MADRAS HIGH COURT, wherein it was held that windmills qualify as movable property. The AAR in the Impugned Order held that if a thing is embedded in the earth or attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached, then it is part of the immovable property. If the attachment is made for<\/p>\n
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\n2.6. Further, the Impugned order is not in line with the MNRE vide which it has been clarified that structurals as such do not qualify as immovable property and hence are outside the domain of works contract. Even though the term 'structural' has not been defined under the Circular, a corollary can be drawn that the government acknowledges the fact that a certain level of construction related work is required in setting up of a solar power plant, however, the same would not change the nature of the contract to qualify as 'works contract'. Further, in the MNRE Circular, it has also been clarified that if the supplies under the contract can be treated as 'composite supply' with supply of solar power generating systems a<\/p>\n
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\n(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 movable and thus excisable. The mere fact that the goods, though being capable of being sold or shifted without dismantling, are actually dismantled into their components\/parts for ease of transportation etc., they will not cease to be dutiable merely because they are transported in dismantled condition. . ….. '
\nA conjoint reading of the above along with the judicial precedents, clearly demonstrates that the solar power plant once installed is capable of being moved from one place to another without substantial damage, the<\/p>\n
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\n3. 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.
\n4. 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 –
\n Commissioning' permanent means the functional operation of plant (including each unit thereof), following the installation and energization of evacuation infrastructure to grid substation and installation and energization of the plant to the evacuation infrastructure, subsequently and the evacuation of power is possible from the plant to the g<\/p>\n
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\nThus, it can be seen that the plant would be connected to the grid substation for the purposes of the commercial operations. After having established and commissioned such a project which is connected to a grid substation, who would be 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.
\n7. The owner has also to obtain approvals and permits (asper 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 permission definitely have an element of permanency.
\n8. 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 Schedule 2. The construction of a civil structure i<\/p>\n
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\nThe AAR in the Impugned order has failed to explain as to why the installation and commissioning work involved in setting up of SPGS would qualify to be 'immovable property' '. On the contrary, the AAR has baselessly assumed that the SPGS has element of permanence and hence, is incapable of being removed. It is Appellant's submission that the installation and commissioning work done by the Appellant does not qualify as immovable property, as the same is capable of being moved.
\nReliance in this regard is also placed on the judgement of the Delhi Tribunal in the case of I.G.E. (India) Ltd. Vs. CCE [1991 (53) ELT 461] = 1990 (12) TMI 209<\/p>\n
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\nIn view of the aforesaid, it is clear that even if it is necessary to fix something on earth permanently till it is in use, it cannot be said that it is an immovable property if the nature of the same is movable. Hence, relying on the aforesaid, it is submitted that SPGS is movable in nature and hence, does not qualify to be works contract.
\nFurther, as discussed above, there are various judicial precedents which clearly lay down that even in case of dismantling of a property, if the damage is not substantial and the same can be moved, the said property cannot be held to be an immovable property. The AAR has clearly failed to appreciate the Appellant's submissions and has passed the Impugned order on baseless assumptions that the SPGS is set up through civil works and hence is an immovable property.
\nFurther, the AAR has wrongly concluded on the basis of rulings that the solar power plant is an immovable property since it cannot be shifted without first disma<\/p>\n
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\n'9. In their reply to the show cause, the respondents explained the processes involved, the manner in which the equipments were assembled and erected as also their specifications in terms of volume and weight. It was explained that the function of the drilling machine is to drill hole in the blast furnace to enable the molten steel to flow out of the blast furnace for collection in ladles for further processing. After the molten material is taken<\/p>\n
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\nIn the case of solar power plant, 'commissioning' is done only for setting up various equipments which constitute a solar power generating system so that they become a system and function together. The construction work\/civil work comprises only around 6% of the total contract value and hence it cannot be said to be substantial construction so as to classify the same as immovable property. In fact, it is submitted that in case of the Appellant, the civil work is only done in order to assemble all the parts of the SPGS together for better functioning of the plant. The level and intensity of construction work described in the aforesaid judgment cannot be equated with the present set of facts by any stretch of imagination. The AAR has again assumed that the term 'commissioning' b<\/p>\n
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\nIn it is submitted that solar power generating system is capable of being moved from one place to another without substantial damage and hence cannot said to be immovable property. The fact that the solar power generating system is capable of being moved without substantial damage can also be substantiated with the help of the CEC.
\n2.12. It is further submitted that the AAR has distinguished the judgment of the Hon'ble Supreme Court in the matter of Commissioner of Central Excise v. Solid and Correct Engg Works & Ors.[(2010) 5 SCC 122] =2010 (4) TMI 15 – SUPREME COURT relied upon by the Appellant, and observed that the asphalt drum\/hot mix plants were held to be 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 was indeed moved after the road construction <\/p>\n
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\nReliance in this regard can also be placed on the judgement of the Hon'ble Supreme Court in the matter of Sirpur Paper Mills Ltd (supra) 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. Hence, in this case as well, there was no movement indeed, however, the machine was capable of being moved which was enough for the machine to not be an immovable property. The AAR has failed to appreciate the judicial pronouncements relied upon by the Appellant and, hence, the Impugned order should be set aside.
\n2.14. Further, the Appellant would like to submit that the government orders\/permits\/approvals etc., as mentioned by the AAR in the Impugned order, required to set up a SPGS plant, do not change the nature of the contract or the p<\/p>\n
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\n'Both parties agree that of the total 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 setting-up\/ supply of the Plant.'
\n3.2. Hence, PV module is the most important component of solar power generating system and therefore, even if the contract is construed as a compos<\/p>\n
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\nBoth parties agree that of the total supplies, the most critical part of the Plant are the supply of the mounted PV module which constitutes 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 setting up\/supply of the Plant.
\nFor the purpose of the 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…'
\n3.6. The Appellant would also like to highlight the definition of 'Major Equipment' as provided in Clause 1.1.67 of the Draft contract which provides:
\n'Major Equipment(s) means PV solar modules which is an assembly of solar cells <\/p>\n
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\n3.8. 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 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 the goods.
\n3.9. Basis the above submissions, it is clearly evident that the PV Modules qualifies as principal supply'. Hence the whole contract, even if construed as composite supply, should be liable to tax considering it to be supply of PV Modules, which is liable to GST at the rate of 5%.
\n4. WHETHER BENEFIT WOULD ALSO BE AVAILABLE TO SUB-CONTRACTOR
\n4.1. 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.
\n4.2. Further, there<\/p>\n
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\nHence, in view of the aforesaid submissions, the Appellant would like to reiterate that the AAR, in its order, has incorrectly assumed that the contracts which are in relation to supply of SPGS are generally in the nature of immovable property, and hence are works contract.
\nIn this relation, the Appellant would like to conclude that as per the detailed submissions made by the Appellant above, the contract is for supply of SPGS which is movable in nature and hence, cannot qualify as immovable property. The said fact has also been made clear by the authorities through the MNRE Circular wherein it has been categorically stated that 'structurals' as such under SPGS contracts do not qualify as immovable property, which means that supply of SPGS is not works contract. Further, it has been stated therein that contracts for SPGS can qualify as composite supplies, wherein principal supply would be of SPGS, which is taxabl<\/p>\n
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\nIn addition, the Appellant would like to reiterate that as submitted above, the benefit of concessional rate of tax should be eligible to sub-contractors as well.
\nIn view of the above, the appellant prayed that
\na. Set aside\/modify the impugned advance ruling passed by the Authority for Advance Ruling as prayed above;
\nb. Pass any such further or other order(s) as may be deemed fit and proper in facts and circumstances of the case.
\nAdditional SUBMISSIONS:
\nISSUE No. (i):
\nRelevant provisions:
\n5. At the outset, reference requires to be made to the charging provision under the Central Goods and Services Tax Act, 2017 (“CGST Act”), viz. Section 9.
\n9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods<\/p>\n
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\n….
\n(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
\n8. In terms of Section 7:
\n * The concept of “supply” under Section 7(1)(a) takes in supply of goods for a consideration, or a supply of services for a consideration.
\n * Separately, as per Section 7(1)(d), Schedule Il to the CGST Act determines which activities as a supply of goods or a supply of services. Amongst the activities set out at Schedule Il is a composite supply of “works contract”, which is treated as a supply of service. The relevant entry is extracted below:
\n 6. Composite supply
\n The following composite supplies shall be treated as a supply of services, namely:-
\n (a) works contract as defined in clause (119) of section 2; and
\n ….
\n9. In terms of the applicable rates of GST, the rates for goods are prescribed vide <\/p>\n
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\n9
\n–
\n
\n
\n(xii) Construction services other than (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x)and (xi) above.
\n9
\n–
\n10. Section 8 of the CGST Act then prescribes the tax liability in case of inter alia a “composite supply”, as follows:
\n8. The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:-
\na) 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; and
\n11. Relevant to the present matter, the definitions of the terms “composite supply”, “principal supply”, “goods”, “services” and “works contract” under Section 2 of the CGST Act, are also set out below:
\n(30) “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 con<\/p>\n
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\nIt is also important to note that Section 2, which is the definition section, commences with the words “unless the context otherwise requires”. Accordingly, a particular context may alter the definition of any particular term under Section 2.
\nView taken in the Impugned Order frustrates the intent of the Legislature and renders the entry for SPGS otiose:
\n12. Without prejudice to the foregoing, it is submitted that under Section 9(1), the Government is enabled to issue notifications prescribing the rate qua “goods”, “services” or “both”. In the present case, as per S. No. 234 of Notification 1\/2017, the Government has chosen to tax solar products in a particular manner:
\nDevices and parts
\nSolar power generating system all at } 5%
\nPhoto voltaic cells<\/p>\n
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\n * P. Ramanatha Aiyar's Advance Law Lexicon (5th Edition)
\n “System” means a set of inter-related or interacting elements
\n16. In terms of the aforesaid, given that S. No. 234 refers to the fully interconnected SPGS, the said entry refers to all of the parts\/ components as well as the necessary services to achieve such interconnection.
\n17. Accordingly, the clear intention of the Legislature is that the “system” must be taxed at an aggregated level in whatever form it is, as a “system”, where all the value elements which comprise the “system” must be taxed at 5%. It is well settled that in interpreting and applying a statute, no position can be adopted which would frustrate the intent of the Legislature or defeat the object and purpose for which the provision was enacted, and a purposive inter<\/p>\n
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\n20. In the present case, the clear intent of the Legislature\/Government is to tax SPGS at 5% being a source of renewable energy. Accordingly, no such interpretation can be adopted which would defeat this intention and place all SPGS contracts under the 18% rate bracket. However, the view taken in the Impugned Order will ensure that the intent of the Government to tax the solar power generating system at 5% is bypassed, and that the said system suffers tax at 18%, contrary to the clearly stated and manifested intention of the Government.
\nFundamental interpretational error in the Impugned Order:
\n21.<\/p>\n
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\n22. It is submitted that the aforesaid findings under the Impugned Order are completely unsustainable and bad in law, as the same completely misread the provisions of:
\n(i) Schedule Il to the CGST Act pertaining to “works contract”; and
\n(ii) the rate prescription for “works contract” under Notification 11\/2017. Both as per Schedule II and Notification 11\/2017, the contract in question must first be a composite contract and then it is to be determined whether it is a “works contract” or not. Hence, the appropriate sequence would be:
\n (f) Whether the contract is a composite contract or not?
\n (g) If yes to (a), whether the contract is a<\/p>\n
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\n * Sirpur Paper Mills vs. CCE, Hyderabad [1998 (1) SCC 400] = 1997 (12) TMI 109 – SUPREME COURT OF INDIA
\n * CCE vs. Solid and Correct Engg. Works & Ors. [2010 (175) ECR 8 (SC)] = 2010 (4) TMI 15 – SUPREME COURT
\n * Board of Revenue, Chepauk, Madras vs. K. Venkataswami Naidu [AIR 1955 Mad 620] = 1955 (3) TMI 46 – MADRAS HIGH COURT
\n * Sri Velayuthaswamy Spinning Mills vs. The Inspector General of Registration and the Sub Registrar [2013 (2) CTC 551] = 2013 (3) TMI 681 – MADRAS HIGH COURT
\n * Perumal Naicker vs. T. Ramaswami Kone and Anr. [AIR 1969 Mad 346] = 1967 <\/p>\n
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\n(n) It is further submitted that the test is not one of whether the items are, in fact, dismantled and moved by an assessee, but whether they are capable of being dismantled and moved from one to another (refer Quality Steel Tubes (P) Ltd. vs. CCE, UP. [1995 (75) ELT 17 (SC)] = 1994 (12) TMI 75 – SUPREME COURT OF INDIA; Triveni Engineering & Indus Ltd. vs. CCE [2000 (120) ELT 273 (SC)]) = 2<\/p>\n
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\nWithout prejudice, the transaction is in any event not a “works contract”, but is taxable per the principal supply, at a rate of 5%:
\n26. Without prejudice to the foregoing, a “works contract” will still not be constituted, as a “works contracts” by definition is a contract for construction which also involves a transfer of title\/ ownership in goods. The predominant element is, therefore, that there must be a contract for rendition of services, viz. construction services. Accordingly, where the predominant element is supply of manufactured goods which are imported, or, locally procured, the definition of “works contract” will clearly not be satisfied.
\n27. Furthermore, works contract being a specie of composite contract (which determines taxability qua the principal supply), in order to be taxed as a service, it is a natur<\/p>\n
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\n * Rajasthan Electronics & Instruments Ltd. vs. CCE, Jaipur [2005 (180) ELT 481 (Tri-Dei)] = 2004 (7) TMI 259 – CESTAT, NEW DELHI
\n * BHEL vs. CCE, Hyderabad [2008 (223) E.L.T. 609 (Tri. – Bang.)] = 2007 (10) TMI 165 – CESTAT, BANGALORE
\n * Phenix Construction Technology vs. CCE, Ahmedabad-II [2017-TlOL-3281-CESTAT-AHM] = 2017 (8) TMI 307 – CESTAT AHMEDABAD
\n * Jindal strips Ltd. vs. CC, Bombay [2002-TIOL-347-CESTAT-DEL-LB] = 1997 (5) TMI 152 – CEGAT, NEW DELHI
\n * Gemini Instratech Pvt. Ltd. vs. CCE, Nashik [2014 (300) EL T 446 (Tri-Mum)] = 2013 (7) TMI 464 – CESTAT MUMBAI
\n * Elecon Engineering co. Ltd. vs. CC [1998 (103) ELT 395 (Tri)] = 1998 (3) TMI 359 – CEGAT, MUMBAI
\n * Pushpam Forging vs. CCE, Raigad [2006 (193) ELT 334 (Tri-Mum)] = 2005 (7) TMI 242 – CESTAT, MUMBAI
\n * CCE vs. Megatech C<\/p>\n
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\n (b) other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 8479 or 8543) are to be classified with the machines of that kind or in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate. However, parts which are equally suitable for use principally with the goods of headings 8517 and 8525 to 8528 are to be classified in heading 8517
\n4. Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function.
\nIn terms of the af<\/p>\n
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\nFINDINGS
\nWe have heard both the parties and have gone through the entire case records and written and oral submissions made by the appellant as well as by the respondent. The main issue to be decided is (i) Whether contract for supply of\/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 as claimed by the appellant or the same is works contract services as per the ruling made by the AAR. The other two i<\/p>\n
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\n34. As per Clause 4.2, which defines the 'Obligations of the Contractor', the contractor is required to do the following,-
\ni) Design and engineering of the plant as per Schedule-2 (Technical specification).
\nii) Procure the equipment as per the Schedule-4 (Execution schedule).
\niii) Construction of civil structure or building.
\niv) Insurance required during the transportation of equipment, supplies by the contractor and insurance required for its representative, engineers and labors until commissioning.
\nv) Supply of such items and materials which are needed for installation, commissioning and normal operation of the plant…..
\n……………………..
\nvii) The Contractor is als<\/p>\n
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\n (a) successful installation, testing and Commissioning including generation of electrical energy and charging of 100% DC capacity of Relevant MW size of the Plant;
\n (b) the Plant is mechanically and electrically completed meeting minimum functional, technical and safety requirements;
\n (c) the data acquisition system has been commissioned and able to log data as required by the utility;
\n (d) that the Plant has been continuously running for a minimum period of 3days except for minor faults and Grid non- availability.
\n37. Let us also see the clause 20 about the Risks and liabilities.
\n20. RISKS AND LIABILITIES
\n20.1. The risk and liabilities 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 th<\/p>\n
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\nIllustration. – Where 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;
\nIt is important to see the definition of 'principal supply' and goods along with the same.
\n“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;
\nA reading of the definition of 'composite supply' shows that there should be-
\n a. Two or more taxable supplies;
\n b. Of goods or services or both;
\n c. Or in combination thereof;
\n d. Which are naturally bundled and<\/p>\n
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\n * The participation 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.
\n * Majority of service provider in a particular area of business provide similar bundled of services<\/p>\n
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\n42. WHETHER IMMOVEABLE PROPERTY
\n42.1 Now though we have come to the conclusion that the same is a composite supply, we have to decide the issue about what would be the principal supply and whether it would be a supply of services or supply of goods. The ARA has held that the impugned transaction for setting up and operation of a solar photovoltaic plant which is in the nature of a 'works contract' in terms of clause (119) of Section 2 of the GST Act, and hence, should be taxable at the rate of 18%. The moot question is therefore is whethe<\/p>\n
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\n42.2 It can be seen from the definition that 'Works Contract' involves activities of 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. However, these activities should be in terms of immovable property. In order to decide whether the transaction is a works contract it is for us to decide whether it is in terms of immovable property. The term 'immovable property' has not been defined under the GST Act. The appellant has submitted certain judgements in his favour and after going through them, we find that the following pri<\/p>\n
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\n * If the fixing of the plants to a foundation is meant only to give stability to the plant and keep its operation vibration free then it cannot be called as 'Immoveable property'.
\n * If the setting up of the plant itself is not intended to be permanent at a given place and if the plant can be moved and is indeed moved after the road construction or repair project for which it is set up is completed, then also it cannot be termed as 'Immoveable property'.
\n42.3 So what to be seen above is that in deciding whether a property is movable property we have to see what is the mode of necessary annexation and the object of annexation. If object is so annexed that it cannot be removed without causing damage to the land then it gives a reasonable ground for holding that it was intended to be annexed in perpetuity. Also whether the intention of the parties while erecting the system was that the plant has to be moved from place to place in the near future would also make a differenc<\/p>\n
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\nThe appellant has submitted in the write up that in setting up of a solar power generation plant, the following steps are involved:
\n * Soil and Topo Survey
\n * Plant coordinate fixing, Boundary fencing and Plant layout
\n * T\/L Survey, Piling, Building Construction
\n * Structure erection, inverter erection, equipment foundation
\n * Charging transmission, DC system erection, module mounting
\n * DC cabling
\n * Commissioning of the solar power plant.
\nAs part of the services contract<\/p>\n
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\n * The activities given in Schedule-I (Scope of work) shows that the Obligation of the Contractor amongst other things includes Plant information and 'Plant Information' in turn includes works relating to 'Plant land' which in turn includes identification of<\/p>\n
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\n * Item 10 of the Schedule-I shows that lot of approval and permissions are required not only for transportation of materials but also for payment of land related taxes, approval from local bodies, environmental clearance, NOC from utilities, final occupancy approval and commissioning certificate as well as their requisite approval from KPTCL and other government agencies. The above itself shows the huge work and detailing of the project.
\n * Clause 4.2 refers to the 'Obligation of Contractor'. The Obligation of the contractor include amongst other things design and engineering of the Plant, procurement of the equipment, construction of the civil structure or obtaining of the necessary approval for land labour etc.
\n * Clause 5 of the contract delineates the scope of designing and engineering. It details that the contractor shall design the Plant and also submit the drawing .1 layo<\/p>\n
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\n c) The data acquisition system has been commissioned.
\n d) The Plant has been continuously running for minimum period of 3 days.
\n * Clause 20 which refers to liabilities provided that all the risk and liabilities shall be borne by the Contractor till the completion of the Plant. It is only of the completion of the Plant that the risk and liabilities are shifted to the owner.
\nAll of the above (quoted from the details given by the appellant) goes to show that the erection of the solar power generating system is not as simple or movable as it is made out to be. It is an entire system comprising a variety of different structures which are installed after a lot of prior work which involves detailed designing, ground work and soil survey. As said earlier, the amount of drawings done indicates the magnitude of the work done. Solar systems tend to be tailored specifically to fit the dimensions and orientation of the needs o<\/p>\n
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\n42.7 We shall refer to certain judgements in this regard. The Advance Ruling Authority has referred to the Supreme Court judgement in the case of M\/s. T.T.G. Industries Ltd., vs Collector Of Central Excise,. on 7 May, 2004 Appeal (civil) 10911 of 1996. = 2004 (5) TMI 77 – SUPREME COURT OF INDIA The contract here was for the design, supply, supervision of erection and commissioning of four sets of Hydraulic Mudguns and Tap Hole Drilling Machines required for blast furnace and the issue was whether the same is immoveable property. The Apex Court observed,”
\n…”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 <\/p>\n
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\n…..”The question whether a machinery which is embedded in the earth is movable property or an immovable property, depends upon the facts and circumstances of each case. Primarily, the court will have to take into consideration the intention of the parties when it decided to embed the machinery whether such embedment was intended to be temporary or permanent. A careful perusal of the agreement of sale and the conveyance deed along with the attendant circumstances and taking into consideration the nature of machineries involved clearly shows that the machineries which have been embedded in the earth to constitute a fertiliser plant in the instant case, are definitely embedded permanently with a view to utilise the same as a fertiliser plant. The description of the machines as seen in the Sc<\/p>\n
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\n43. The appellant has produced a certificate from a Chartered Engineer stating that the 'Solar Power Plant is made of equipment which are largely moveable in nature, if required, the equipment can be moved from one land par<\/p>\n
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\n43.2 The appellant has also produced order of the CBEC under Section 37B (Order No 58\/1\/2002 -CX dt 15.1.2002). The order gives directions as to what would be excisable goods and what are not (immoveable property). The clarification says in Para 5 (i) that 'Turnkey projects like Steel plants, Cement Plants, Power plants etc involving supply of large number of components , machinery, equipment, pipes and tubes etc for their assembly \/installation\/ erection\/integration\/inter-connectivity on foundation\/civil structure etc at site will not be considered as excisable goods for imposition of central excise duty =the components would be dutiable i<\/p>\n
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\nDescription of goods
\n234.
\n84, 85 or 94
\nFollowing renewable energy devices & parts for their manufacture
\n(a) Bio-gas plant
\n(b) Solar power based devices
\n(c) Solar power generating system
\n(d) Wind mills, Wind Operated Electricity Generator (WOEG)
\n(e) Waste to energy plants \/ devices
\n(f) Solar lantern \/ solar lamp
\n(g) Ocean waves\/tidal waves energy devices\/plants
\n(h) Photo voltaic cells, whether or not assembled in modules or made up into panels
\nThe above description in the notification shows the description of goods as 'Following renewable energy devices and parts for their manufacture'. The term 'devices' is very important here. A device means an object. The Oxford dictionary defines 'device' as 'an object or a piece of equipment that has been designed to do a particular job'. The 'solar power generating system' described in the entry is used in the sense of a device. Also, we have decided the instant case on the facts and circumstances of the case. After going throug<\/p>\n
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\n44. JUDGEMENTS QUOTED BY THE APPELLANT
\nApart from the judgements already discussed in the 'FINDINGS' part of this order, we also discuss here the other judgements quoted by the appellant.
\n * Rajasthan Construction- The judgement is given under the provisions of the Central Excise Law. Also, there was no case of any agreements made which had to be decided on the touchstone of law but a case of classification.
\n * Phenix Construction Technology vs. CCE, Ahmedabad-II [2017-TlOL-3281-CESTAT-AHM] = 2017 (8) TMI 307 – CESTAT AHMEDABAD The question here for consideration was whether the structures and parts of structures are parts of solar power plant and eli<\/p>\n
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\n * Gemini Instratech Pvt. Ltd. Vs. Commissioner of Central Excise, Nashik [2014 (300) ELT 446 (Tri. – Mum) = 2013 (7) TMI 464 – CESTAT MUMBAI, Elecon Engineering Co. Ltd. Vs. Commissioner of Customs [1998 (103) ELT 395 (Tri)] = 1998 (3) TMI 359 – CEGAT, MUMBAI, In Pushpam Forging vs. CCE, Raigad [2006 (193) ELT 334 (Tri. – Mumbai)] = 2005 (7) TMI 242 – CESTAT, MUMBAI, CCE vs. Megatech Control Pvt. Ltd. [2002 (145) ELT 379 (Tri. Chennai) = 2002 (5) TMI 112 – CEGAT, CHENNAI, Ballarpur Industries (1995 (56) ECR 646) SC) = 1994 (12) TMI 156 – SUPREME COURT OF INDIA, Sealol Hindustan Ltd (1988 (17) ECR 186 (Bombay) = 1988 (3) TMI 74 – HIGH COURT OF JU<\/p>\n
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