2018(11)LCX0105(AAAR)
AAAR-RAJASTHAN
M/s RFE Solar Private Limited
decided on 30/11/2018
RAJASTHAN AUTHORITY FOR ADVANCE
RULING
GOODS AND SERVICES TAX
KAR BHAWAN, AMBEDKAR CIRCLE,
NEAR
RAJASTHAN HIGH COURT
JAIPUR - 302005 (RAJASTHAN)
Proceedings under Section 101 of the Central GST Act, 2017 and Rajasthan GST Act, 2017
Before the Bench of
1. Ms. ARCHANA P TIWARI, MEMBER(CENTRAL TAX)
2. Mr. ALOK GUPTA, MEMBER(STATE TAX)
ORDER NO.RAJ/AAAR/04/2018-19 DATED 29.11.2018
Name and address of the applicant | : |
RFE Solar Private Limited, D-43, Janpath, Shyam Nagar, Jaipur, Rajasthan, 302019 |
GSTIN of the applicant | : | 08AAICR3819D1ZE |
Clause(s) of Section 97(2) ofCGST/SGST Act, 2017, under which the question(s) raised | : |
(i) classification of
goods and/or services or both |
Date of Personal Hearing | : | 09.10.2018 |
Present for the applicant | : | CA Yash Dhadda,
Counsel (Authorised Representative). CA Rajeev Tiwari |
Details of Appeal | : |
Appeal No.RAJ/AAAR/APP/04/2018-19 against Advance Ruling No. RAJ/ AAR/ 2018- 19/08 Dt.l.7.2018/1.8.2018 |
Proceedings
(under Section 101 of the Central Goods and Services Tax Act, 2017 and the Rajasthan Goods and Services Tax Act, 2017)
1. At the outset, it is made
clear that the provisions of both the CGST Act, 2017 and the RGST Act, 2017 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 RGST Act.
2. The present appeal has been filed under Section 100 of the Central Goods and
Services Tax Act, 2017 and the Rajasthan Goods and Services Tax Act, 2017
[hereinafter referred to as the CGST Act and RGST Act] by RFE Solar Private
Limited , (herein after also referred to as the Appellant) against the Advance
Ruling No. RAJ/AAR/2018-19/08 Dt. 1.8.2018.
3. Brief Facts of the
case
3.1. Appellant undertakes itself in executing Engineering Procurement, and Commissioning - EPC contracts for Solar Power Generating Systems commonly known
as Solar Power Plants
3.2. 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.
Accordingly, the contract entered into by the Appellant includes end to end
activities supply of various goods and services and hence is for the supply of
Solar Power Generating System.
3.3. The intent of the contract is that the entire contract would be undertaken
by the Appellant for supply and setting up of the Solar Power Plant which
includes supply of both goods and services as well as setting up of transmission
lines for transmission of the electricity generated up to the storage or the
GRID.
3.4. There may be a single lump sum price for the entire contract for supply of
both goods and services and payment terms may be defined depending on agreed
milestones.
3.5. The Appellant filed an application for Advance Ruling seeking clarification
basis draft contracts of the Appellant, in view of the provisions of composite
supply and the rate of tax provided for Solar Power Generating System
(hereinafter referred as SPGS) under GST, the Appellant sought clarification
in respect of the following :
(I) Whether contract for Erection, Procurement and Commissioning of Solar Power
Plant shall be classifiable as Supply of Goods or Supply of Services under the
provisions of the Central Goods and Services Tax Act, 2017 and Rajasthan State
Goods and Service Tax Act,2017.
(II) If it is supply of Goods, then what will be its HSN classification and rate
of tax in terms of the Notification No. 1/2017-Central Tax (Rate) Dt. 28.6.2017.
(III) If it is supply of Services, then what will be its HSN classification and
rate of tax in terms of the Notification No.11/2017-Central Tax (Rate) Dt.
28.6.2017.
3.6. The Authority for Advance Ruling, Rajasthan (hereinafter also referred to
as the AAR) vide Advance Ruling No. RAJ/AAR/2018-19/08 Dt. 1.7.2018 passed the
following order :
3.6.1. As per the statement of facts submitted by the applicant, the scope of
work in respect of Turnkey EPC Contract¯ includes civil works, procurement of
goods and erection and commissioning. Accordingly, Turnkey EPC Contract¯ are
not getting covered under supply of Solar Power Generating System under Entry
234 of Schedule I of the Notification no. 1/2017-Integrated Tax (Rate), Entry
234 of Schedule I of the Notification no. 1/2017-Central Tax (Rate) both dated
28 June, 2017 and Entry 234 of Schedule I of the Notification no 1/2017-State
Tax (Rate) dated 29 June, 2017. EPC Contract for Solar Power plant comes under
the purview of Works Contract as per Section 2(119) of GST Act.
3.6.2. The contract for Erection, Procurement and Commissioning of Solar Power
Plant falls under the ambit Works Contract Services¯ (SAC 9954) of Notification
no. 11/2017 Central Tax (Rate) dated 28 June, 2017 and attracts 18% rate of tax
under IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%.
4. GROUNDS OF APPEAL:
4.1 SUPPLY OF GOODS
As per terms of the contract and definition of Composite and Mixed supply, the
given work requires classification as composite supply only. Since the contract
is in relation to Solar Plant (supply and installation) they are bundled in
ordinary course of business.
The term goods¯ has been defined under section 2(52) as goods¯ means every
kind of movable property other than money and securities but includes actionable
claim, growing crops, grass and things attached to or forming part of the land
which are agreed to be severed before supply or under a contract of supply.
The term services¯ has been defined under section 2(102) services¯ means
anything other than goods, money and securities but includes activities relating
to the use of money or its conversion by cash or by any other mode, from one
form, currency or denomination, to another form, currency or denomination for
which a separate consideration is charged.
Further, section 7(1)(d) of the CGST Act 2017 provides for the activities which
shall be treated as either supply of goods or supply of services in accordance
with Schedule II of the Act.
The Point No. 6 of the Schedule Il reads as under:
The following composite supplies shall be treated as a supply of services,
namely:-
(a) works contract as defined in clause (119) of section 2.
The term Works Contract has been defined under Section 2(119) as
(119) Works Contract¯ means 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.
As per Section 2(30) Composite Supply is defined as
(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 conjunction
with each other in the ordinary course of business, one of which is a principal
supply;
Further Principal Supply is defined under Section 2(90) as
(90) 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;
The term Mixed Supply is defined under Section 2(74) as
(74) 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.
For determination whether the Principal Supply is of goods or service, the
concept of Works Contract can be explored first. Works Contract in itself is a
composite supply in which construction, fabrication, completion, erection,
installation, fitting out, improvement, modification, repair, maintenance,
renovation, alteration or commissioning etc. are involved along with transfer of
property in goods.
However under GST, there is a monumental shift in concept of Works Contract
which was prevalent under erstwhile VAT and Service Tax regime. In GST, as per
definition of works contract service if construction, fabrication, completion,
erection, installation, fitting out, improvement, modification, repair,
maintenance, renovation, alteration or commissioning is for immovable property
only, then it will classify as works contract only. Hence it means that
aforesaid activities if they are undertaken for a movable property then it will
not be works contract service.
That in the typical Erection and Supply of Solar Power Generating System, which
is also proposed to be undertaken here, the process which is followed by the
appellant is as under :
The Appellant submits the implementation schedule which is reviewed and approved
by the purchaser.
The Solar panels and other related items are procured by the Appellant and
delivered to the site.
Post receiving the access to the project site, the appellant starts the
assembling of items and also creating of foundations for erection of the Solar
Panels. After this, other related equipment like inverters, wiring and other
connections are completed.
The Project Management is also part and parcel of the contract like Engineering
services, Erection of the structure, Installation, Performance Tests and Defect
rectification.
The last step of the contract execution is the commencement of the production of
electricity and successful connection of the power generating system with the
GRID for transmission of electricity and the electricity being generated
seamlessly as per the technical specifications (like voltage of the customers).
As also clear from the photographs of an erected and installed Solar Power
Generating System, the Plant is fixed to the earth through screws, angles and
platform which do not make them permanently fastened to the earth. Hence, it
does not partake the character of the Immovable property.
Thus, in the given facts and circumstances, the supply can not be classified as
Works Contract and be classified as Supply of Goods.
4.2 SOLAR POWER PLANT WHETHER MOVABLE /IMMOVABLE PROPERTY
Under the General Clauses Act 1897 the term immovable property has been defined
under Section 3(26) as immovable property¯ shall include land, benefits to
arise out of land, and things attached to the earth, or permanently fastened to
anything attached to the earth.
As per the definition the term permanently fastened or attached to earth can be
treated as immovable property. Any attachment with earth which is temporary in
nature or can be shifted from part of earth to another without causing
substantial damage to it, cannot be treated as immovable property.
Further, on the given issue, CBEC has also clarified vide its Order number
58/1/2002CX dated 15/1/2002 where in Para 4 (v) it was clarified that
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 be reassembled, then the items would not be considered as moveable and
will, therefore, not be excisable goods.
Reliance has further been placed on the judgments given by the Supreme Court in
the case of Sirpur Paper Mills Ltd. vs Collector [1998 (97) E.L.T. 3 (S.C.)] and
CCE Vs Solid and Correct Engg. Works & Others [2010 (252 ELT 481(S.C.)] holding
the machineries fixed to the earth with nuts and bolts as not embedded to the
earth permanently.
5. PERSONAL HEARING :
The appellant was heard on 09.10.2018 where the appellant reiterated the
submissions made in the application filed before the Advance Ruling Appellate
Authority. The appellant also submitted a copy of composite EPC contract by and
between Kushtagi Solar Power Private Limited (as owner) and Rfe solar private
limited (as contractor) during the personal hearing.
6. DISCUSSION & FINDINGS :
We have heard the appellant and have gone through the entire case records and
written and oral submissions made by him. The issues to be decided are :
(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.
(ii) Whether Solar Power Generating System is a movable or immovable property
(iii) If the transaction is treated as a composite supply, whether the
Principal Supply in such case can be said to be solar power generating system
which is taxable at 5% GST?
6.2. From the said copy of the composite EPC contract, it is seen that there is
a single contract for supply of 15 MWAC /21 MWDC Solar Power Plant in the
State of Karnataka and Kushtagi Solar Power (P) Ltd., the owner, has appointed
the RFE Solar (P) Ltd., the appellant, for supply of the Solar Power Plant
which includes Engineering, design, procurement, supply, development, testing
and commissioning of the Plant.
6.3. As per clause 4 of the said contract the Contractor shall supply all
equipment as per the terms of the contract and in accordance with the execution
schedule to the plant site and complete development, installation and
commissioning of the Works in accordance with Technical Specification,
Applicable law, Applicable terms and the terms of this contract, in addition to
the detail drawings finalised during engineering.
6.4. As per the Appellant, since the Scope of work includes the provision of
goods and services, the entire contract is one turnkey EPC contract and hence
would qualify as a composite supply within the definition of the term as given
under Section 2(30) of the CGST Act. It is also his contention that the
principal supply in such case is the provision of goods and hence the entire
contract should be taxable @ 5%.
6.5. For better appreciation of the facts and legal position, it is preferred to
refer to the clause (30) of section 2 of the CGST Act, 2017 defining the term Composite supply as under :
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;
Illustration.- 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;
6.6 It is important to see the definition of Principal supply. 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;
6.7 A reading of the definition of Composite supply shows that there should
be-
a. Two or more taxable supplies;
b. Of goods or services or both;
c. Or in combination thereof;
d. Which are naturally bundled and supplied in conjunction with each other;
e. In the ordinary course of business.
f. One of which is a principal supply.
6.8. The contract fulfils the condition of composite supply. There is a supply
of goods and services. They are naturally bundled in the sense that the goods
and services may be required to fulfil the intention of the buyer in giving the
contract. The supply of goods and services are provided as a package and the
different elements are integral to flow of supply i.e. one or more is removed,
the nature of the supply would be affected. Thus, from a reading of the entire
contract as well as from the definition of composite supply what can be easily
gathered is, that the buyer has given a contract for setting up Solar Power
Generating System to the Appellant and therefore it is single composite supply
of goods and services and installation thereof.
6.9. In order to understand the scope of a composite supply and also to know
what may be the criteria to judge a supply 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 -
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.
Majority of service provider in a particular area of business provide similar
bundled of services.
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.
The other instructive indicators can be the following -
a) There is a single price or the customers pay the same amount.
b) No matter how much of the package the actually received.
c) The elements are normally advertised as a package.
d) The different elements are not available separately.
6.10. From the application of the above indicators we hold that the contract for
providing the design, procurement, supply, development, testing and
commissioning of the Plant which includes the supply of both goods and services
is a composite supply as per the definition in the Act. There are two taxable
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.
6.11. Whether Solar Power Generating System is an immovable property
Having concluded that the same is a composite supply, we now proceed to decide
the issue what would be the principal supply, whether it is a supply of service
or supply of goods. The AAR 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, therefore is
whether the contract before us is a works contract as defined in clause (119)
of section 2 of the CGST Act.
6.12. The definition of works contract is reproduced below.
(119) works contract¯ means 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;
6.13. Clause 6 of the Schedule II lists the two composite supplies which shall
be treated as supply of services. Clause 6(a) of Schedule II of the CGST Act
states that Works Contract as defined in Clause (119) of Section 2 of the CGST
Act shall be treated as supply of services.
6.14. From the definition it is clear that it defines only those supplies as
works contract which are contracts for building, construction, fabrication etc
of any immovable property.
6.15. Whether the erection 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 contract before us.
6.16. 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 principles emerge -
If a machine is attached for operational efficiency, it does not become
immoveable property.
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. .
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.
6.17. So, for deciding whether a property is movable property, it is to be seen
what is the mode of necessary embedding in the earth and the object of embedding
in the earth. If object is so embedded 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 embedded 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 difference.
6.18. Let us first understand what is meant by a Solar Power Generating System.
The main equipment which as a whole constitutes a solar power generating system
are solar panel consisting of solar cells (known as solar PV module), strings
(series of multiple PV modules), string inverters, inverter to convert from DC
power to 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.
6.19. As per the said contract, for setting up of a Solar Power Generation
System, the following steps are involved :
Soil Survey
Plant coordinate fixing, Boundary fencing and Plant layout T/L Survey, Piling,
Building Construction
Structure erection, inverter erection, equipment foundation
Charging transmission, DC system erection, module mounting
DC cabling
Commissioning of the solar power plant.
6.20. As part of the services contract, various services are provided including
the following :
Construction of complete buildings including control rooms and inverter rooms,
roads and drainage system, boundary walls/ fencing, bore wells
All civil and foundation works for switchyard, solar plant and all other
equipment
Site enabling facilities
Levelling and grading
Erection, commissioning and testing for solar modules, mounting structures,
power transformers, inverters, complete switchyard, inverter transformers,
connectors, earthing lines etc.
6.21. There are generally two types of Solar Power Systems
1) Roof mounted
2) Ground mounted.
The Solar Polar Generating System in the present case is a ground mounted or
ground based Solar Power system. A simple ground mounted system (for a home),
requires a customized positioning at the perfect angles for absorbing sunlight.
In a ground mounted system, good planning is a big part of placing solar panel
ground mounts as the installer has to choose a location 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-mounted 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 roof installation, half of the structure
is already built. All one has to do is to install racking and the solar array.
However, with a ground mounted system, you essentially have to build the
structure of the roof from scratch, so the solar panels have something to sit
on. This means looking into or a deep examination of certain soil types, strict
building codes, and earthquake risk. In that case, a soil engineer would look at
the soil to determine its type and make adjustments to the foundation size and
requirements of the design.
Once the foundation is ready, then one can start building pole mount systems and
metal framing to hold the panels and other components. After building a frame
and checking the foundation work, the panels are installed. The panels have to
be carefully positioned. Finally, panels are wired to the inverter, trenches are
dug and connections between the system and the propertys electrical panel or
solar home battery is buried.
6.22. What is described above is a solar power system for a home. What we have
in the instance is a WHOLE SOLAR POWER GENERATION SYSTEM. One look at the
contract, gives an idea of the scope of the work. The array of goods includes
Solar PV Modules, lnverters 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, Module cleaning system, Illumination and ventilation
system, Earthing system ,Site enabling facilities and Mandatory spares. The
initial steps include the Drawings and Detailing of the system.
As per contract, 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 land, legal due diligence,
registration of land, fencing of land, storage yard for storing the materials
etc. and module mounting structure.
The works relating to Module Mounting Structure includes soil testing, contour
survey, levelling of land, laying of foundation, drilling of holes for
foundation and erection of the MMS i.e. Module Mounting Structure. It also
includes erection and installation of solar side module and solar inverter which
forms the core of the SPGS.
As far as works relating to solar inverter is concerned, it is not only
restricted to include the procurement of inverter but also entails construction
of inverter room, selection of underground cables, laying of cables etc.
The Scope of work includes fine detail regarding the electrical work involved.
The electrical work is not only limited to the procurement of the equipment but
also includes laying of cables, digging of trenches for laying of cables and
earthing system. Further the Scope of work extends to laying down of the OHT
line which includes line survey, procurement of materials and erection of poles.
Contract 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.
6.23. All of the above go 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 of the project. It is not easy
to move them from one place to the other. Rather moving them from one place to
other would be imprudent. Moving them to a new location would mean retrofitting
the system on to a property they simply werent designed for, meaning that they
would be much less efficient. It would not be in the interest of the buyer to
move it from one place to the other. Thus, the project fulfils both the
conditions of an immoveable property - The mode of annexation shows that the
groundwork, being the necessary foundation, is an important part of the project.
The object of annexation, as said earlier, cannot be to make it movable from one
place to the other. It simply cannot be equated to the Asphalt mix (the issue in
Solid &Concrete Engg) which was intended to be moved from one place to another.
In the present case, we have seen that the detailing of the system being what it
is, it cannot be called a simple machine by any stretch of imagination. The PV
module may be an important 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 AAR that the contract entered into, lead to the erection of a Solar Power
Generating System.
6.24. 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 [2004 (167) ELT 501 (SC)]. 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:
Keeping in view the principles laid down in the judgments noticed above, and
having regard to the facts of this case, we have no doubt in our mind that the
mudguns and the drilling machines erected at site by the appellant on a
specially made concrete platform at a level of 25 feet above the ground on a
base plate secured to the concrete platform, brought into existence not
excisable goods but immovable property which could not be shifted without first
dismantling it and then re-erecting it at another site. We have earlier noticed
the processes involved and the manner in which the equipments were assembled and
erected. We have also noticed the volume of the machines concerned and their
weight. Taking all these facts into consideration and having regard to the
nature of structure erected for basing these machines, we are satisfied that the
judicial member of the CEGAT was right in reaching the conclusion that what
ultimately emerged as a result of processes undertaken and erections done cannot
be described as goods¯ within the meaning of the Excise Act and exigible to
excise duty¯
In the above case, the Supreme Court took note of the fact that the various
components of the Mudguns 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) and Mittal Engineering Works (P)
Ltd. 1996 (88) ELT 622 (SC).
6.25. Reference is also made to another Supreme Court decision in the case of
Duncans Industries Ltd Vs State of U.P. & Ors on 3 December, 1999 where 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 immovable property
and observed :
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 Schedule attached to the deed of conveyance also shows without
any doubt that they were set up permanently in the land in question with a view
to operate a fertilizer plant and the same was not embedded to dismantle and
remove the same for the purpose of sale as machinery at any point of time. The
facts as could be found also show that the purpose for which these machines were
embedded was to use the plant as a factory for the manufacture of fertiliser at
various stages of its production. Hence, the contention that these machines
should be treated as movables cannot be accepted.¯
6.26. Thus what can be seen from the above is that when machines are embedded
with no visible intention to dismantle them and they are intended to be used for
a fairly long period of time, they are Immoveable property.
6.27. The Appellant has claimed that the Solar Power Plant is made of
equipment which are largely moveable in nature, if required, the equipment can
be moved without any substantial damage to them, from one land parcel to
another. This may happen in cases where there is a requirement to shift the
whole Solar Power Plant from one area to another area or is being sold to a
party who intends to install/set it up in another area, the equipment installed
can be dismantled and reassembled at the new land parcel with material. It may
be true that the Solar power plant can be moved from one place to other but for
the enjoyment of the equipment or for the smooth generation of electricity the
panel is required to be affixed to the earth. Is there an intent to move the
plant from one place to other? Of course, not. There is no feasibility in moving
the plant from one place to another. There can be no intention of both the
parties to move the plant from one place to another. The fact that it can be
moved is immaterial.
6.28. The appellant has also produced a letter from the Ministry of New and
Renewable Energy Dt 3.4.2018. However, the same 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.
6.29. 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, however, would be
dutiable in normal course.¯
The clarification therefore holds the erection of plants as immoveable property
and not goods.
6.30. The appellant has submitted that the Government, as per S. No. 234 of
Notification 1/2017, has chosen to tax solar products in a particular manner:
Devices and parts
Solar power generating system all at 5%
Photo voltaic cells
Hence, the clear legislative intent is that at all levels, from part to system,
GST will be payable at 5%. and not at a significantly higher rate of 18%. The
said Notification is reproduced below:
SI. No. |
Chapter/ Heading / Subheading/ Tariff item |
Description of goods |
234. |
84, 85 or 94 |
Following renewable
energy devices & parts for their manufacture |
6.31. The 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 its facts and
circumstances. After going through the entire contract, we have come to the
conclusion that the contract leads to an erection of a Solar power generating
system which is immoveable property. Therefore, merely because a schedule entry
is provided for the same does not mean that the product would be classified in
the same.
6.32. With reference to the question of GST rate of 5% on Principal supply of Solar Power Generating System, we have already treated the transaction as a Composite supply and a Works contract falling u/s. 2(119) of the CGST Act,
2017. Para 6 of SCHEDULE II [ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR
SUPPLY OF SERVICES] treats Works contracts u/s 2(119) as supply of services.
In view thereof, there arises no occasion to go into the issue of Principal
supply.
In view of the extensive deliberation as held above, we rule as under :-
RULING
1. The said Turnkey EPC contract
is a composite supply under section 2(30) of the CGST Act, 2017. The said
composite supply falls within the definition of Works contract under section
2(119) of the CGST Act, 2017 (SAC9954) and attracts rate of tax (either 9% each
under CGST Act and RGST Act or 18% under IGST Act)
2. In view of holding the transaction as a Works contract and Para 6 of
SCHEDULE II of CGST Act treating Works contracts as supply of services ,
there arises no occasion to go into the issue of Principal supply.
Archana P. Tiwari
Member (Central Tax)
Alok Gupta
Member (State Tax)
Speed Post
RFE Solar Private Ltd., D-43, Janpath, Shyam Nagar, Jaipur, Rajasthan - 302019.
Dated.30.11.2018
F.No. IV(16)AAAR/RAJ/04/2018-19/12424-12429
Copy to
1. The Chief Commissioner of CGST , Jaipur Zone , Jaipur .
2. The Commissioner of SGST & Commercial Taxes, Kar Bhawan, Ambedkar Circle,
Rajasthan, Jaipur.
3. Deputy / Asstt. Commissioner, Central GST Division - G, Jaipur
4. STO, Ward-3, Circle-I , Jaipur Zone-Ill, Divisional Kar Bhawan, Jhalana
Instituional Area, Jaipur
5. Guard File
(Pramod Kumar Sharma)
Superintendent
Equivalent .