2018 (5) TMI 854 - AAR - GST

Classification of Service - Rate of GST - Composite supply or works contract - Nature of supply - Supply of immovable property or supply is of goods and services under a single contract to be construed as composite supply or not - supply of turnkey Engineering, Procurement and Construction ( EPC ) Contract for construction of a solar power plant - levy of GST Held that - 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. - The project would be using goods which would be imported. Are such high end equipments frequently dislocated? Would there not be damage to the materials if moved places frequently and if so, would it perform as effectively as it would have when without damage? The questions itself would give the answers. - The definition of the word Commissioning as found in the agreement brings out the enormity of the scale of operations and how the transaction would fall in the scope of an immovable property. An overview of all above makes us observe that the impugned transaction for supply of the Solar Power Plant which includes engineering, design, procurement, supply, development, testing and Commissioning is a works contract in terms of clause (119) of section 2 of the GST Act. Ruling - The plants in question were not immovable property so as to be immune from the levy of GST duty - Since the transaction is treated as a works contract and not as a composite supply , there would be no relevance of principal supply . And therefore, there arises no occasion to answer the question as to what would be the principal supply in the impugned transaction - In the absence of any documents before us, we would not be able to deal with the issue of benefit of concessional rate of 5% of solar power generation system and parts thereof.

Issues Involved:
1. Whether the supply of turnkey Engineering, Procurement, and Construction (EPC) Contract for constructing a solar power plant can be considered a Composite Supply under Section 2(30) of the CGST Act, 2017.
2. If yes, whether the Principal Supply in such a case can be said to be 'solar power generating system' which is taxable at 5% GST.
3. Whether the benefit of the concessional rate of 5% for solar power generation systems and parts thereof would also be available to sub-contractors.

Issue-Wise Detailed Analysis:

Issue 1: Composite Supply under Section 2(30) of the CGST Act, 2017
The applicant argued that the EPC contract for constructing a solar power plant should be considered a Composite Supply as it involves both goods and services bundled naturally. They contended that the principal supply in this composite supply is the solar power generating system, which should be taxed at 5% GST. The applicant presented various legal provisions, including definitions of composite supply, principal supply, and works contract under the GST Act. They also cited global jurisprudence and previous judgments to support their claim.

The Authority for Advance Ruling (AAR) observed that the contract includes engineering, design, procurement, supply, development, testing, and commissioning of the solar power plant. The AAR noted that such contracts are commonly understood to be works contracts involving supplies of goods and services. The AAR further examined whether the transaction results in an immovable property, which is a critical aspect of defining a works contract under the GST regime. The AAR referred to various judgments, including those of the Supreme Court, to understand the term 'immovable property.'

The AAR concluded that the solar power plant, once installed, becomes an immovable property as it is intended to be permanent and cannot be moved without substantial damage. Therefore, the EPC contract for constructing a solar power plant is a works contract under Section 2(119) of the GST Act. Consequently, the supply of the solar power plant cannot be considered a Composite Supply under Section 2(30) of the CGST Act, 2017.

Issue 2: Principal Supply and Tax Rate
Since the AAR determined that the EPC contract is a works contract, it is deemed a supply of services under Schedule II of the GST Act. As a result, the concept of principal supply does not apply. The AAR stated that there is no relevance to determining the principal supply in this context, and the question of whether the solar power generating system is taxable at 5% GST does not arise.

Issue 3: Concessional Rate for Sub-Contractors
The applicant sought clarification on whether the concessional rate of 5% GST for solar power generation systems and parts would be available to sub-contractors. The AAR noted that the applicant did not provide sufficient details or documents regarding the sub-contracting agreements and the nature of supplies made by the sub-contractors. Therefore, the AAR could not address this question in the present proceedings due to the lack of necessary information.

Conclusion:
1. The supply of turnkey EPC Contract for constructing a solar power plant is not considered a Composite Supply under Section 2(30) of the CGST Act, 2017; it is a works contract under Section 2(119).
2. Since the transaction is treated as a works contract, the concept of principal supply does not apply, and the question of the tax rate for the solar power generating system is irrelevant.
3. The AAR could not address the question of the concessional rate for sub-contractors due to insufficient information.

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