2018 (5) TMI 963 - AAR - GST

Works Contract - Separate taxability for goods and services - rate of tax - Concessional rate of duty - classification of future contract - Whether in case of separate contracts for supply of goods and services for a solar power plant, there would be separate taxability of goods as 'solar power generating system' at 5% and services at 18%? - Held that - works contracts u/s 2(119) being deemed to be a supply of services, the impugned agreements represent transactions of the nature of a supply of service - The agreements tendered in support of this question reveal that the impugned transaction of setting up and operation of a solar photovoltaic plant is in the nature of a works contract in terms of clause (119) of section 2 of the GST Act. 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' - depending upon the nature of supply, intra-State or inter-State, the rate of tax would be governed by the entry no.3(ii) of the Notification No.8/2017-Integrated Tax (Rate) under the Integrated Goods and Services Tax Act, 2017 (IGST Act) or the Notification no. 11/2017 - Central Tax / State Tax (Rate) under the CGST Act and MGST Acts. The rate of tax would be 18% under the IGST Act and 9% each under the CGST Act and the MGST Act, aggregating to 18% of CGST and MGST. Whether parts supplied on standalone basis (when supplied without PV modules)would also be eligible to concessional rate of 5% as parts of solar power generation system? - applicant argues that since the concessional rate of 5% as clarified to be under Notification no. 1/2017-Integrated Tax (Rate) is provided to renewable energy products and parts thereof, the same should be applicable to all suppliers providing such products - Held that - sr. no.234 of Schedule I of Notification No.1/2017 - Integrated Tax (Rate) under the Integrated Goods and Services Tax Act, 2017 (IGST Act) which states is under the notification prescribing the tax rate on 'goods' - We have to observe that the facts of the transactions have to be seen in terms of what the sub-contracting agreement says, what has been supplied, whether the item supplied is a part. Such and many other questions have to be answered. No details have been brought before us. If the transaction is a supply of goods then the applicable Schedules (exempt or taxable) would have to be seen - In the absence of any documents before us, we would not be able to deal with this question in the present proceedings. Whether benefit of concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors? - Held that - If the transaction is a supply of goods then the applicable Schedules (exempt or taxable) would have to be seen. No details have been brought before us. Further, the question would have to be posed by the supplier who would be the sub-contractor - In the absence of any documents before us, we would not be able to deal with this question in the present proceedings. Ruling - Depending upon the nature of supply, intra-State or inter-State, the rate of tax would be governed by the entry no.3(ii) of the Notification No.8/2017-lntegrated Tax (Rate) under the Integrated Goods and Services Tax Act, 2017 (IGST Act) or the Notification no.11/2017 -Central Tax/State Tax (Rate) under the CGST Act and MGST Acts. The rate of tax would be 18% under the IGST Act and 9% each under the CGST Act and the MGST Act, aggregating to 18% of CGST and MGST.

Summary

Issues Involved:
1. Separate taxability of goods and services in solar power plant contracts.
2. Eligibility of concessional rate for parts supplied on a standalone basis.
3. Availability of concessional rate benefit to sub-contractors.

Detailed Analysis:

Issue 1: Separate Taxability of Goods and Services
The applicant, engaged in setting up solar power plants, entered into separate contracts for the supply of goods and services. The question was whether these contracts should be taxed separately, with goods as 'solar power generating system' at 5% and services at 18%.

Findings:
- The agreements were examined to determine whether they constituted separate contracts for goods and services or a composite supply.
- The first agreement, titled "AGREEMENT FOR SUPPLY OF SOLAR POWER GENERATING SYSTEM," was found to involve not just the supply of goods but also services like design, engineering, and implementation, indicating it was a "works contract."
- The second agreement, titled "Engineering and Construction Agreement," also involved both goods and services, including construction and commissioning, making it a "works contract."
- Both agreements, when read together, were for setting up a single solar power plant and constituted a "works contract" as defined in clause (119) of section 2 of the GST Act.

Conclusion:
The transaction of setting up and operating a solar photovoltaic plant is a "works contract" and is treated as a supply of services under Schedule II of the GST Act. The applicable tax rate is 18% under the IGST Act or 9% each under the CGST Act and MGST Act, aggregating to 18%.

Issue 2: Concessional Rate for Parts Supplied Standalone
The applicant sought clarification on whether parts supplied independently, without PV modules, would be eligible for the concessional rate of 5% as parts of the solar power generation system.

Findings:
- The applicant referenced Notification No.1/2017-Integrated Tax (Rate), which provides a concessional rate of 5% for renewable energy devices and parts for their manufacture.
- The question was whether standalone parts would qualify for this concessional rate.

Conclusion:
Due to the lack of specific documents and details about the transactions, the authority was unable to provide a definitive answer on this issue within the present proceedings.

Issue 3: Concessional Rate Benefit for Sub-Contractors
The applicant inquired whether the concessional rate of 5% for solar power generation systems and their parts would also apply to sub-contractors.

Findings:
- The applicant argued that the concessional rate should be extended to all suppliers, including sub-contractors, as long as the parts are used in solar power generation systems.
- The claim was based on the provisions of Notification No.1/2017-Integrated Tax (Rate).

Conclusion:
Similar to Issue 2, the lack of specific documents and details precluded the authority from addressing this question in the present proceedings. The question would need to be posed by the sub-contractors themselves with appropriate documentation.

Order:
1. Separate Taxability: The agreements are considered "works contracts" and are treated as a supply of services, taxable at 18%.
2. Standalone Parts: Unable to determine eligibility for the concessional rate due to lack of documents.
3. Sub-Contractors: Unable to determine applicability of the concessional rate due to lack of documents.