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2018 (9) TMI 1183 - AAAR - GSTRate of tax - supply and setting up of solar power generating system - Composite supply - 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? - Challenge to AAR decision. Held that - It is seen that there is a single contract for supply of 60 MW/81 MW Solar Power Plant in the State of Karnataka and the owner has appointed the appellant for supply of the Solar Power Plant which as per (B) of the agreement includes engineering, design, procurement, supply, development, testing and commissioning of the Plant as per Scope defined in the Schedule of the Contract - The contract fulfills 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 fulfill the intention of the buyer in giving the contract. The supply of goods and services are provide 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 Supply to the appellant and therefore it is single composite supply of goods and services and installation thereof. 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 . Thus, 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 - the order of AAR is differed with. Immovable property - what would be the principal supply and whether it would be a supply of services or supply of goods? - Held that - 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 ARA that the Agreements made lead to the erection of a Solar Power generating System. 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? - Held that - We have treated the transaction as a Composite supply and a works contract falling u/s. 2(119) of the CGST Act, 2017 and 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 - there arises no occasion to go into the issue of principle supply . Whether benefit of concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors? - Held that - 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. Order Supply of the said turnkey EPC contract is a composite supply u/s.2(30) of the CGST Act, 2017. The said composite supply falls within the definition of works contract u/s.2(119) of the CGST Act, 2017. We have treated the transaction as a Composite supply and a works contract falling u/s. 2(119) of the CGST Act, 2017 and 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 principle supply .
Issues Involved:
1. Condonation of Delay 2. Whether the contract for supply/construction of a solar power plant is a composite supply or a works contract 3. Principal Supply determination and applicable GST rate 4. Applicability of concessional rate to sub-contractors Condonation of Delay: The appellant filed the appeal within one month of the formation of the Appellate Authority in Maharashtra, which was constituted on 10.05.2018. The delay was condoned because the appellant had filed letters within 30 days of the advance ruling communication. Issue 1: Composite Supply vs. Works Contract: The appellant argued that the contract for setting up a solar power plant should be treated as a composite supply under Section 2(30) of the CGST Act, 2017, with the principal supply being the solar power generating system (SPGS), taxable at 5%. The contract involves the supply of goods and services, including design, engineering, procurement, installation, and commissioning of the solar power plant. The Authority for Advance Ruling (AAR) had previously ruled that the contract is a works contract, which is treated as a supply of services under Schedule II of the CGST Act, taxable at 18%. The appellant contended that the SPGS is movable and not an immovable property, hence should not be classified as a works contract. Findings: The appellate authority analyzed the contract and concluded that it is indeed a composite supply as it involves naturally bundled goods and services supplied in conjunction with each other. However, the authority also agreed with the AAR that the contract results in the erection of an immovable property, thus qualifying as a works contract under Section 2(119) of the CGST Act. The authority cited various judicial precedents and the nature of the project, which includes significant groundwork, soil testing, and construction, indicating an inherent element of permanency. Issue 2: Principal Supply and GST Rate: Since the contract is classified as a works contract, it is treated as a supply of services under Schedule II of the CGST Act. Therefore, the question of determining the principal supply does not arise, and the entire contract is taxable at 18%. Issue 3: Concessional Rate for Sub-Contractors: The AAR had not dealt with this question due to the absence of documents. The appellate authority also refrained from addressing this issue in the absence of relevant documents. Conclusion: 1. The contract for setting up a solar power plant is a composite supply but falls under the definition of a works contract, taxable at 18%. 2. The question of principal supply does not arise as the contract is treated as a works contract. 3. The applicability of the concessional rate to sub-contractors was not addressed due to the lack of documents. Order: 1. The EPC contract is a composite supply under Section 2(30) of the CGST Act, 2017, but it falls within the definition of works contract under Section 2(119) of the CGST Act, 2017. 2. The contract is taxable as a supply of services at 18%. 3. The issue of concessional rate for sub-contractors was not addressed due to the lack of documents.
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