2018 (9) TMI 1333 - AAR - GST

Rate of tax on supply of goods/services/both - Solar Power Generating Systems and parts - Works Contract - Whether Supply, commissioning, installation and maintenance of Solar Water Pumping System would be taxable at the rate of 5% considering it as a composite supply where the principle supply being that of goods i.e. supply of Solar Power generating system having HSN Code 84 or 85? - Whether separate bills can be raised by the Applicant with respect to Supply and Goods and Supply of Services Purely in respect of the contract of the Applicant with RHDS enclosed herewith? - Will the said transaction be classified as a Works Contract and taxable at the rate of 18% being Supply of Services? Held that - Solar Photovoltaic (SPV) water pumping system has a permanent location (at specified farmer s field in Rajasthan) as its works is undertaken on instructions of the Rajasthan Horticulture Development Society under subsidy scheme wherein the Solar Water Systems are required to be installed at the farmer s field meant for supply of water using solar energy. Such plant would therefore have an inherent element of permanency - The output of the project i.e. water, using solar energy would be available to an identifiable consumer. 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 Solar Photovoltaic (SPV) water pumping system cannot be shifted to any other place without dismantling the same. Further it is tailored made system which cannot be sold as it is to the other person. Contract also includes civil work such as development of site, structure foundation for mounting PV modules on metallic structures and fencing of the system to ensure security and safety and such other civil structure related activities as set out in Scope of work and in the Technical Specifications. Civil structure cannot be dismantled and moved away. The applicant has to supply a Functional Solar Photovoltaic (SPV) water pumping system as a whole which includes supply, installation and commissioning, maintenance for 10 years, hence instant transaction is neither a supply of i) Solar Power Generating System and nor a supply of ii) Solar Power Based Devices - the above entry under the notification describes the Tax rate on Goods . If the transaction is supply of goods i.e. supply of either Solar Power Generating System or supply of Solar Power Based Devices then the applicable Schedules would have to be seen but the intent of parties in instant case is always for supply of a Functional Solar Photovoltaic (SPV) water pumping system as a whole which includes supply, installation and commissioning at the site of farmer along with maintenance for 10 years and is not chattel sold as chattel. Hence cannot be treated as Composite Supply as contended by the applicant. The impugned transaction for supply of Solar Photovoltaic (SPV) water pumping system which includes procurement, supply, development, testing, commissioning and providing maintenance service for 10 years is a works contract in terms of clause (119) of section 2 of the GST Act - Since the impugned transaction for supply and commissioning of Solar Photovoltaic (SPV) water pumping system is a works contract u/s 2(119) as supply of services, hence question of principal supply does not arise and so GST tax rate of Solar power Generating System or Solar Power Based Devices under notification No 01/2017-CT (Rate) dated 28.06.2017, at S.No. 234, under HSN Classification 84, 85 and 94 is not applicable. Ruling The scope of work includes procurement, supply, development, testing, commissioning and providing maintenance service for 10 years in respect of supply of a Solar Photovoltaic (SPV) water pumping system. Accordingly it is not getting covered under supply of Solar Power Generating System under Entry 234 of Schedule I of the Notification no. 1/2017 - Central Tax (Rate), dated 28th of June, 2017 under HSN code 84 or 85. Supply, installation, commissioning and maintenance of Solar Water Pumping Systems falls under the purview of Works Contract as per Section 2(119) of GST Act. In instant case as per terms and conditions of agreement, it is a single contract of supply, installation, commissioning and maintenance of Solar Water Pumping Systems and hence cannot be split in two separate contracts. Hence in instant case separate bills for supply of goods and supply of services cannot be raised. The contract for supply, installation, commissioning and maintenance of Solar Water Pumping Systems falls under the ambit of Works Contract Services which comes under the purview of Works Contract as per Section 2(119) of CGST Act and attracts 18% rate of tax under IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%.

Summary

Issues Involved:
1. Taxability of supply, commissioning, installation, and maintenance of Solar Water Pumping System.
2. Classification of the transaction as a composite supply or works contract.
3. Applicability of GST rates.
4. Feasibility of raising separate bills for supply of goods and services.

Issue-wise Detailed Analysis:

1. Taxability of Supply, Commissioning, Installation, and Maintenance of Solar Water Pumping System:
The applicant, a partnership firm engaged in the supply, commissioning, installation, and maintenance of Solar Water Pumping Systems, sought clarity on the applicable GST rate. They argued that their services should be taxed at 5% under Chapter 84/85 as "Solar Power Generating System." However, the Authority for Advance Ruling (AAR) observed that the contract involved a comprehensive scope of work, including procurement, supply, development, testing, commissioning, and maintenance for 10 years, which indicated a works contract.

2. Classification of the Transaction as a Composite Supply or Works Contract:
The applicant contended that the transaction should be classified as a composite supply with the principal supply being the Solar Water Pumping System, thus attracting a 5% GST rate. However, the AAR noted that the transaction involved a single lump sum price for the entire work and included elements of civil work, installation, and commissioning, which are indicative of a works contract. The AAR referenced multiple judicial precedents, including the Supreme Court's rulings in Sirpur Paper Mills Ltd. and Solid & Correct Engg. Works, to conclude that the transaction resulted in immovable property, thus classifying it as a works contract.

3. Applicability of GST Rates:
The AAR ruled that the transaction did not fall under the category of "Solar Power Generating System" or "Solar Power Based Devices" as contended by the applicant. Instead, it was classified as a works contract under Section 2(119) of the GST Act, attracting an 18% GST rate (9% CGST and 9% SGST).

4. Feasibility of Raising Separate Bills for Supply of Goods and Services:
The applicant sought clarification on whether they could raise separate bills for the supply of goods and services. The AAR opined that the contract was a single, indivisible contract for the supply, installation, commissioning, and maintenance of the Solar Water Pumping System. Therefore, separate billing for goods and services was not permissible.

Ruling:
1. The supply, installation, commissioning, and maintenance of Solar Water Pumping Systems fall under the purview of works contract as per Section 2(119) of the GST Act and do not qualify as the supply of "Solar Power Generating System" under Entry 234 of Schedule I of Notification No. 1/2017 - Central Tax (Rate), dated 28th June 2017.
2. The contract cannot be split into separate contracts for supply and services, and separate bills for goods and services cannot be raised.
3. The contract for the supply, installation, commissioning, and maintenance of Solar Water Pumping Systems is classified as a works contract service, attracting an 18% GST rate under the IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%.