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2018 (10) TMI 1046 - AAR - GSTClassification of Supply - rate of tax - EPC contract for set up of solar power generating system - composite supply of solar power generating system - eligibility of solar modules to be classified as principal supply - Turnkey EPC Contract in which the Applicant is required to undertake all activities, civil or otherwise - Other EPC Contract in which the Applicant is required undertakes all activities of turnkey projects except civil work - Supply Contract - Balance of Plant Supply Contract. Whether EPC contract for set up of solar power generating system be considered as a composite supply with PV modules being the principal supply and be taxed at a rate of 5% (i.e. tax rate applicable on the P. V. modules)? Held that - The Hon. Supreme Court in the case of TTG. INDUSTRIES LTD. VERSUS COLLECTOR OF CENTRAL EXCISE, RAIPUR 2004 (5) TMI 77 - SUPREME COURT OF INDIA , while holding the machines as immovable property took into account facts such that the machines could not be shifted without first dismantling it and then re-erecting it as another site. It was also sought to distinguish as to how a concrete base meant just to prevent wobbling of the machine would not place the machine in the category of immovable property as something attached to the earth - Based on submission made by applicants, instant case is a single composite turnkey EPC contract of design, engineer, procure, transport, deliver, develop, erect, install, test and commission of project, as there is a single lump sum price for the entire contract. Hence the said EPC contract cannot be split in two separate contracts one of supply of goods and another that of services and taxed accordingly. The Solar Power Plant is a big project and has a permanent location as it is meant for onward sale of power to the consumer. Contract between an EPC contractor and the counter-party is entered into on the premise that the plant would continue to be situated at the place of construction. Such plant would therefore have an inherent element of permanency. The output of the project i.e. Electricity, would be available to an identifiable segment of 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 Power Plant cannot be shifted to any other place without dismantling the same. Further it is a tailor made system as per technical specification which cannot be sold as it is to the other person. Solar Power Plant includes civil work such as development of site, structure foundation, building cable trenches, civil work relating to invertors and control buildings, store rooms, canopies and such other civil structure and related activities as set out in Scope of work and the Technical Specifications. Civil structure cannot be dismantled and moved. Instant case is a single composite turnkey EPC contract of design, engineer, procure, transport, deliver, develop, erect, install, test and commission of project. Contracts of these kind are entered on premise to procure a functional Solar Power Plant as per specification of the owner for which there is a single lump sum price for the entire contract. Hence for convenience of contractor the said EPC contract cannot be split in two separate contracts one for supply of goods and another for supply of services and taxed accordingly. The impugned transaction for EPC Contract for 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. Since the impugned transaction for EPC Contract for the Solar Power Plant is a works contract under section 2(119) as supply of services hence question of principal supply does not arise and so GST tax rate of Solar power Generating System 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 in respect of Turnkey Composite EPC Contract includes designing, planning civil works, procurement of good, erection, testing and commissioning. Accordingly, Turnkey EPC Contract is not covered 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. 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.
Issues Involved:
1. Classification of EPC contract for solar power generating system. 2. Determination of tax rate applicable to the EPC contract. 3. Consideration of the EPC contract as a composite supply or works contract. 4. Classification of solar power generating system as movable or immovable property. 5. Applicability of Entry 234 of Schedule I of the Notification No. 1/2017 - Integrated Tax (Rate). Detailed Analysis: 1. Classification of EPC contract for solar power generating system: The applicant, M/s. Solairedirect India LLP, undertakes EPC activities for setting up solar power generating systems involving simultaneous supply of goods and services. The applicant sought to classify the supply of the solar power generating system as a composite supply with solar panels being the principal supply under HSN 8541, liable to 5% IGST. 2. Determination of tax rate applicable to the EPC contract: The applicant argued that the EPC contract should be considered a composite supply with solar panels being the principal supply, thus attracting a tax rate of 5% under Entry 234 of Schedule I of the Notification No. 1/2017 - Integrated Tax (Rate). The applicant also submitted that if the contract is not considered a composite supply, it should be split into two separate supplies of goods and services, taxed at 5% and 18% respectively. 3. Consideration of the EPC contract as a composite supply or works contract: The Authority analyzed whether the EPC contract could be classified as a composite supply or a works contract. The applicant contended that the contract should not be classified as a works contract since the solar power generating system is movable property. However, the Authority noted that the EPC contract involves designing, engineering, procurement, installation, testing, and commissioning of a functional solar power plant, which is inherently a works contract. 4. Classification of solar power generating system as movable or immovable property: The Authority examined various judicial precedents to determine whether the solar power generating system is movable or immovable property. It concluded that the solar power plant is immovable property as it cannot be shifted without dismantling and reassembling, and it is intended to be permanently located at the site for the generation and transmission of electricity. 5. Applicability of Entry 234 of Schedule I of the Notification No. 1/2017 - Integrated Tax (Rate): The Authority ruled that the EPC contract for the solar power plant does not fall under Entry 234 of Schedule I of the Notification No. 1/2017 - Integrated Tax (Rate), as this entry applies to goods, not to works contracts. The contract is classified under "Works Contract Services" (SAC 9954) and attracts an 18% tax rate under the IGST Act, or 9% each under the CGST and SGST Acts. Conclusion: The Authority concluded that the EPC contract for the solar power plant is a works contract as defined under clause (119) of section 2 of the GST Act. Consequently, the EPC contract is not covered under Entry 234 of Schedule I of the Notification No. 1/2017 - Integrated Tax (Rate). Instead, it falls under "Works Contract Services" (SAC 9954) and attracts an 18% tax rate under the IGST Act, or 9% each under the CGST and SGST Acts. Ruling: The "Turnkey EPC Contract" for the solar power plant, including designing, planning, civil works, procurement of goods, erection, testing, and commissioning, is classified as a works contract service. It is not covered under Entry 234 of Schedule I of the Notification No. 1/2017 - Integrated Tax (Rate) and attracts an 18% tax rate under the IGST Act, or 9% each under the CGST and SGST Acts.
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