2019 (3) TMI 920 - AAAR - GST

Classification of supply - supply of goods or services - works contract or not - contract for Erection, Procurement and Commissioning of Solar Power Plant - HSN Classification - rate of tax - Held that - 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. Solar Power Generating System , whether movable property of immovable property? - Held that - After going through the entire contract, it is concluded that the contract leads to an erection of a Solar power generating system which is immoveable property. Therefore, merely because a schedule entry is provided for the same does not mean that the product would be classified in the same. 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 - With reference to the question of GST rate of 5% on Principal supply of Solar Power Generating System , we have already treated the transaction as a Composite supply and a Works contract falling u/s. 2(119) of the CGST Act, 2017. 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 Principal supply .

Summary

Issues Involved:

1. Classification of the contract for Erection, Procurement, and Commissioning (EPC) of Solar Power Plant as Supply of Goods or Supply of Services.
2. Determination of the HSN classification and rate of tax if classified as Supply of Goods.
3. Determination of the HSN classification and rate of tax if classified as Supply of Services.
4. Whether the Solar Power Plant constitutes movable or immovable property.
5. Determination of whether the contract is a composite supply and the principal supply therein.

Detailed Analysis:

1. Classification of the EPC Contract:

The appellant argued that the contract for EPC of Solar Power Plant should be classified as a composite supply of goods and services, with the principal supply being the Solar Power Generating System (SPGS), thus taxable at 5%. The Authority for Advance Ruling (AAR) had earlier classified the contract as a Works Contract under Section 2(119) of the GST Act, attracting an 18% tax rate.

The appellate authority examined the contract and concluded that it involved both goods and services, naturally bundled and supplied in conjunction with each other, fulfilling the definition of a composite supply under Section 2(30) of the CGST Act. However, it affirmed the AAR's decision that the contract falls under the definition of Works Contract as per Section 2(119) of the GST Act, thus taxable at 18%.

2. HSN Classification and Rate of Tax if Supply of Goods:

Since the contract was classified as a Works Contract and not purely as a supply of goods, this issue was not separately addressed in the judgment.

3. HSN Classification and Rate of Tax if Supply of Services:

The contract was classified under "Works Contract Services" (SAC 9954) as per Notification No. 11/2017-Central Tax (Rate) dated 28 June 2017, attracting an 18% tax rate under the IGST Act or 9% each under the CGST and SGST Acts.

4. Movable or Immovable Property:

The appellate authority examined whether the SPGS constitutes movable or immovable property. It referred to various legal precedents and the nature of the installation process, which involves significant groundwork, soil surveys, and permanent structures. The authority concluded that the SPGS is immovable property due to its permanent nature and the impracticality of moving it without substantial damage.

5. Composite Supply and Principal Supply:

The appellate authority determined that the contract is a composite supply, as it involves multiple supplies of goods and services naturally bundled together. However, since the contract was classified as a Works Contract, which is treated as a supply of services under Schedule II of the CGST Act, there was no need to separately determine the principal supply.

Ruling:

1. The Turnkey EPC contract is classified as a composite supply under Section 2(30) of the CGST Act, 2017, falling within the definition of Works Contract under Section 2(119) of the CGST Act, 2017 (SAC 9954), attracting a tax rate of 18% (either 9% each under CGST and RGST Acts or 18% under IGST Act).

2. Since the transaction is treated as a Works Contract and Schedule II of the CGST Act classifies Works Contracts as a supply of services, there is no need to determine the principal supply.