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2019 (10) TMI 948 - AAR - GSTClassification of supply - Composite supply or not - Whether the supply of turn-key Engineering, Procurement Construction (EPC) Contract for construction of 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 CGST Act, 2017? - taxable at 5% GST. HELD THAT - In the pertinent case, it is clear that the applicant is making a supply which consists of supplies of goods and supplies of services which are naturally bundled and supplied in conjunction with each other in the ordinary course of business and one of which is a principal supply. Hence this is a composite supply. Taxability of EPC contract of Solar Power Generating System - HELD THAT - The Solar Power Generating System is goods and if it is supplied as goods would attract the tax at the rate of 5% (2.5% CGST and 2.5% SGST) as per entry no. 234 of Schedule I of Notification No. 1/2017 - Central Tax (Rate) dated 28.06.2017. But in the pertinent case, what is supplied is not goods as such. It is a composite supply involving a creation of an immovable property which is part of the contract of setting up of a Solar Power Generating System and hence would be covered under Works Contract. This is distinguished in the above two entries and hence the work proposed to be done by the applicant is squarely covered under serial no. 38 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as amended by as amended by Notification No. 27/2018 -Central Tax (Rate) dated 31.12.2018 and attracts tax as per that entry and not under Serial No.234 of Schedule I of Notification No. 1/2017 - Central Tax (Rate) dated 28.06.2017. The contention of the applicant that the solar power plant is not an immovable property is not acceptable for the reason that all the components cannot be recovered on retrieval of the plant and without those elements the solar power plant cannot be stated to work properly. What can be retrieved without cannibalization is only the solar panels and certain other elements which are only part of the entire project and hence the contention of the applicant cannot be accepted.
Issues Involved:
1. Whether the supply of turn-key Engineering, Procurement & Construction (EPC) Contract for 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 CGST Act, 2017. 2. Whether the supply of ‘Solar Power Generating System’ is taxable at 5% GST. Issue-wise Detailed Analysis: 1. Composite Supply under Section 2(30) of CGST Act, 2017: The applicant, a private limited company engaged in EPC contracts for solar power plants, sought clarification on whether their contract qualifies as a composite supply. The applicant argued that their contracts involve a majority of goods (80-85%) and a minority of services (15-20%), which should be considered incidental. They cited Section 2(30) of the CGST Act, which defines composite supply as a supply comprising two or more naturally bundled taxable supplies, with one being the principal supply. The applicant believed that the principal supply in their case is the supply of goods, thereby qualifying the entire contract for a 5% GST rate applicable to solar power generating systems. 2. Taxability of Solar Power Generating System at 5% GST: The applicant referenced Notification No. 1/2017-Central Tax (Rate) dated 28th June 2017, which lists solar power generating systems under headings 84, 85, or 94, attracting a 5% GST rate. They argued that since the notification considers the entire solar power generating system as goods, the services incidental to the supply of these goods should not alter the GST rate. The applicant further contended that their activity should not be considered a works contract, as defined under Section 2(119) of the CGST Act, because the solar power plant is movable property. Discussion and Findings: Composite Supply: The Authority examined the applicant's contract, which involves designing, engineering, procurement, construction, installation, commissioning, and maintenance of solar power plants. The contract was found to be a composite supply as it consists of multiple taxable supplies of goods and services that are naturally bundled and supplied together in the ordinary course of business, with the principal supply being the solar power generating system. Works Contract: The Authority noted that under Section 2(119) of the CGST Act, a works contract involves the construction of immovable property. The applicant's contract, which includes civil works and the establishment of a solar power generating system, results in the creation of immovable property. Thus, the contract qualifies as a works contract. Taxability: The Authority referred to Serial No. 38 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, which covers services related to the installation of solar power generating systems and attracts a 9% CGST rate. From 01.01.2019, the contract is taxable based on the values worked out separately for goods and services under both entry no. 38 of Notification No. 11/2017 and entry no. 234 of Schedule I of Notification No. 1/2017, as amended by subsequent notifications. Ruling: 1. The supply of turnkey EPC contracts for the construction of solar power plants, involving both goods and services, is a composite supply under Section 2(30) of the CGST Act, 2017. 2. The applicant's contract is covered under works contract as defined in Section 2(119) of the CGST Act. For the period up to 31.12.2018, it is taxable under entry no. 3 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. From 01.01.2019, it is taxable under entry no. 38 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 and entry no. 234 of Schedule I of Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017, with values as per the provided explanation.
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