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2019 (11) TMI 995 - AAR - GSTSeparate taxability of goods and services - separate contracts for supply of goods and services for a solar power plant - Composite supply or not - whether there would be separate taxability of goods as Solar Power Generating System at 5% and services at 18%? - parts supplied on standalone basis (when supplied with PV modules) - concessional rate of duty - benefit of concessional rate of duty to sub-contractors also or not? Whether in case of separate contracts for supply of goods and services for a solar power plant, there would be separate taxability of goods as Solar Power Generating System at 5% and services at 18%? - HELD THAT - The performance of the EPC contractor in relation to the supply of goods and supply of services related to the installation and commissioning of the goods are so intricately woven that they cannot be evaluated in isolation from each other. This indivisible nature of the total supply imparts the entire contract the nature of a works contract - The answer to the first question is that for the period up to 31.12.2018 the EPC contract is required to be considered as a works contract and has to be taxed accordingly. The artificial vivisection into two contracts, as envisaged, shall not rob the contract of its essential nature of a works contract. Whether parts supplied on standalone basis (when supplied with PV modules) would also be eligible to concessional rate of 5% as parts of solar power generation system?- HELD THAT - Notification No. 1/2017 - Central Tax (Rate) dated 28.06.2017 provides that items covered under Chapters 84 or 85 which constitute renewable energy devices and parts required for their manufacture are covered under the aforesaid entry no. 234 and are liable to be taxed at 5% - This essentially implies that those parts are liable to 5% tax only if they go into the manufacture of the Solar power generating system. Whether benefit of concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors? - HELD THAT - Entry No. 234 in Schedule I to Notification No. 1/2017 - Central Tax (Rate) dated 28.06.2017 does not differentiate between supplies by the contractor or the sub-contractor. It provides that as long as the goods falling under Chapter 84 or 85 are the listed renewable energy devices and parts for their manufacture the rate of tax applicable shall be 5%. It further means that the contract with the sub-contractor has to be for the supply of the solar power generating system.
Issues Involved:
1. Separate taxability of goods and services in solar power plant contracts. 2. Concessional tax rate for parts supplied on a standalone basis. 3. Availability of concessional tax rate to sub-contractors. Detailed Analysis: Issue 1: Separate Taxability of Goods and Services in Solar Power Plant Contracts The applicant, engaged in setting up solar power plants, sought clarity on whether separate contracts for goods and services would attract different tax rates. The authority examined the nature of the EPC (Engineering, Procurement, and Commissioning) contract, which involves designing, sourcing, constructing, and commissioning the power plant. The authority determined that such contracts are inherently "works contracts" as defined under Section 2(119) of the CGST Act, 2017, which involves the transfer of property in goods and services related to immovable property. The authority concluded that the EPC contract cannot be artificially divided into separate contracts for goods and services, and thus, the entire contract should be treated as a works contract, taxable under item (ii) of entry no. 3 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 up to 31.12.2018. From 01.01.2019, the contract is taxable on the values separately worked out for goods and services under entry no. 38 of Notification No. 11/2017-Central Tax (Rate) and Entry No. 234 of Schedule I of Notification No. 1/2017-Central Tax (Rate). Issue 2: Concessional Tax Rate for Parts Supplied on a Standalone Basis The applicant inquired whether parts supplied on a standalone basis, when supplied with PV modules, would be eligible for a concessional tax rate of 5%. The authority referred to Notification No. 1/2017-Central Tax (Rate), which specifies that renewable energy devices and parts for their manufacture falling under Chapters 84 or 85 are taxable at 5%. The authority affirmed that parts supplied on a standalone basis would be eligible for the concessional rate of 5% as long as they are parts of the solar power generating system. Issue 3: Availability of Concessional Tax Rate to Sub-Contractors The applicant sought clarity on whether sub-contractors would also be eligible for the concessional tax rate of 5% on parts of the solar power generating system. The authority referred to Entry No. 234 in Schedule I to Notification No. 1/2017-Central Tax (Rate), which does not differentiate between supplies by the contractor or the sub-contractor. It was concluded that the concessional rate of 5% would be available to sub-contractors if the sub-contract is solely for the supply of goods. However, if the entire EPC contract is sub-contracted, the rate of tax applicable would be the same as that applicable to the main contractor. Ruling: 1. The EPC contract is considered a works contract under section 2(119) of the CGST Act and is taxable accordingly up to 31.12.2018. From 01.01.2019, it is taxable on the values separately worked out for goods and services. 2. Parts supplied on a standalone basis (when supplied with PV modules) are eligible for a concessional tax rate of 5%. 3. The concessional rate of 5% is available to sub-contractors if the sub-contract is only for the supply of goods. If the entire EPC contract is sub-contracted, the tax rate applicable to the main contractor applies.
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