2018 (6) TMI 1127 - AAR - GST

Levy of GST - Composite supply - natural bundle of services - Sub-contract - Whether supply of turnkey 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? - If Yes, Whether the Principal Supply in such case can be said to be Solar Power Generating System which is taxable at 5% GST? - Whether benefit of concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors? Whether supply of turnkey 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? - Held that - The different goods and /or services supplied should be naturally bundled. However here the draft contract opens up the question whether such supplies are indeed bundled or not. The draft contract clearly demonstrates that in such projects the owner can procure the major equipments involved on their own also and the contractor may carry out the supply and services portion in respect of the remaining portion. Thus the concept of natural bundling does not apply to the present envisaged supply. In other words the envisaged supply does not constitute a composite supply - upon examination of the specific nature of the supply envisaged under the draft contract we conclude that the envisaged supply does not amount to 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 - The answer to this question flows from the answer to the first question. During the examination of the first question it is borne out that the major component of PV Modules is procured by the owner himself. Therefore the same cannot be construed as a principal supply by the applicant. Therefore this question does not remain relevant. Whether benefit of concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors? - Held that - The sub-contractor is an individual supplier and the rate of GST applicable depends on the type of supply and no concessional rate of GST is provided to sub-contractor on the basis of main contractor. Hence the supply made by sub-contractor need to be viewed as an individual supply and thereby the appropriate rate of GST has to be applied. Ruling - The major component (PV Module) said to have been constituting 70% of the whole project can not be construed to be supplied by the applicant consequent upon High Sea Sale of the said product and hence it cannot be construed to be a principal supply of the project and thereby cannot be a composite supply The supply made by sub-contractor need to be viewed as an individual supply and thereby the appropriate rate of GST has to be applied depending on the specific nature of supply.

Issues Involved:
1. Whether the supply of turnkey Engineering, Procurement & Construction (EPC) Contract for the construction of a solar power plant can be construed as a Composite Supply under Section 2(30) of the CGST Act, 2017.
2. If yes, whether the Principal Supply in such a case can be said to be 'Solar Power Generating System' taxable at 5% GST.
3. Whether the benefit of the concessional rate of 5% for solar power generation systems and parts thereof would also be available to sub-contractors.

Detailed Analysis:

Issue 1: Composite Supply
Findings:
- Definition and Criteria: Composite Supply is defined under Section 2(30) of the CGST Act, 2017 as a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is the principal supply.
- Contract Examination: The Applicant’s draft contract shows that the major component (PV modules) is imported and directly transferred to the owner by way of High Sea Sale. This means the legal title of the goods shifts to the owner, and the Bill of Entry to clear goods from Customs is filed by the owner, not the Applicant.
- Free Issue Equipment: As per the contract, PV modules are supplied by the owner to the contractor as free issue equipment at the plant site for installation and commissioning. Thus, the contractor does not supply the PV modules.
- Conclusion: Since the major component (PV modules) is supplied by the owner, the contractor cannot claim to supply the principal component. Therefore, the supply does not qualify as a composite supply as the supplies are not naturally bundled.

Issue 2: Principal Supply
Findings:
- Principal Supply Definition: Section 2(90) defines principal supply as the supply of goods or services which constitutes the predominant element of a composite supply.
- Relevance: Given the conclusion that the supply does not constitute a composite supply, the question of identifying a principal supply is irrelevant.
- Conclusion: The major component (PV modules) is procured by the owner, and thus, it cannot be construed as the principal supply by the Applicant.

Issue 3: Concessional Rate for Sub-contractors
Findings:
- Individual Supply: The sub-contractor is an individual supplier, and the rate of GST applicable depends on the type of supply.
- Concessional Rate: No concessional rate of GST is provided to sub-contractors based on the main contractor's supply.
- Conclusion: The supply made by sub-contractors needs to be viewed as individual supplies, and the appropriate rate of GST has to be applied depending on the specific nature of the supply.

Ruling:
1. Composite Supply: The major component (PV Module) constituting 70% of the whole project cannot be construed to be supplied by the Applicant due to the High Sea Sale of the product. Hence, it cannot be a principal supply of the project and thereby cannot be a composite supply.
2. Principal Supply: The question is irrelevant due to the answer to question number 1.
3. Sub-contractors: The supply made by sub-contractors needs to be viewed as individual supplies, and the appropriate rate of GST has to be applied depending on the specific nature of the supply.

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