2021 (1) TMI 540 - AAR - GST

Classification of supply - Composite supply or not - EPC contract for complete design, engineering, manufacture, procurement, testing, inspection and complete erection and commissioning of solar power generating system (SPGS) - supply of PV Modules/Inverters or any supply covered under Chapter Heading 84, 85 or 94 of the Central Tax Notification, principal supply or not - In case, the Principal Supply be treated as 'supply of PV Modules/Inverters' or any other supply covered under Chapter Heading 84, 85 or 94 of Central Tax Notification, whether the concessional rate of 5% be applicable on the entire value of the contract i.e. supply of SPGS? HELD THAT - The applicant Hero Solar Energy Pvt. Ltd. is engaged in the business of setting up of Solar Power Generating System (SPGS) on turnkey basis. Turnkey project is a project whereby the contractor agrees to fully design, construct and equip a facility ready to be used by the contractee. The applicant supplies, designs, installs, erect and commission SPGS for its customers. The SPGS installed by the applicant are in the form of Solar Rooftop Plant and Ground Mounted Solar Power Plant. The applicant had earlier filed an application for Advance Ruling dated 29.05.2018. But the issue on which ruling was sought was different from the issue at hand in this application. (i) The supply of Solar Power Generating System along with other goods and service of designing, erection, commissioning installation of the same is classified under SI no. 234 of Notification No.1/2017-Central Tax (Rate) dated 28.6.2017 as amended vide Notification no. 24/2018-Central Tax (Rate) dated 31.12.2018 and Si no. 38 inserted in Notification no. 11/2017-Central Tax (Rate) dated 28.6.2017 vide Notification no. 27/2018-Central Tax (Rate) dated 31.12.2018. (ii) The supply of goods along with service of designing, erection, commissioning installation of Solar Power Generating System along with other goods is covered under SI No. 234 of Notification No.1/2017-Central Tax (Rate) dated 28.6.2017 as amended vide Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018 and SI No. 38 inserted in Notification No. 11/2017- Central Tax (Rate) dated 28.6.2017 vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018.

Summary

Issues Involved:
1. Classification of the EPC contract for Solar Power Generating System (SPGS) as a 'Composite Supply'.
2. Determination of the 'Principal Supply' within the EPC contract.
3. Applicability of concessional GST rate on the entire value of the EPC contract for SPGS.

Issue-wise Detailed Analysis:

1. Classification of the EPC contract as a 'Composite Supply':
The Applicant, Hero Solar Energy Pvt. Ltd., proposed to enter into a turnkey contract for setting up SPGS, which includes supply of PV Modules, Inverters, Cables, Connectors, and other ancillary goods, along with designing, engineering, erection, installation, and commissioning services. The contract is for a lump sum price. The Applicant sought an advance ruling on whether this EPC contract would result in a 'Composite Supply' as defined in Section 2(30) of the CGST Act, 2017. Initially, the Advance Ruling Authority held that the transaction is a 'works contract' under Section 2(119) of the CGST Act and thus taxable at 18%. However, subsequent amendments by Notification No. 24/2018 and Notification No. 27/2018 clarified that if the goods specified in the entry are supplied along with services, 70% of the gross value shall be deemed as the value of supply of goods attracting 5% GST, and the remaining 30% shall be deemed as the value of taxable service attracting standard GST rate.

2. Determination of the 'Principal Supply':
The Applicant inquired whether the supply of PV Modules/Inverters or any supply covered under Chapter Heading 84, 85, or 94 of the Central Tax Notification would be treated as 'Principal Supply'. The Advance Ruling Authority initially did not address this due to the classification of the transaction as a 'works contract'. However, with the amended notifications, it was clarified that the supply of SPGS along with other goods and services would be covered under SI No. 234 of Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017, as amended, and SI No. 38 inserted in Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.

3. Applicability of concessional GST rate on the entire value of the EPC contract:
The Applicant sought clarity on whether the concessional rate of 5% would be applicable on the entire value of the contract for the supply of SPGS. The amended notifications clarified that 70% of the gross consideration charged for the EPC contract shall be deemed as the value of supply of goods attracting 5% GST, and the remaining 30% shall be deemed as the value of taxable service attracting 18% GST. This bifurcation ensures that the concessional rate applies to the supply portion of the contract while the service portion is taxed at the standard rate.

Ruling:
The Authority ruled affirmatively on the Applicant's queries, stating:
1. The supply of SPGS along with other goods and services of designing, erection, commissioning, and installation is classified under SI No. 234 of Notification No. 1/2017-Central Tax (Rate) as amended and SI No. 38 inserted in Notification No. 11/2017-Central Tax (Rate).
2. The supply of goods along with services of designing, erection, commissioning, and installation of SPGS is covered under the aforementioned notifications, with 70% of the gross consideration attracting 5% GST and the remaining 30% attracting 18% GST.

Conclusion:
The judgment clarified the classification and taxability of the EPC contract for SPGS, ensuring that the supply of goods within the contract benefits from the concessional GST rate, while the service portion is taxed at the standard rate. The amendments brought clarity and resolved disputes regarding the GST rates applicable to such composite supplies.