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2021 (4) TMI 614 - AAR - GSTClassification of supply of goods - Aluminium Foil Type Winding Inverter Duty Transformer - classifiable under Chapter Heading 8504 or not - parts of Transformer supplied / to be supplied for initial setting up of solar project falls under Sr. No. 234 in Schedule-I to Notification No. 01/20017-Central Tax (Rate) dated 28th June, 2017 or otherwise - rate of tax. HELD THAT - The components of the solar power plant which are essential for setting up of the power plants would also be eligible for the benefits provided to the solar power plant. Accordingly, Aluminum Foil Type Winding Inverter Duty Transformer and their parts are an essential part/ device of Solar Power Generating System and are eligible for the benefit of Sr. No. 38 of Not. No. 01/2017-CT (Rate) dated 28.06.2017. A reading of the submitted both P.O. and technical specification leads us to infer that though the Buyer intends to purchase the Aluminium Foil type Winding Inverter Duty Transformers as a whole, by devising certain clauses, it is sought to bring about a splitting up of the intended purchase of the Transformer, as a one whole, into a purchase of goods and a purchase of services. However, the intended purpose to present the agreement as a contract for supply of goods ONLY has not achieved the desired purpose. The agreement is for supply of an effectively running Transformer. The clauses mentioned in Technical Specification reveal that the Supplier is involved in the process right from the early engineering period to procurement and implementation stage - it is seen that the supply of the goods and the supply of service are inextricably linked with each other. It is not that the applicant has been assigned with the work of supply of goods only. But the applicant has been given the task of setting up the Aluminium Foil type Winding Inverter Duty Transformers . Thus, though the Purchase Order s are made separately, it is one indivisible contract for the setting up of the Aluminium Foil type Winding Inverter Duty Transformers. In fact the technical specification is single for both the supply of goods and Service - thus, the work order for supply of goods and service is one whole and not separate as per the technical specification submitted by the applicant. The applicant is liable for payment of GST in terms of Explanation inserted in Entry No. 234 of Not. No. 01/2017-CT (Rate) dated 28.06.2017 vide Notification No. 24/2018-CT (Rate) dated 31.12.2018 and in terms of Serial No. 38 of Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017 in respect of services considering the total value of both the Purchase Order - Explanation stated that out of the gross value of the supply, 70% shall be deemed to be on account of goods and 30% deemed to be on account of service. Accordingly, the effective rate came to 8.9%.
Issues Involved:
1. Classification of Aluminium Foil Type Winding Inverter Duty Transformer under Chapter Heading 8504. 2. Applicability of GST rate under Sr. No. 234 in Schedule-I to Notification No. 01/2017-Central Tax (Rate) dated 28th June 2017. 3. Determination of GST rate considering separate contracts for supply of goods and services. Issue-wise Detailed Analysis: 1. Classification of Aluminium Foil Type Winding Inverter Duty Transformer under Chapter Heading 8504: The applicant, a manufacturer of various types of transformers, received an order for Aluminium Foil Type Winding Inverter Duty Transformers. The product to be supplied falls under Chapter Heading 8504, which covers "ELECTRICAL TRANSFORMERS, STATIC CONVERTERS (FOR EXAMPLE, RECTIFIERS) and INDUCTORS." The impugned product, i.e., Inverter Duty Transformer, is classifiable under Tariff Heading 8504, and parts of transformers are classifiable under CTH 85049010. Thus, the goods satisfy the classification under Chapter 85 of the Customs Tariff Act, 1975. 2. Applicability of GST rate under Sr. No. 234 in Schedule-I to Notification No. 01/2017-Central Tax (Rate) dated 28th June 2017: The applicant sought to classify the supply of Aluminium Foil Type Winding Inverter Duty Transformers under Sr. No. 234 of Notification No. 01/2017-CT (Rate), which prescribes a 5% GST rate for renewable energy devices and parts for their manufacture. The relevant entry includes solar power generating systems and parts. The applicant argued that the transformers are essential parts of solar power generating systems, which typically include solar panels, inverters, controllers, and batteries. The transformers are used to convert electrical power and are essential for the functioning of solar power systems. Therefore, the Aluminium Foil Type Winding Inverter Duty Transformers are considered parts of a solar power generating system and fall under the specified entry, thus qualifying for the 5% GST rate. 3. Determination of GST rate considering separate contracts for supply of goods and services: The applicant received two separate purchase orders from the recipient: one for the supply of transformers and another for supervision of erection, testing, and commissioning services. The applicant contended that these should be treated as separate supplies, with goods taxed at 5% and services at 18%. However, the Authority examined the technical specifications and found that the scope of work included both supply and services, indicating an indivisible contract for setting up the transformers. The recipient had artificially bifurcated the contract to avoid the deemed bifurcation of value into 70% goods and 30% services, as per the explanation added to Entry No. 234 by Notification No. 24/2018-CT (Rate). The Authority concluded that the supply of goods and services are inextricably linked and should be treated as a single contract. Therefore, the applicant is liable for GST on the total value of both purchase orders, with 70% deemed as goods and 30% as services, leading to an effective GST rate of 8.9%. Ruling: The applicant is liable for payment of GST on the total value of both the supply of goods and services in terms of the explanation inserted in Entry No. 234 of Notification No. 01/2017-CT (Rate) dated 28th June 2017, as amended by Notification No. 24/2018-CT (Rate) dated 31st December 2018. The effective rate of GST is 8.9%, calculated as 70% of the value at 5% for goods and 30% of the value at 18% for services.
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