9911796707
TMI Blog2018 (5) TMI 963X X X X Extracts X X X X X X X X Extracts X X X X ..... upplied without PV modules)would also be eligible to concessional rate of 5% as parts of solar power generation system? * Whether benefit of concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors? At the outset, we would like to make it clear that the provisions of both the CGST Act and MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to tire CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, hence fourth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the "GST Act". 02. FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus- [A] AS SUBMITTED ALONGWITH APPLICATION "Statement of the relevant facts having a bearing on the aforesaid clarification(s)/transaction(s) 1. M/s. Fermi Solar Farms Private Ltd. (hereinafter called as "Fermi") is engaged in operation of renewable energy power plant projects. These typically include ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioning and testing for solar modules, mounting structures, power transformers, inverters, SCADA, complete switchyard, inverter transformers, connectors, earthing lines etc. 7. Please note that the following two scenarios can arise in this context: * Case 1 - All goods may be supplied by EPC contractor - In such case, entire contract is executed by EPC contractor and all goods required are supplied by the contractor (including PV modules). * Case 2 - Certain goods supplied by EPC contractor - In such case, modules may be procured directly by Project Developer and balance goods would be supplied by EPC Contractor (i.e. the project Developer procures/ imports PV modules on its own and only awards contract for balance goods) 8. A diagrammatic illustration of a solar power system is provided. Statement containing the applicant's understanding of rate of tax in respect of the aforesaid clarification(s)/transaction(s) 1. Legal provisions and applicability 1.1 Rate of solar power generating system Under GST regime, various rates have been prescribed for goods and services. Per, Notification No. 1/2017- Integrated tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in present context Per the above legal provisions, we understand that in present case, since there are separate contracts for supply of goods and services, the taxability should be as under: * Contract for goods wherein solar PV modules are also supplied- Entire contract should qualify as supply of solar power generating system and should be taxable at 5% * Contract for goods wherein solar PV modules are not supplied - In such case, the goods which qualify as parts of solar power generating system and are covered under heading 84,85 or 94 should be eligible to concessional rate of 5% * Contract for services - Entire contract would be service contract taxable at 18% 2. Meaning of term 'solar power generating system' and applicability when all goods (including PV modules) are supplied 2.1 The term 'solar power generating system' has not been defined under GST. Solar power generating system generally are the systems which absorb sunlight and convert it into electricity which can be put to further use. 2.2 Solar power system has been defined under Solar Power -Grid Connected Ground mounted and solar Rooftop and metering Regulation -2014 issued by State of Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ger constitutes solar power generating system as it performs the function of generating the required high frequency AC power from Sun-light with, the help of SPV module and supplying it to the compact fluorescent lamp of a solar lantern. In view of the above, expert opinion, we hold that the impugned item can be considered as solar power generating system and is entitled for the benefit of the exemption Notification. Therefore, we allow the appeal with consequential relief." 2.8 In M/s Phenix Construction Technology vs. Commissioner of Central Excise and Service Tax, Ahmedabad-II [2017-TIOL-3281-CESTAT-AHM] the question under consideration was whether the structures and parts of structures cleared for initial setting up of solar power plant are eligible for the benefit of Notification 15/2010-CE. The point of dispute in the said case law was that whether the aforesaid goods would qualify as components of the solar power plant. Hon'ble CESTAT has decided that the items required for initial setting up of the plant would qualify as component, hence the benefit of exemption would extend to such items also as solar power generating system. 2.9 In Jindal Strips Ltd. vs. Collector o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of New and Renewable Energy ('MNRE') in various instances has also approved entire BOQ consisting of various parts e.g. cables, module mounting structures, spares, etc. as essential to solar power generating system and hence the concessions applicable have been extended to such parts. Drawing a corollary, concessional rate of 5% should be applicable on all the goods approved under BOQ by MNRE as well. 3. Taxability of parts of solar power generating system 3.1 In certain cases, not all parts of solar power generating system are supplied by EPC contractors (as some parts may be procured separately). For example, PV modules may be procured by the Project Developer directly and only balance contract is awarded to EPC contractor for supply of remaining goods . In such case, even though the entire contract may not qualify as solar power supplied should be eligible to concessional rate of 5% as the entry covers 'Renewable energy device and parts for their manufacture'. 3.2 A 'part' is essentially a section, which, when combined with other sections, make up a whole system/product.' In the case of equipment, various parts would combine to make up the wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pam Forging Vs. CCE, Raigad [2006 (193) ELT 334 (Tri.- Mumbai)]. the Tribunal held that flanges are parts of windmill tower which is inturn a part of Wind Operated Electricity Generators. Once tower is accepted and held to be a part of WOEG, flanges of the tower will be a part of the whole Wine Operated Electricity Generator * In CCE Vs. Megatech Control Pvt. Ltd. [2002 (145) ELT 379 (Tri. - Chennai)], the Tribunal held that control panels are part of wind operated electricity generators and are meant specifically for wine mill and will be eligible for benefit. * Vide Circular No. 1005/15/2015 - CX dated October 20, 2015. the CBEC had clarified that tower, nacelle, rotor, wind turbine controller, nacelle controller and control tables will be treated as parts/components of wind operated electricity generators and will be eligible for exemption. In regard to the above, though there has not been any judgment with respect to components of solar power plants, on similar lines of the precedents discussed above for wind power, the components of solar power generating system should also be covered under concessional rate of taxes under GST. 3.7 It is submitted that generation of powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings including control rooms and inverter rooms, roads and drainage system, boundary walls/ fencing, bore walls * All civil and foundation works for switchyard, solar plant and all other equipment * Site enabling facilities * Leveling and grading * Erection, commissioning and testing for solar modules, mounting structures, power transformers, inverters, SCADA, complete switchyard, inverter, transformers, connectors, earthing lines etc. 5.2 We would like to humbly submit that such contract is a separate contract for services itself and hence, has to be taxed on independent basis. In our understanding, the same should be analyzed independent of the contract for goods. 5.3 Since such contract is standalone contract for services including works, the same should qualify as works contract service. Works contract has been as "a contract for building, construction, fabrication, completion, erection installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract." 5.4 Works contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1. Earthing 2. Inverter Room 3. Cable routing 4. Solar panel foundation arrangement. 5. Arrangement of roads and drains. (III) As per Notification dates 15.11.2017 chapter heading 84,85, or 94 following renewable energy device & Parts for their manufacture are taxed@ 5% a. Bio-gas plant b. solar power based devices c. solar power generating system d. wind mills, wind operated Electricity Generator e. Waste to energy plants- f. solar lantern/lamp g. Ocean wave/tidal waves energy devices h. Photo voltaic cells, whether or not assembled in modules or made up into panels. (IV) Solar power generating system includes (in bracket GST Rates) 1. Solar panels (@5%) 2. Solar battery (@28%) 3. Solar charge controller (@18%) 4. Solar modules (@5%) 5. Inverter (@12%) 6. Cables for connection (@28%) However all these renewable devices & parts for installation of solar power generating system will be taxed @5% as per notification cited supra. But the inverters, cables, batteries will not attract tax rate @5% they will attract their respective tax rates. (V) After analyzing the agreements signed by Fermi solar forms ltd. With buyer, it is noticed that bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement is customarily the way in which transactions of the nature as before us are effected. There are two sets of agreements which have been stated to be for - 1. Contract for supply of equipments 2. Contract for supply of services Question no.1 has been framed in respect of these contracts. To answer the question, we look at each of the above agreements thus - CONTRACT CONTENDED TO BE FOR SUPPLY OF EQUIPMENTS The title of the agreement says "AGREEMENT FOR SUPPLY OF SOLAR POWER GENERATING SYSTEM". A Solar Power Generating System (SPGS) is not available as a system as such. It consists of various components which are to be assembled, synchronized and, subject to the fulfillment of the attending requirements, to be tested so as to be made operative. Despite being so, we would look at the clauses of the agreement to understand the exact nature of the agreement. * - (A) The Buyer desires to set-up and operate solar photovoltaic plants with a total capacity of 60 MW (AC)/81 MW (DC) at village__ in the state of Karnataka (the "Plant"). (B) The Buyer has selected the Supplier for the subject project based on the previous credentials. The Buyer desires to purchase an end t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and which shall in no event be later than or such other extended date as notified by the Buyer in writing. * "Plant Site" shall mean all those parcels of land located at district ____ in the state of Karnataka on which the plant shall be set up; * "Scheduled Project Completion Date" shall mean the scheduled commissioning date of the Project as notified in writing by the Buyer to the Supplier and which shall in no event be later than ___________ or such other extended date as notified by the Buyer in writing for 60 MW (AC). * "Scope of Supplies" shall have the meaning set forth in Clause 2.1.1 hereof; * "Spare Parts" shall mean the spare parts listed in Schedule E; * "Specification" shall mean the specifications prescribed by the Buyer for the Equipment, Spare Parts and Materials as more specifically set-out in Schedule J; * shall have the meaning set forth in Clause 3.1 hereof; * "Sub-vendors" shall have the meaning set forth in Clause 3.1 hereof; * "Supply Commencement Date" shall have the meaning set forth in relevant Clause hereof; * "Supply Schedule" means the schedule set forth in Schedule C hereto as such schedule may be adjusted from time to time in accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se equipment shall remain with the Supplier till the completion of the Project. After the completion of the project, the risk and liabilities are shifted to the Lead Contractor. After the completion of the project, the risk and warranties are shifted to the Owner. 2.1.2. Inspection and Expediting The Supplier shall perform all inspection, expediting, and quality surveillance as are required for performance of the Supplier's obligations hereunder. The Supplier's responsibilities under this Clause shall include, without limitation, inspecting all Equipments, Spare Parts and Materials. 2.1.5. Spare Parts (a) Spare Parts shall be delivered by the Supplier as prescribed per the Supply Schedule, in accordance with schedule E and in accordance with the provisions of this Agreement. (b) If at any time, the Supplier becomes aware that it or suppliers or manufacturers of Spare Parts has discontinued the manufacture of certain Spare Parts, or is for any reason unable to manufacture or supply such Spare Parts, the supplier shall: (i) immediately provide written notice of such facts to the Buyer and such notice shall be of sufficient detail to enable the Buyer to order a final b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supplier from any of the obligations or Warranties stipulated in this Agreement. 3. SUB-VENDORS 3.1 Subvendors and Equipment Suppliers 3.1.1 All consultants and Sub-vendors providing Equipment, Spare Parts and Materials to the supplier under a subcontract with the Supplier in connection with the Scope of Supplies are herein referred to as "subvendors" and such agreements entered into between Supplier and Subvendors are herein referred to as "Subcontracts", The Buyer shall fully cooperate and participate with the Supplier in appointing Sub-vendors under this Project. In this regard, the supplier shall, by way of written notice, provide the Buyer's Representative (appointed pursuant to Clause 5.2 hereof) with a list of proposed Subvendors ("Notice of Proposed Subvendors'') for the Buyer's approval, and the ultimate decision of the person from amongst the Subvendors approved by the Buyer to whom they may be subcontracted shall be that of the supplier. 3.1.3 Subcontracting shall not relieve the Supplier from any of its liabilities or obligation under this agreement and the supplier shall continue to remain solely liable to the Buyer for performance of its obli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligations hereunder, or any part thereof, or in any manner dealt with herein. The Buyer shall not have the right to control or any actual, potential or other control over the methods and means by which Supplier or any of its agents, representatives, the Sub-vendors or employees conducts its independent business operations. The Parties covenant and agree that in the performance hereunder, they shall not perform any act or make any representation to any person to the effect that it is or any of its agents, representatives or Sub-vendors, is the agent of the other Party. 19.14 Title to the Equipment, Spare Parts and Material (a) Title Title to the Equipment, Spare Parts and Materials and the Scope of Supplies in whole shall pass to the purchaser from Supplier either at the ship's rail at the port of loading or on the high seas. Provided that the Buyer is in compliance with his payment obligations specified under the contract, title to all equipment used in connection with the Solar Power Generating System and which will become a permanent part of the System shall vest in the Buyer when any such payment due to the Supplier as per the agreed payment terms is affected. 19.18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable) * Power Transformers * Complete Switchyard, Bay extension and remote end works as applicable. * Inverter Transformers * Auxiliary Transformers * 110 kV Transmission line as per connectivity approval * SCB, PV Connectors * HT & LT Switchgears, HT & LT power and control Cables (AC as well as DC and communication cables) * Illumination and ventilation system * Supply required for AC BoS and DC BoS * Earthing system (maintenance free) * Scada system along with SLDC telemetry arrangements. * Lightening Protection through ESE. * Battery and battery charger. * Module cleaning system * Site enabling facilities including porta cabin, security cabin etc. * Supply items required if any for civil works for the entire plant. * Mandatory Spares for all electrical items as per list to be agreed later. The list of Spare Parts to be supplied under the terms of the Agreement shall be as detailed in Schedule E hereto and shall be deemed to form a part of the Scope of Supplies. Exact division between offshore and onshore items also will be finalized during engineering phase. TERMINAL POINT: Karnataka Power Transmission Company Limited 110kV Switchyard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll approve or communicate observations within 5 days. If there is no communication within 5 days, these documents/drawings shall be deemed to be approved and Supplier will go ahead with engineering and procurement." This clause unmistakably lays down that the Supplier is appointed not merely to supply equipments but there is design and engineering work even before the supply of equipments. 3. Further, we see that there is Schedule J which says that Specifications/Design Basis for various equipments shall be mutually agreed between Supplier and Buyer during the early engineering period. Thus, the Supplier's involvement in the project is from the engineering and Design stage and not merely for supplying the equipments. 4. We find the definition of "Other Contractors" which is defined to mean other contractors engaged by the Supplier to implement, operate and maintain the Plant. This clause shows that the Supplier would implement, operate and maintain the Plant. 'Plant' is defined as "Plant/s" shall have 60 MW (AC) Solar PV Power Project at ____, Karnataka. Thus, the agreement does not stop at supply of equipments but extends to implementation, operation and maintenanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. We have also perused the judgements which have been cited across the bar. The applicants executed the said agreement dated November 23, 1994 with Assam Gas for the performance of work of laying HDPE pipe for transportation of natural gas as specified in the "scope of work" as set out in clause 3. It would be necessary to quote clause 3 "scope of work" as the interpretation of the said clause along with other clauses' would determine the nature of the contract, namely, whether the said contract was an indivisible inter-state works contract or a contract to supply pipes and a contract to lay down the pipes as per the requirement of Assam Gas'. "3. scope of work The scope of this contract includes supply of HDPE pipes of various sizes (as mentioned in annexure 1) and all HDPE on line fittings, cleaning/clearing of ROW, hauling and stringing of pipes, trenching (minimum depth will be 0.9 mtr. From the top of the pipe to ground surface), welding, laying testing of pipeline as per specifications, road crossings and restoration of the surface of the road to its original condition, Nullah crossing, river crossing etc., Supply and installation of marker posts, constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract value clearly indicates that the consideration payable to the applicants was to be calculated as a whole and not in parts as suggested by the respondents. If at all the contract was intended to be divided into two parts, the said payment terms would have indicated that the applicants would be entitled to get cost of the pipes on delivery of required quantity of pipes to be used for the purpose of laying the pipes. In substance, the payment terms set out in the said agreement speak in favour of the applicants that the contract was to be read as an inter-State indivisible works contract. Clause 21 specifically mention that the work was awarded to the applicants on a turnkey basis. The use of the term "turnkey basis" would clearly indicate that the parties intended to look to the transaction as a whole and not as a transaction which could be divided into two parts as has suggested by the respondents. 26. Having considered the various clauses of the said agreement, we are in agreement that the submissions advanced by learned advocate Mr. Joshi appearing on behalf of the applicants that the transaction between the applicants and the Assam Gas was indivisible inter-State works con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as clearly indicates that pipes mentioned in the said invoice were to be used in performing the contract. It is pertinent to note that the applicants have specifically passed an endorsement" no tax being works contract". In our view, this endorsement would support the stand of the applicants that the invoices were not raised to show that goods covered by the invoices were sold to Assam Gas. The said invoices appear to have been raised to show that that the particular quantity of pipes will be used while performing the works contract with Assam Gas. The applicants have raised commercial invoices and one such invoices is at page 50. Reading of the said commercial invoices would clearly go to show that the amount mentioned in the said invoice was being claimed by the applicants on account of performance of the said agreement. The rates quoted in the said invoices tally with, the rates mentioned in annexure I. in substance, the applicant wanted Assam Gas to pay monies as per the commercial invoices which included amounts for the installation of the pipelines. In our view, the authorities below erred in placing reliance on the invoices which were raised by the applicants to only comply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, repair or commissioning of any movable or immovable property. Thus, activities in relation to movable and immovable property were covered earlier whereas the GST regime requires it to be restricted to immovable property only. In contracts of such a nature, the liability of the contractor doesn't end with the procuring of materials but it extends till the successful testing and commissioning of the system. The transaction is a 'works contract' but it is for us to decide whether it is a 'works contract' in terms of the GST Act. The term 'immovable property' has not been defined under the GST Act. However, there are a plethora of judgements of the Hon. Supreme court and the Hon. High Courts which have helped understand the term 'immovable property'. One such decision is T.T.G. Industries Ltd. v. CCE, (2004) 4 SCC 751 = 2004 (5) TMI 77 - SUPREME COURT OF INDIA . We shall first look at the facts of the case. "2. The facts of the case are not in dispute. The appellant Company pursuant to the acceptance of its tender, entered into an agreement with M/s SAIL, Bhilai Steel Plant for design, supply, supervision of erectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oundation. The first step is to secure the base plate on the said concrete platform by means of foundation bolts. The base plate is 80 mm mild sheet of about 5 feet diameter. It is welded to the columns which are similar to huge pillars. This fabrication activity takes place in the cast house floor at 25 feet above ground level. After welding the columns, the base plate has to be secured to the concrete platform. This is achieved by getting up a trolley way with high beams in an inclined posture so that base plate could be moved to the concrete platform and secured. The same trolley helps in the movement of various components to their determined position. The various components of the mudgun and drilling machine are mounted piece by piece on a metal frame, which is welded to the base plate. The components are stored in a storehouse away from the blast furnace and are brought to site and physically lifted by a crane and landed on the cast house floor 25-feet high near the concrete platform where drilling machine and mudgun have to be erected. The weight of the mudgun is approximately 19 tons and the weight of the drilling machine approximately 11 tons. The volume of the mudgun is 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : '' The test laid down by the Supreme Court is that if the chattel is movable to another place as such for use. it is movable but if it has to be dismantled and reassembled or re-erected at another place for such use, such chattel would be immovable. In the present appeal, even according to the finding of the Collector, mudguns and tap hole-drilling machines have to be dismantled and disassembled from the cast floor before being erected or assembled elsewhere. We have also arrived at the same conclusion independently, in para 10 above. Accordingly applying the test laid down by the Supreme Court we hold that the erection and installation of mudguns and tap hole-drilling machines result in immovable property. In the light of the ratio of the above case-law, we hold that the mudguns and tap hole-drilling machines do not admit of the definition of goods and, therefore, excise duty is not leviable thereon." 18. The core question that still survives for consideration is whether the processes undertaken by the appellant at Bhilai for the erection of mudguns and drilling machines resulted in the emergence of goods leviable to excise duty or whether it resulted in erection of im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be dismantled and then re-erected at another place. This factual position was also accepted by the adjudicating authority. 23. The technical member, however, held that the aforesaid decision was of no help to the appellant inasmuch as a leading international manufacturing firm had offered such machines for export to different parts of the world. He further observed that though on account of their size and weight, it may be necessary to shift or transport them in parts for assembly and erection at the site in the steel plant, they must nevertheless be deemed as individual machines having specialised functions. We are not impressed by this reasoning, because it ignores the evidence brought on record as to the nature of processed employed in the erection of the machine, the manner in which it is installed and rendered functional, and other relevant facts which may lead one to conclude that what emerged as a result was not merely a machine but something which is in the nature of being immovable, and if required to be moved, cannot be moved without first dismantling it, and them re-erecting it at some other place. Some of the other decisions which we shall hereafter notice clarify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... frames, supports, plates, etc. The aforesaid parts were cleared from the premises of the appellants and the mono vertical, crystalliser was assembled and erected at site. The process involved welding and gas-cutting. The mono vertical crystalliser is a tall structure, rather like a tower with a platform at its summit. This Court noticed that marketability was a decisive test for dutiability. It meant that the goods were saleable or suitable for sale, that is to say, they should be capable of being sold to consumers in the market, as it is, without anything more. The Court then referred to the decision in Quality Steel Tubes [(1995)2 SCC 372 : (1995) 75 ELT 17 = 1994 (12) TMI 75 - SUPREME COURT OF INDIA ] and distinguished the judgment in Narne Tulaman [(1989) 1 SCC 172 : 1989 SCC (Tax) 64: (1988) 38 ELT 566 : 1988 Supp (3) SCR 1 = 1988 (9) TMI 51 - SUPREME COURT OF INDIA ] holding that the contention that the weighbridges were not goods within the meaning of the Act was neither raised nor decided in that case. After considering the material placed on the record it was held that the mono vertical crystalliser has to be assembled, erected and attached to the earth by a foundation at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the machinery assembled and erected by the appellant at its factory site was immovable property as something attached to the earth like a building or a tree. 27. Keeping in view the principles laid down in the judgments noticed above, and having regard to the facts of this case, we have no doubt in our mind that the mudguns and the drilling machines erected at site by the appellant on a specially made concrete platform at a level of 25 feet above the ground on a base plate secured to the concrete platform , brought into existence not excisable goods but immovable property which could not be shifted without first dismantling it and then re-erecting it at another site. We have earlier noticed the processes involved and the manner in which the equipments were assembled and erected. we have also noticed the volume of the machines concerned and their weight. Taking all these facts into consideration and having regard to the nature of structure erected for basing these machines, we are satisfied that the judicial member of CEGAT was right in reaching the conclusion that what ultimately emerged as a result of processes undertaken and erection done cannot be described as "goods" with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e three partnership concerns mentioned above are registered with the Central Excise Department nor is it disputed that the proprietary concern is a small-scale industrial unit that is availing exemption from payment of duty in terms of the relevant exemption notification. 4. M/s Solidmec Equipments Ltd. (hereinafter referred to as "Solidmec", for short), the fifth unit with which we are concerned in the present appeals is a marketing company engaged in the manufacture of asphalt drum/hot mix plants at the sites provided by the purchasers of such plants. It is common ground that Solidmec advertises its products and undertakes contracts for supplying. erection, commissioning and after-sale services relating thereto. It is also admitted that all the five concerns referred to above are closely held by Shri Hasmukhbhai, his brothers and the members of their families. 5. An inspection of the factories of the respondents by a team of officers from the Central Excise, preventing Wing, Headquarters. Ahmedabad, led to the issue of a notice dated 30-11-1999 to the four manufacturing units as well as to Solidmec calling upon them to show cause why the amounts mentioned in the said notice be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants in question are per se immoveable property. What is argued is that they become immovable as they are permanently imbedded in earth in as much as they are fixed to a foundation imbedded in earth no manner only 1 = feet deep. That argument needs to be tested on the touch stone of the provisions referred above. 24. Section 3(26) of the General Clauses Act includes within the definition of the term "immovable property" things attached to the earth or permanently fastened to anything attached to the earth. The term "attached to the earth"; has not been defined in the General Clauses Act, 1897. Section 3 of the Transfer of Property Act, however, gives the following meaning to the expression "attached to the earth": (a) rooted in the earth, as in the case of trees and shrubs: (b) imbedded in the earth, as in the case of walls and buildings; (c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached. " 25. It is evident from the above that the expression "attached to the earth " has three distinct dimensions, viz. (a) rooted in the earth as in the case of trees and shrubs (b) imbedded in the earth as in the case of walls and buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law attaches greater importance to the object of annexation which is determined by the circumstances of each case. One of the important considerations is founded on the interest in the land wherein the person who causes the annexation, possesses articles that may be removed without structural damage and even articles merely resting on their own weight are fixtures only if they are attached with the intention of permanently improving the premises. 29. The Indian law has developed on similar lines and the mode of annexation and object of annexation have been applied as relevant test in this country also. There are cases where machinery installed by monthly tenant was held to be moveable property as in cases where the lease itself contemplated the removal of the machinery by the tenant at the end of the tenancy. The mode of annexation has been similarly given considerable significance by the courts in this country in order to be treated as fixture. Attachment to the earth must be as defined in Section 3 of the Transfer of Property Act. For instance a hut is an immovable property, even if it is sold with the option to pull it down. A mortgage of the super structure of a house though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the permanent beneficial enjoyment of that to which it is attached. It has been categorically observed that the attachment of the plant to the foundation at which it rests does not fall in the third category [attached to what is imbedded for the permanent beneficial enjoyment of that to which it is attached], for the reason that an attachment to fall in the third category it must be for permanent beneficial enjoyment of that to which the plant is attached. The Hon. Court even went on to distinguish and record with approval earlier decisions issue of 'immovable property'. We may have a look at the same, too. "33. In Sirpur Paper Mills Ltd. [(1998) 1 SCC 400] this Court was dealing with a near similar situation as in the present case. The question there was whether the paper machine assembled at site mainly with the help of components bought from the market was dutiable under the Central Excise Act, 1944. The argument advanced on behalf of the assessee was that since the machine was embedded in a concrete base the same was immovable property even when the embedding was meant only to provide a wobble free operation of the machine. Repelling that contention this Court held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72 : (1995) 75 ELT 17] with the setting up of a hot mix plant as in this case. As observed by this Court in Triveni Engg. & Industries Ltd. case [(2000) 7 SCC 29 : (2000) 120 ELT 273], the facts and circumstances of each case shall have to be examined for determining not only the factum of fastening/attachment to the earth but also the intention behind the same. 40. In Mittal Engg. Works (P) Ltd. case [(1997) 1 SCC 203 : (1996) 88 ELT 622] this Court was examining whether the mono vertical crystallisers erected and attached by a foundation to the earth at the site of the sugar factory could be treated as goods within the meaning of the Central Excise Act, 1944. This Court on facts noted that mono vertical crystallisers are fixed on a solid RCC slab having a load bearing capacity of about 30 tonnes per square metre and are assembled at site with bottom plates, tanks, coils drive frames, supports, plates, distance places, cutters, cutter supports, tank ribs, distance plate angles, water tanks, coil extension pipes, loose bend angles, coil supports, railing stands, intermediate platforms, drive frame railings and flats, oil trough, worm wheels, shafts, housing, stirrer arms and suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus becoming a part and parcel of the structures in which they were fitted were no longer movable goods. It was in those peculiar circumstances that the installation and erection of machines at the sites were held to be by this Court to be immovable property that ceased to remain movable or marketable as they were at the time of their purchase. Once such a machine is fixed, embedded or assimilated in a permanent structure, the movable character of the machine becomes extinct, The same cannot thereafter be treated as Movable so as to be dutiable under the Excise Act. But cases in which there is no assimilation of the machine with the structure permanently, would stand on a different footing. 44. In the instant case all that has been said by the assessee is that the machine is fixed by nuts and bolts to a foundation not because the intention was to permanently attach it to the earth but because a foundation was necessary to provide a wobble free operation to the machine. An attachment of this kind without the necessary intent of making the same permanent cannot, in our opinion, constitute permanent fixing, embedding or attachment in the sense that would make the machine a part and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attery back up. f) Air conditioners. g) Transmission tower was erected at the top of the building. h) The tower was fitted with microwave antennas. i) The BTS/BSC was installed in prefabricated building object. Based on this material the Commissioner held that what emerges is a new commodity. The argument advanced that only "Base station controller/Base trans-receiver station, cell site/Mobile Switching centre" were connected with the transmission and reception signals and other equipments were not part of the same, the argument was held as not acceptable as without the tower. UPS, Cable trays, AC, etc., the BTS would not be in a position to function as transmitting and receiving apparatus. The contention of the assessee that various equipments installed at site were individual machine was rejected. The Commissioner further held that with the assembly of various equipment installed what emerges is a commodity with a distinct name, identity, character and use: distinct from inputs and classifiable under chapter 8525 of Central Excise Tariff and the same is distinct and separate from the various equipments which have gone in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal also held that the appellants are not manufacturers and they are engaged in providing cellular mobile services by virtue of a license granted by the Government of India under the provisions of section 4 of the Indian Telegraph Act, 1885. Thus, their activity is purely service oriented. The Tribunal held that in such circumstances, the activity of installing and commissioning cell site cannot be an activity of either manufacture and no marketable goods arise. For the aforesaid reasons, the appeal was allowed and accordingly, the orders were set aside. 9. It is not necessary for us to answer the issue as to whether the activities is purely service and consequently, the appellants are not manufacturers. We proceed on the footing that what has been assembled and installed is a hew commodity having a distinct name from the components from which it was assembled. The question is whether this new commodity is marketable. We have already considered the test of marketability as laid down by the Supreme Court in Triveni Engineering & India Ltd. (supra) and also Mod Laminates Pvt. Ltd. (supra). At this stage, we also note that we proceed on the footing by ignoring the second finding of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rketable, it would not be subject to excise duty. '' The principles laid down in the judgments discussed above stand good under all statutes unless any specific definition is available under the statute. What we want to say is that these principles cannot be circumscribed to any particular statute. In the facts before us, we are convinced that the transaction of supply of the Solar Power Plant does result into transfer of an 'immovable property' for reasons that the solar power plant could not be shifted without first dismantling it and then re-erecting it at another site. An overview of all above makes us observe that the impugned transaction for supply of an end to end solar power generating system with various integral components is a "works contract" in terms of clause (119) of section 2 of the GST Act. We would now look at the second agreement. CONTRACT CONTENDED TO BE FOR SUPPLY OF SERVICES The title of the agreement says 'Engineering and Construction Agreement'. Let us look at the clauses of the agreement - * WHEREAS: (A) The Owner desires to set-up and operate solar photovoltaic plants with a total capacity of 60 MW AC (81 MW DC at ______ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with which the Contractor is required to complete the Work in Plant; * shall mean every Person (other than employees of the Contractor) employed or engaged by the Contractor or any person directly or indirectly in privity with the Contractor (including every sub-subcontractor), in accordance with Clause 3.1, to perform any portion of the Work, whether the furnishing of labor, materials, equipment, services or otherwise; * "Work/s" shall mean the entire engineering civil and construction work set out in Schedule III which is to be supervised and facilitated by the Contractor, including the supply of construction material required for construction work. 2. APPOINTMENT The Owner hereby appoints and the Contractor hereby accepts its appointment to carry out and facilitate the Works for the Project in accordance with the terms and conditions of this Agreement. Owner shall give in writing Notice to Proceed for commencement of work. 3. SCOPE OF WORK 3.1 The Contractor agrees that it shall, either on its own or, through one or more Subcontractors including Prime Subcontractor as may be appointed in accordance with this Clause 3.1, perform the entire Works, as per the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.4 of this Agreement unless the same is caused or attributable to a failure by the Contractor to perform its obligations hereunder. 3.6 Addenda and Change Orders shall be dealt with in accordance with Schedule V hereto. 7. OBLIGATIONS AND COVENANTS OF THE PARTIES 7.3 Major Equipment Supply All the major equipments / materials / items shall be procured by Owner and will be handed over to Contractor for performing work as defined scope. 7.4 Prime subcontractors Contractor shall retain the major construction Subcontractors (the "Prime Subcontractors") for the Work and due performance of this Agreement. The Contractor, will select the Prime Subcontractors by an evaluation process that evaluates potential candidates based upon relevant criteria, including experience, reputation, and demonstrated success in relevant construction projects. 10. INSURANCE The Contractor (by itself or through its sub-contractor) /Owner (to be mutually decided) shall effect and maintain all insurance covers as per best industry practices and as advised by Lender's insurance advisor at its own cost, such insurances for such maximum sums as may be required under the financing agreements, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igations Review and comment by the Owner or its designees with respect to any of such Design Documents or other information pursuant to Clause 22.1, shall not relieve or release the Contractor from any of its duties, Obligations or liabilities provided for under the terms of this Agreement unless and until the same is attributable to a change that is carried out to such Design or Documents based on the insistence of the Owner clearly disregarding the suggestions of the Contractor. 21.3 Final Documents Within 7 (seven) days after achievement of the Plant Completion, the Contractor shall furnish the Owner with 3 (three) copies (one of which shall be of reproducible quality), of all specifications, data sheets, plans and drawings, and other information and documents required in connection with the Equipment and Materials, including without limitation the as-built drawings/documents and all such information and documents listed in Annexure A to Schedule III hereto (collectively, the "Design Documents"). 21.4 Ownership Notwithstanding anything to the contrary contained elsewhere or in this Agreement, the Contractor agrees that all Design Documents and other documents prepared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts shall be in scope of Contractor. However, Custom Duty shall be arranged by Owner * Transportation of the above off shore Equipments, Spare Parts and Materials from Indian Port to the Plant Site and to ensure that the Equipments, Spare Parts and Materials are delivered in proper condition. Owner shall extend all supports for the documentation part. Scope of work covers all Services, Erection, testing and commissioning of entire solar power projects. Scope shall include the following but not limited to: 1. Land development activities 2. Construction of necessary , Roads and Drainage system, Boundary wall/fencing, Bore wells 3. All Civil and foundation works for Switchyard ,solar plant and all other Equipment 4. Site enabling facilities 5. Leveling and grading Erection testing and commissioning of 6. Solar Modules 7. Module mounting Structures 8. Power Transformers 9. Inverters 10. Scada system and SLDC telemetry system 11. Transmission line as per connectivity approval 12. Complete Switchyard and remote end works as applicable. 13. Inverter Transformers 14. Auxiliary Transformers 15. SCB, PV connectors 16. HT & LT Switchgears, RMUs 17. HT & LT power signal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Works due to reasons attributable to Contractor or any Subcontractor, Contractor shall rebuild, restore or replace such damaged or destroyed physical property. ANNEXURE A LIST OF DRAWINGS AND DOCUMENTS TO BE SUBMITTED BY CONTRACTOR FOR THE OWNER'S APPROVAL 1 Site Map showing the following areas : Solar Equipment, Switchyard, Site Office and Access 2 Solar Plant Layout showing module and string layout, Inverters, major Cables, switchyard equipment evacuation point and transmission line 3 Earthing layout 4 ELECTRICAL DIAGRAMS, DOCUMENTS AND DRAWINGS 1. Single line diagram 2. Plant layout 3. Protection SLD 4. Makes of Equipments considered 5. Submission of Quality Plan/Inspection Plan/ Test reports within 10 days from the issuance of LOI a. Earthing Calculation b. Inverter Room Layout c. Control Room Layout d. Cable Routing Plan e. Cable schedule f. Interconnection / termination Schedule g. Auxiliary Power Supply Arrangement CONSTRUCTION DRAWINGS:- a. Solar panel foundation arrangement b. Layout and detail of roads and drains c. Architectural details & Finishing schedule. d. Building layout & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t setting up of a solar power plant results into immovable property. In view thereof, we are of the view that this agreement, too, is a "works contract" in terms of clause (119) of section 2 of the GST Act. In fact, we have to categorically observe that the applicant has tried to bifurcate the works contract of setting up of a solar power plant into contract for supply of goods and supply of services. We see that both the agreements tendered are for setting up of a Plant, a 60 MW (AC) Solar PV Power Project in Karnataka. Thus, it is for the contract of setting up of the same Power Plant. However, for some obvious reasons, sometimes, the contract of setting up of a Power Plant is executed by devising two agreements in terms of supply of goods and supply of services. However, we have seen earlier that this arrangement fails. In the first agreement purported to be for 'supply of goods', there were clauses such as - other contractors engaged by the Supplier to implement, operate and maintain the Plant. In the second agreement that we just saw, there is a clause which says -This Agreement may be executed in one or more counterparts, each of which shall be deemed an original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a supply of services, the impugned agreements represent transactions of the nature of a supply of "service". We would now move on to answer the questions as posed - Question 1 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%? In support of this question, the applicant has tendered the two agreements which have been discussed above. Through various clauses in the agreement, we have seen that the first agreement as claimed to be for supply of goods was in fact a "works contract" in terms of clause (119) of section 2 of the GST Act. As regards the second agreement claimed to be for supply of services, we have seen that the same involved supply of goods and services, as well and has been inferred by us to be a "works contract" in terms of clause (119) of section 2 of the GST Act. Having seen so, we observe that depending upon the nature of supply, intra-State or inter-State, the rate of tax would be governed by the entry no.3(ii) of the Notification No.8/2017-Integrated Tax (Rate) under the Integrated Goods and Services T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof would also be available to sub-contractors? If the transaction is a supply of "goods" then the applicable Schedules (exempt or taxable) would have to be seen. No details have been brought before us. Further, the question would have to be posed by the supplier who would be the sub-contractor. This seems to be a general question. In the absence of any documents before us, we would not be able to deal with this question in the present proceedings. 05. In view of the extensive deliberations as held hereinabove, we pass an order as follows : ORDER (under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) NO.GST-ARA-03/2017/B- 07, Mumbai, dt. 03/03/2018 For reasons as discussed in the body of the order, the questions are answered thus - Q.1 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% ? A.1 The agreements tendered in support of this question reveal that the impugned transaction of setting up and operation of a solar photovoltaic ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
