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TMI Blog2018 (6) TMI 1127X X X X Extracts X X X X X X X X Extracts X X X X ..... tract 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant furnishes, in exhibit II to the application, some facts relevant to the stated activity: a. The applicant is an EPC contractor enters into contract with various developers who desire to set up and operate solar photovoltaic plants for supply of power generated. In various cases, the Applicant also is a project developer wherein it is engaged in operation of renewable energy power plant projects. b. Typically a turnkey contract is entered into by the Applicant to do end to end setting up of a solar power plant which includes supply of various goods (such as modules, structures, inverter transformer etc.,) as well as complete design, engineering and studies transportation, unloading, storage and site handling, installation and commissioning of all equipments and material, complete project maintenance as well as supply and construction related in various other packages for complete PV plants. c. Accordingly, the contract entered into by the Applicant, includes end to end activities i.e. supply of various goods and services intended for setting up, operation and maintenance of a solar power plant. d. The intent of the contract is that the entire contract would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply'. Section 2(90) defines principal supply as -principal supply means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary'. Further, mixed supply has been defined under the Act as mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply . Hence, for mixed supply there should be a single price and entire contract gets taxed at the supply with highest rate of tax. 4.1.3 Concept of works contract Works contract has been defined under Section 2 (119) of CGST Act as follows: 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 propeqy i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anner, namely:- (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply' Per the above, the essential conditions for a supply to qualify as composite supply can be highlighted as under: a) 2 or more taxable supplies of goods or services or both b) The taxable supplies should be naturally bundled c) The taxable supplies should be supplied in conjunction with each other d) One taxable supply should be a principal supply In such case, the supply which is the principal supply is treated as the main supply and the entire transaction is taxed as per the principal supply. In the present case, the Applicant would like to submit that the main intent of the contract is provision of the solar power generation system which consists of various components such as modules, structures, inverter transformers, cables, SCADA, transmission lines, etc. Services like civil construction are merely incidental to provision of such goods and form an ancillary part of the contract. It is submitted that service portion of the contract is only -10 to 15% and balance is supply of goods. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystem should include all goods provided under the contract which help in end to end generation as well as transmission of electricity. Further, under erstwhile law also, solar power generating systems have not been defined. However, under erstwhile excise law, various exemptions were extended to non-conventional energy devices which included solar power generating systems - List 8 of Notification no. 12/2012-Central Excise, dated 17 March 2012. Reference is made to the judgment of Delhi Tribunal in the case of Rajasthan Electronics 8z Instruments Ltd. vs. Commr. Of C. Ex., Jaipur wherein it was held that '7. The adjudicating authority admitted the fact that Solar Photovoltaic Module is a.Solar Power Generating System. We find that other parts are only panel housing consisting of controllers and switches. Hence the whole system is a Solar Power Generating System and is entitled for the benefit of notification. Therefore, the denial of benefit of notification by the adjudicating authority is not sustainable. The impugned order is set aside and the appeals are allowed'. Further, in the case of Bangalore Tribunal in the case of B.H.E.L. vs. Commissioner of Central Exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Guide'). The relevant extract of the Education Guide is reproduced as under for case of reference: Bundled service means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. An example of 'bundled service' would be air transport services provided by airlines wherein an element of transportation of passenger by air is combined with an element of provision of catering service on board. Each service involves differential treatment as a manner of determination of value of two services for the purpose of charging service tax is different.' The Education Guide also clarifies that in cases of composite transactions, i.e. transactions involving an element of provision of service and an element of transfer of title in goods in which various elements are so inextricably linked that they essentially form one composite transaction then the nature of such transaction would be determined by the application of the dominant nature test. Further, the following was provided in the Education Guide: '9.2.4 Manner of determining if the servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her. Also, such composite supply is supplied in the ordinary course of business. * The composite supply would qualify as supply of the principal supply. Taxes would be applicable as on such principal supply. Drawing reference to the above, it is submitted that the customer perceives the entire contract is for supply of solar power generating system as the intent of both the parties is supply of the goods/ system which would help in generation of electricity. Hence, the entire contract (both goods and services) and bundled and linked wherein the main intent is provision of the goods which constitute solar power generating system. 4.2.4. Global Jurisprudence - Meaning of Composite Supply The concept of 'composite supply' is a global concept and has been discussed in various countries. Provided below is relevant extract from various countries regarding the same: 4.2.4.1. Australia In terms of Goods and Services Tax Ruling 2001/8 issued under Australia, Composite Supply means a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part. Composite supply is treated as supply of one thing. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aspect of composite supply under European Union Value Added Tax laws ('EU-VAT'). In the case of Card Protection Plan Ltd. Vs. C E Commrs [1994] BVC 20 , the ECJ held that 'a service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself but a means of better enjoying the principal service supplied'. Per the above principal, in the present case also, what the customer wishes or intends to obtain is the main supply of solar power generating system and services are only a means to enjoy the same and hence, services are incidental to the main supply of goods. 4.2.4.3. United Kingdom Under the UK VAT laws, a multiple supply (also known as a combined or composite supply) involves the supply of a number of goods or services. The supplies may or may not be liable to the same VAT rate. If a supply is seen as insignificant or incidental to the main supply, then for the purposes of VAT it is usually ignored - the liability is fixed by the VAT rate applicable to the main supply (or supplies). In the case of Tumble Tots (UK) Ltd v R C Commrs [2007] BVC 179. Members of a playgroup received a T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead the contract is entered for provisioning of solar power generating system and the main intent of parties is to procure a solar power generating system to which the activity/ services of erection/ commissioning etc are only incidental. In the present case, even if the contract qualifies as composite contract, the principal supply would be that of provision of solar power generating system and not provision of works contract services. This is because as highlighted above, the principal supply or dominant intent is provision of goods as solar power generating system and hence, entire contract should be taxable as the principal supply itself. 4.5. Whether benefit would also be available to sub-contractor 4.5.1 In certain cases, the turnkey contractor engages various sub-contractors (manufacturers/supplies/ sub-contractors) who further supply the goods to such contractor or engage in provisioning of certain portion of the turnkey contract. 4.5.2 Further, there may be cases wherein the Developer divides the EPC contract between two separate EPC contracts of construction of solar power generation system. 4.5.3 Notification no. 1/2017-Integrated Tax (Rate), which p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders and directions as may be deemed proper and necessary. PERSONAL HEARING: / PROCEEDINGS HELD ON 09.02.2018. 5. The Applicant submitted Specific Power of Attorney appointing M/s Price Waterhouse Coopers Private Limited, represented by Shri Prashanth Agarwal, as their authorized legal representative, who attended the proceedings held before the Authority on Advance Ruling in Karnataka, Bengaluru on 09.02.2018 and furnished additional written submissions. The authorized representative during the proceedings stated / pleaded that the contract is for supply of system / solar plant only which includes both supply of goods (PV plates) and installation does not include maintenance; also the contract is for one lump sum amount; the rate of GST should be at 5% as per specific entry in schedule; it is not a works contract as the equipments are not immovable property, the predominant cost is that of Photovoltaic cells which are chargeable at 5% and hence this contract should not be considered as works contract. The written additional submissions are appended below: 6. Besides the above presentation during the hearing the applicant made the following additional written subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods (whether as goods or in some other form) is involved in the execution of such contract. (b) Therefore, in order to determine whether the supply made by the Applicant is of works contract, it is imperative to understand (i) the essence of the contract and the intention of the parties involved in the contract to determine whether the parties intend to undertake works contract or supply of solar power plant and (ii) whether the activities are undertaken on an immovable property for the contract to qualify as works contract. Essence of the contract and intention of the parties involved in the contract is clearly to supply As explained above, the intention of the parties entering into a contract with the Applicant, is to procure a completely functional solar power plant wherein the Applicant undertakes end to end responsibility of supply of equipment for solar power plant including designing, engineering, supply, installation, testing and commissioning of the solar power plant. The intention of the parties is not to undertake any activity on an immovable property, but to supply Solar power plant. Solar power plant is not an immovable property It is subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 58/1/2002 - CX issued under F.No. 154/26/99 - CX4 dated 15 January, 2002 ('the Circular), after realizing the anomaly in case of plant and machinery assembled at site, issued the Circular clarifying the following: (i) If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered asmoveable and will, therefore, not be excisable goods. (vi) If any goods installed at site (example paper making machine) are capable of being sold or shifted as such after removal from the base and without dismantling into its components/parts, the goods would be considered to be movable and thus excisable. The mere fact that the goods, though being capable of being sold or shifted without dismantling, are actually dismantled into their components/parts for ease of transportation etc., they will not cease to be dutiable merely because they are transported in dismantled condition .. Relying on the aforesaid circular the Applicant contends that as the solar power plant, once installed, is capable of being removed and transferred from one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply should be a principal supply. In such case, the supply which is the principal supply is treated as the main supply and the entire transaction is taxed as per the principal supply. The Applicant would like to highlight that mounted Photovoltaic module (PV module) comprises around 6o%-7o% of the entire Solar Power Plant, and the rest of the components constitute for around 30-34% and are merely parts or sub parts which are required for panel housing or setting up the module such as controllers and switches. This is due to the fact that PV module is a packaged, connect assembly of typically 6xio photovoltaic solar cells, which constitute the photovoltaic array of a photovoltaic system that generates and supplies solar electricity. In other words PV modules are nothing but an assembly of solar cells that helps in converting solar power into electricity. Hence, PV module is the most important component of solar power generating system and therefore, would squarely qualify as the 'principal supply'as per the provisions of the GST law. Accordingly, it is submitted that the GST rate of PV modules which is 5% should be applicable on the whole of the contract. Refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts are only panel housing consisting of controllers and switches. Hence the whole system is a Solar Power Generating System and is entitled for the benefit of notification. Therefore, the denial of benefit of notification by the adjudicating authority is not sustainable. The impugned order is set aside and the appeals are allowed'. Basis the above submissions, it is clearly evident that the PV Modules qualifies as 'principal supply' and hence the whole contract even if construed as composite supply should be liable to tax considering it to be supply of PV Modules, which is liable to GST at the rate of 5%. 6.4 Whether benefit would also be available to sub-contractor In certain cases, the contractor engages various sub-contractors (manufacturers/ supplies/ sub-contractors) who further supply the goods to such contractor or engage in provisioning of certain portion of the contract. Further, there may be cases wherein the Developer divides the contract between two separate contracts of construction of solar power generation system. Notification no. 1/2017-Integrated Tax (Rate), which provides concessional rate on solar power generating system does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rement 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?‖. 9.1 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, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is the principal supply. 9.2 In order that a supply be categorised as a Composite supply its essential to have (a) two or more taxable supplies and (b) they should be naturally bundled in conjunction with each other. In the present application before us and in terms of the draft contract the applicant contends that they are supplying the goods and are also carrying out services related to the installation of the supplied good. Thus they are engaged in the supply of both goods and services. They have further contended in the concluding part under Para 2.3, Page 12 of the application that the customer perceives that the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the owner and not the Applicant. This indicates that the owner has procured the goods and made them available to the Applicant. This is in contrast to what the Applicant has claimed. Once the owner files the Bill of Entry at the time of import they become the titleholders in respect of those goods. After clearance of the goods once they are made available to the Applicant for further action of installation etc, then the Applicant cannot claim to have supplied the goods. 2. As per clause 1.1.45 of the contract ―Free Issue Equipment‖ is defined as Photovoltaic Modules to be supplied by the owner to the contractor as free issue equipment at the plant site for the installation and commissioning of the solar power plant. Hence it is clearly evident from this clause that the major equipment i.e PV modules, are not being supplied by the contractor / Applicant. 3. As per the scope of contract, as mentioned at clause 3 of the contract, the contractor (Applicant) shall supply all the equipment as per the terms of the said contract and in accordance with the execution schedule, to the plant site and complete development, installation and commissioning of the works ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The third question is Whether benefit of concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors. 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. 10. In view of the foregoing, we rule as follows RULING 1. Question No. 1-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. 2. Question No. 2- The question does not not remain relevant on account of answer to question number 1. 3. Question No. 3- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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