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TMI Blog2018 (9) TMI 1183X X X X Extracts X X X X X X X X Extracts X X X X ..... I 854 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA CONDONATION OF DELAY The first issue relates to the issue of condonation of delay in filing the appeal as the Appellate Authority for advance Ruling was not formed in the State of Maharashtra during the period of limitation. The appellant has therefore prayed that in view of the above, the time period as mentioned in the Act should be calculated from the day of setting up the authority as no recourse was available before that. The Appellate authority was constituted through notification no. MGST-1018/C.R.38/Taxation-1 dt 10.5.2018 and the appellant applied through appeal dated 6.6.2018. As the appellant had filed letters within 30 days of the communication of the advance ruling, and it was only because the Appellate authority was not formed that he could not file an appeal as also because the appellant filed within one month of formation of the authority, the delay is condoned. Brief Facts of the case A. Appellant enters into contracts with various Developers who desire to set up and operate solar photovoltaic plants for supply of power generated. In various cases, the Appellant also is a Project developer wherein it is engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SPGS wherein both goods and services are supplied is a 'works contract'. b. Since the transaction is treated as works contract and not composite supply, there arises no question of determining what would be the principal supply in the impugned transaction. c. With regard to the question whether benefit of concessional rate of 5% of SPGS and parts thereof would be available to sub-contractors it was held that no documents were provided and hence this question was not dealt with in the proceedings. GROUNDS OF APPEAL 1. The proposed transaction is for composite supply of 'solar power generating system' ("SPGS") as a whole and hence the rate of GST should be at 5% 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 (Rate) dated 28 June 2017, solar power generating systems and parts for their manufacture are taxable at 5%. The relevant entry reads as follows: Chapter Heading Description 84 Or 85 Or 94 Following renewable energy devices and parts for their manufacture a) Bio-gas plant b) Solar power based devices c) Solar power generating system d) Wind mills a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Excise, dated 17 March 2012 reproduced below for ease of reference: '(1) Flat plate solar Collector (2) Black continuously plated solar selective coating sheets (in cut length or in coil) and fins and tubes (3) Concentrating and pipe type solar collector (4) Solar cooker (5) Solar water heater and system (6) Solar air heating system (7) Solar low pressure steam system (8) Solar stills and desalination system (9) Solar pump based on solar thermal and solar photovoltaic conversion (10) Solar power generating system (11) Solar photovoltaic module and panel for water pumping and other applications (12) Solar crop drier and system(13) Wind operated electricity generator, its components and parts thereof including rotor and wind turbine controller (14) Water pumping wind mill, wind aero-generator and battery charger (15) Bio-gas plant and bio-gas engine (16) Agricultural, forestry, agro-industrial, industrial, municipal and urban waste conversion device producing energy (17) Equipment for utilising ocean waves energy (18) Solar lantern (19) Ocean thermal energy conversion system (20) Solar photovoltaic cell (21) Parts consumed within the factory of production of such parts for the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case being a composite supply of SPGS has been provided hereunder in detail. 1.3 Concept and taxability of composite supply Concept under GST Laws: 1.3.1. The Appellant most humbly submits that, Section 2(30) of the Central Goods and Services Tax Act, 2017 defines composite supply to mean '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 a principal supply'. Further, principal supply is defined in Section 2(90) of the CGST Act to mean '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'. Thus, principal supply refers to the supply which is the predominant element in a composite supply. In this regard, the GST law provides an illustration - In case goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 differentia/ 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 services are bundled in the ordinary course of business Whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below - * The perception of the consumer or the service r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flyer issued by the CBEC. Global jurisprudence - Meaning of composite supply: 1.3.3. 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: 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. There have been various precedents in which the courts have defined a composite supply. Few are highlighted below: * The Full Federal Court in the case of Luxottica found that while 'supply' is widely defined it 'invites a commonsense, practical approach to characterisation'. It was observed that while 'Supply' is defined broadly, it nevertheless invites a commonsense, practical approach to characterisation. An automobile has many parts which are fitted together to make a single vehicle. Although, for instance, the motor, or indeed the tyres, might be purchased separately there can be little doubt that the sale of the completed vehicle is a single ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 Turnble Tots (UK) Ltd v R & C Commrs [2007] BVC 179. Members of a playgroup received a T-shirt (children's clothing is potentially zero rated) and a magazine (potentially zero rated) as well as the right to attend classes which would be standard rated. The Court decided that there was a single standard rated supply of the right to belong to the playgroup and the T shirt and magazine were incidental to that main supply. No one who was not in the playgroup would have bought the T shirt or magazine separately. Per the above, it is clear that globally also composite supply means a supply of more than one goods/services wherein one supply qualifies as principal supply. Therefore, taxes as applicable on the principal supply are applied on the whole composite supply. Supply of SPGS is a composite supply: 1.3.4. The Appellant most humbly submits that in the instant case, since the scope of work of the Appellant includes provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or supply of the Solar Power Plant which includes engineering, design, procurement, supply, development, testing and Commissioning of the Plant as per scope defined in relevant schedule of this Contract, as per Applicable Law and Technical Specifications' E. The Owner has undertaken an independent due diligence of the Contractor and based on such due-diligence, agreed to award this Contract for the Supply of Equipment (which in common trade parlance, are supplied together for setting up of solar power generating plant) and performance of Works so as to complement such Supply naturally bundled to provide an effective operating solar power generating system, in accordance with the terms and conditions set out herein, on a lump sum fixed price basis. Further, scope of the contract can be understood with the help of Clause 3 of the Draft Contract which reads as under: 'The Contractor shall Supply all the Equipment as per the terms of this Contract and in accordance with the Execution Schedule, to the Plant Site and complete development, installation and Commissioning of the Works in accordance with Technical Specifications, Applicable Law, Applicable Permits and the terms of this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nary course of business will depend on the facts of the case. If such (EPC contracts) supplies could be treated as 'composite supply' with supply of solar power generating systems as the principal supply, then such supplies may be eligible for 5% GST rate as a whole....' Accordingly, in the instant case, the contract should qualify as a composite supply wherein the principal supply is of solar power generating system and hence, entire contract should be taxable at 5%. 1.3.6. In view of the above mentioned principles and submissions, the Appellant submits that the Draft Contract qualifies as a composite supply of SPGS, and hence should be taxable at the rate of 5%. The AAR in its order has completely disregarded the facts and the Appellant's submissions in the matter and has grossly erred in holding that the impugned Draft Contract relates to provision of both goods and services, which qualify to be works contract, as the SPGS once installed becomes permanent in nature and hence is an immovable property. 2. Solar power generating system cannot be said to be an immovable property and hence the contract does not constitute as 'works contract' Concept of works contract 2.1. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h constitutes 60-70% of the total contract value. Further, it is also agreed that the contractor is responsible for the whole of the contract that is for setting up/supply of the plant. For the purpose of undertaking compliances under laws constituted in India, the parties may agree to define prices of the equipment to be supplied as part of the contract. The same shall not in any manner exceed lump sum price agreed between the parties and also does not in any manner dilute the responsibility of the contractor.' Hence, as also discussed in point 1 above, it is amply clear that the intention of the parties is to supply/procure a completely functional SPGS, and the intention is not to undertake any activity which will create an 'immovable property'. The Appellant's detailed submissions in this regard are provided below. The solar power generating system is movable in nature, and hence, is not an immovable property to qualify. as works contract 2.3 The Appellant submits the AAR has grossly misinterpreted the facts and Appellant's submissions in the instant case and has passed an order on a pre-meditated assumption that typically such contracts (as proposed to be entered into by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a plant and machinery are fixed in the earth for better functioning, it does not automatically become an immovable property.' Relying on the aforesaid judgment, the Hon'ble Supreme Court, in the matter of Commissioner of Central Excise v. Solid and Correct Engg Works & Ors. (2010 (175) ECR 8 (SC)) = 2010 (4) TMI 15 - SUPREME COURT, held that Asphalt Drum/Hot Mix Plants were not immovable property as the fixing of the plants to a foundation was meant only to give stability to the plant and keep its operation vibration free. Further, it was held that the setting up of the plant itself is not intended to be permanent at a given place. The plant can be moved and is indeed moved after the road construction or repair project for which it is set up is completed. Hence, the said plants were held to be movable. Relevant extract of the judgement is reproduced as under for ease of reference: 'Applying the above tests to the case at hand, we have no difficulty in holding that the manufacture of the plants in question do not constitute annexation hence cannot be termed as immovable property for the following reasons: (i) The plants in question are not per se immovable property. (ii) Suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, it should not be regarded as immovable property for that reason. Similar principles were also adopted in the matter of Perumal Naicker v. T. Ramaswami Kone and Anr. (AIR 1969 Mad 346) = 1967 (9) TMI 147 - MADRAS HIGH COURT, wherein the Madras High Court, while deciding whether the engine and pump set were an immovable property, held that the attachment of the oil engine to earth is for the beneficial enjoyment of the engine itself, and hence, such an attachment does not make the engine part of the land and as immovable property. Relevant extracts of the judgment are reproduced below for ease of reference: 'We find ourselves in agreement with the second part of these observations, which is apposite to the instant case. In the case before us, the attachment of the oil engine to earth, though it is undoubtedly a fixture, is for the beneficial enjoyment of the engine itself and in order to use the engine, it has' to be attached to the earth and the attachment lasts only so long as the engine is used. When it is not used, it can be detached and shifted to some other place. The attachment, in such a case, does not make the engine part of the land and as immovable property. .....' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qualify as immovable property and hence are outside the domain of works contract. Even though the term 'structural' has not been defined under the Circular, a corollary can be drawn that the government acknowledges the fact that a certain level of construction related work is required in setting up of a solar power plant, however, the same would not change the nature of the contract to qualify as 'works contract'. Further, in the MNRE Circular, it has also been clarified that if the supplies under the contract can be treated as 'composite supply' with supply of solar power generating systems as the principal supply, then such suppliers may be eligible for 5% GST rate as a whole. Relevant extracts from the MNRE Circular are reproduced above in paragraph 1.3.5. Hence, it is quite clear that the contract in question constitutes to be a supply of SPGS and not works contract, and hence, should be taxable at the rate of 5%. 2.7. Reliance in this regard is also placed on the Chartered Engineer's Certificate (hereinafter referred to as 'CEC') which clearly states that the SPGS proposed to be supplied by the Appellant can be easily shifted from one place to another and it is highly movable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permanency for which it would not be possible and prudent to shift base from time to time or locate the plant elsewhere at frequent intervals. 3. The project would be using goods which would be imported. Are such high end equipments frequently dislocated? Would there not be damage to the materials if moved places frequently and if so, would it perform as effectively as it would have when without damage? The questions itself would give the answers. 4. The definition of the word 'Commissioning' as found in the agreement brings out the enormity of the scale of operations and how the transaction would fall in the scope of an immovable property - Commissioning' permanent means the functional operation of plant (including each unit thereof), following the installation and energization of evacuation infrastructure to grid substation and installation and energization of the plant to the evacuation infrastructure, subsequently and the evacuation of power is possible from the plant to the grid substation. 5. The agreement clauses also refer to a definition of 'GO' - means government order issued by Karnataka Renewable Energy Development Limited for development of the plant. Such a rene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble property. Such type of clauses fall in the precautionary nature of clauses in legal documents. ' In this regard, the Appellant would like to submit that the AAR has completely misinterpreted the provisions of law and the settled judicial precedents in this regard and has disregarded the facts of the Appellant's specific case. As submitted above, various parts of solar power generating system is only installed together to the grid sub-station so that the same is capable of functioning as a system together. It is further submitted that though SPGS may be shifted from one place to another only in rare circumstances, the same is still capable of being removed and hence cannot, by any stretch of imagination, be said to be an immovable property. The AAR in the Impugned order has failed to explain as to why the installation and commissioning work involved in setting up of SPGS would qualify to be 'immovable property' '. On the contrary, the AAR has baselessly assumed that the SPGS has element of permanence and hence, is incapable of being removed. It is Appellant's submission that the installation and commissioning work done by the Appellant does not qualify as immovable property, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then re-erected. However, this would not make the equipment immovable. The test to be applied is whether there is 'substantial' damage or loss to the property in such process. If not, the equipment would still qualify as movable, as is the case in the Appellant's matter. 2.10. It is further submitted that the AAR has wrongly relied on the judgement of the Hon'ble Supreme Court in the case of T.T.G. Industries Vs. CCE, Raipur [(2004) 4 SCC 751] = 2004 (5) TMI 77 - SUPREME COURT OF INDIA wherein hydraulic mudguns and tap hole drilling machines required for blast furnace were held to be immovable property on the basis of the finding that the said machine could not be shifted without first dismantling it and then re-erecting it at another site. It was also observed that even if the machines were attached to a concrete base just to prevent wobbling of the machine, it would be classified as immovable property. In it is submitted that AAR has grossly erred in relying on the decision of TTG Industries as the facts of the case are not applicable to the Appellant's case. The level of construction work in case of TTG (T.T.G. Industries Vs. CCE, Raipur [(2004) 4 SCC 751] = 2004 (5) TMI 77 - S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red. 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 store-house 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 has 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 1.5 x 4.5 x 1 metre and that of the drilling machine 1 x 6.5 x 1 metre. Having regard to the volume and weight of these machines there is nothing like assembling them at ground level and then lifting them to a height of 25 feet for taking to the cast house floor and then to the platform over which it is mounted and erected. These machines cannot be lifted in an assembled condition.' From the above, it is apparently clear that the level of construction work involved in the installation of hydraulic mudguns and tap hole drilling machines is enormous and hence the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved without substantial damage can also be substantiated with the help of the CEC. 2.12. It is further submitted that the AAR has distinguished the judgment of the Hon'ble Supreme Court in the matter of Commissioner of Central Excise v. Solid and Correct Engg Works & Ors.[(2010) 5 SCC 122] =2010 (4) TMI 15 - SUPREME COURT relied upon by the Appellant, and observed that the asphalt drum/hot mix plants were held to be movable property for the reason that the plant was not intended to be permanent at a given place and the plant can be moved and was indeed moved after the road construction or repair project for which it is set up is completed. 2.13. It is submitted that the AAR has ignored the fact that Asphalt Drum/Hot Mix Plants were held to be movable property as the fixing of the plants to a foundation was meant only to give stability to the plant and keep its operation vibration free and not with the intention of permanently affixing it to the ground. In the instant case also, the solar power plant is fixed to the earth only for operational efficiency and not with the intention of permanently affixing the plant to the earth. The AAR has distinguished the aforesaid judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This is due to the fact that PV module is a packaged, connect assembly of typically 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. The fact that solar PV modules constitutes 60-70% of the total contract can also be substantiated with the help of the Draft Contract which is reproduced below for the ease of reference: 'Both parties agree that of the total supplies, the most critical part of the Plant are the supply of the mounted PV Module which constitute 60%-70% of the total contract value. Further, it is also agreed that the Contractor is responsible for the whole of the contract that is for setting-up/ supply of the Plant.' 3.2. Hence, PV module is the most important component of solar power generating system and therefore, even if the contract is construed as a composite supply, PV modules can be 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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'. 3.8. In the present case, the intention of both the parties is to supply the whole of solar power generating system in totality which consists of various goods and services incidental to provision of such goods. What the customer wants is a functional solar power system and services such as erection, commissioning etc. are only a means to provide the main supply of the goods. 3.9. Basis the above submissions, it is clearly evident that the PV Modules qualifies as principal supply'. 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%. 4. WHETHER BENEFIT WOULD ALSO BE AVAILABLE TO SUB-CONTRACTOR 4.1. In certain cases, the contractor engag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Ruling Application, which has also been ignored by the AAR in its order. In furtherance, the CEC also states that SPGS can be easily shifted from one location to another, which goes to prove that a contract for supply of SPGS is not a works contract. The CEC is also not considered by the AAR in its order. Hence, the Appellant would like to plead that the contract for supply of SPGS is a contract for supply of SPGS as a whole, and hence, should be taxable at the rate of 5%. The AAR's findings that the contract for SPGS is an immovable property, and hence, qualifies as works contract taxable at the rate of 18% is without any substance and is bad in law, and hence, the Impugned order should be set aside. Alternatively, even if the contract under question qualifies as a composite supply, the principal supply can be said to be that of PV modules (forming 60-70% of the contract value and being the most critical component of a SPGS), which is taxable at the rate of 5% In addition, the Appellant would like to reiterate that as submitted above, the benefit of concessional rate of tax should be eligible to sub-contractors as well. In view of the above, the appellant prayed that -- a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treated as a supply of services, namely:- (a) works contract as defined in clause (119) of section 2; and .... 9. In terms of the applicable rates of GST, the rates for goods are prescribed vide Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017 ("Notification 1/2017"), while the rates for services are prescribed vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 ("Notification 11/2017"). The said entries are extracted below for ease of reference: Goods: Sl. No. Chapter/Heading/Sub-heading/Tariff item Description of goods 234. 84, 85 or 94 Following renewable energy devices & parts for their manufacture (a) Bio-gas plant (b) Solar power based devices (c) Solar power generating system (d) Wind mills, Wind Operated Electricity Generator (WOEG) (e) Waste to energy plants/devices (f) Solar lantern/solar lamp (g) Ocean waves/tidal/waves energy devices/p/ants (h) Photo voltaic cells, whether or not assembled in modules or made up into panels Services: Sl.No. Chapter, Section or Heading Description of Service Rate (per cent.) Condition 3 Heading 9954 (Construction services) (ii) of works contract as defined in clause 119 of section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular context may alter the definition of any particular term under Section 2. View taken in the Impugned Order frustrates the intent of the Legislature and renders the entry for SPGS otiose: 12. Without prejudice to the foregoing, it is submitted that under Section 9(1), the Government is enabled to issue notifications prescribing the rate qua "goods", "services" or "both". In the present case, as per S. No. 234 of Notification 1/2017, the Government has chosen to tax solar products in a particular manner: Devices and parts Solar power generating system all at } 5% Photo voltaic cells 13. Hence, the clear legislative intent is that at all levels, from part to system, GST will be payable at 5%. In fact, the effective rate for such contracts even prior to GST was approx. 3%, and an application of the "equivalence principle" also affirms that the intent of the Government was never to tax the entirety of the goods and services in relation to setting up an SPGS at a significantly higher rate of 18%. 14. Furthermore, S.No. 234 covers a solar power generating "system", when it is well known that: * A "system" would cover supply of goods and services necessary to create it; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as a "works contract" and taxed at 18% on the full value, will render the taxing entry of SPGS wholly otiose/ nugatory. As per the settled law, any such interpretation is always to be avoided (Oswal Agro Mills Ltd. vs. CCE [1993 (66) ELT 37 (SC)]; = 1993 (4) TMI 73 - SUPREME COURT OF INDIA, Akbar Badruddin Jiwani vs. CC [1990 (47) ELT 161 (SC)]). = 1990 (2) TMI 50 - SUPREME COURT OF INDIA. 20. In the present case, the clear intent of the Legislature/Government is to tax SPGS at 5% being a source of renewable energy. Accordingly, no such interpretation can be adopted which would defeat this intention and place all SPGS contracts under the 18% rate bracket. However, the view taken in the Impugned Order will ensure that the intent of the Government to tax the solar power generating system at 5% is bypassed, and that the said system suffers tax at 18%, contrary to the clearly stated and manifested intention of the Government. Fundamental interpretational error in the Impugned Order: 21. In the present case, the Impugned Order has held that: * Such type of contracts are commonly understood to be works contracts involving supplies of goods as well as services. Hence, the first iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite supply", there can be no question of the transaction qualifying as a "works contract". The findings in the Impugned Order that the SPGS is "immovable property" are erroneous and unsustainable: 24. The Impugned Order proceeds on the basis that the SPGS is an "immovable property". The said findings are unsustainable in view of: (i) The certificate provided by the expert (i.e. qualified Chartered Engineer) which clearly states that the SPGS is "highly moveable" as it is capable of being dismantled and re-assembled at another location (refer Pg. 139 of the Appeal Memo). The said expert evidence has not been controverted in any manner, the expert has not been cross-examined and no contrary evidence has been brought on record as well. It is well settled that expert evidence can only be countered with expert evidence and a judicial/ quasi-judicial authority cannot substitute his own views for that of the expert (Inter Continental (India) vs. Union of India [2003 (154) ELT 37 (Guj) =2002 (2) TMI 129 - HIGH COURT OF GUJARAT AT AHMEDABAD] maintained in Union of India vs. Inter Continental (India) [2008 (226) ELT 16 (SC)] = 2008 (4) TMI 23 - SUPREME COURT; Abraham J. Thakaran vs. CCE, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overarching tests for determining whether an item is movable or immovable, is the judgement in Solid and Correct Engineering (supra). It is this judgement which requires to be followed and applied, as opposed to the strong reliance placed by the Impugned Order in TTG Industries Ltd. vs. CCE, Jaipur [2004 (167) ELT 501 (SC)] = 2004 (5) TMI 77 - SUPREME COURT OF INDIA where a conclusion was reached that hydraulic mudguns were immovable based on the specific processes involved and the manner in which the equipments were assembled and erected. In fact, the decision in Solid and Correct (supra), while laying down the definitive tests on this movability/ immovability, has also distinguished the decision in TTG Industries (supra) at paragraph 32 on this factual basis. (m) In this regard, it is also submitted that the various precedents have not laid down a requirement that the item must be capable of being moved as such to another location without dismantling. The relevant judgements only contemplate that the item must be capable of being dismantled and reassembled at another location without being destroyed in the process. In this regard, the conclusion in the Impugned Order that the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l clearly not be satisfied. 27. Furthermore, works contract being a specie of composite contract (which determines taxability qua the principal supply), in order to be taxed as a service, it is a natural corollary that a "works contract" must principally be for the supply of services. In view thereof, in the instant case even if the two agreements are taken together, as service is not the principal supply, it cannot be treated as a "works contract". 28. Rather, the principal supply, in terms of both customer perception and as a value proposition, is clearly the supply of the goods (particularly, the PV module). On this basis, the entire supply would merit taxation at the rate of 5% under S. No. 234 of Notification 1/2017. ISSUE Nos. (ii) & (iii): 29. All parts/ components supplied on a standalone basis or by sub-contractors are liable to GST at 5% as: (ii) The entire solar power generating "system" is taxable at the rate of 5% as per S. No. 234. Accordingly, any and all goods required for the creation of the system would qualify for the 5% rate under this entry (refer submissions at paragraphs 23 to 28 hereinabove). (iii) In any event, as per a plethora of precedents and CBEC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 or 8538 as appropriate. However, parts which are equally suitable for use principally with the goods of headings 8517 and 8525 to 8528 are to be classified in heading 8517 4. Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function. In terms of the aforesaid Chapter Notes, it is submitted that: * Under Note 2(a), parts which are goods covered under any heading are to be classified thereunder. As the SPGS (i.e. as a system) is covered under S. No. 234, all parts/ components necessary to create the said interconnected "system" would qualify for the 5% rate. * Under Note 2(b), parts suitable for use solely or principally with the SPGS would be classified along with the SPGS, and would also be eligible for the 5% rate. * Most importantly, where a series of individual components are intended to contribute together to a clearly defined f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. 33. The total scope of the contract is set out under schedule-I which says the following: .."The contractor would be responsible for Supply of Equipment and undertake all necessary activities ancillary to such supplies (such as erection, civil work etc.) to ensure complete supply of Solar Power Plant. " 34. As per Clause 4.2, which defines the 'Obligations of the Contractor', the contractor is required to do the following,- i) Design and engineering of the plant as per Schedule-2 (Technical specification). ii) Procure the equipment as per the Schedule-4 (Execution schedule). iii) Construction of civil structure or building. iv) Insurance required during the transportation of equipment, supplies by the contractor and insurance required for its representative, engineers and labors until commissioning. v) Supply of such items and materials which are needed for installation, commissioning and normal operation of the plant..... .......................... vii) The Contractor is also responsible for providing or causing the provision of skill personnel, skill and unskilled labor....., technician, material equipment required for execution and completion of the scope of the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract and hence would qualify as a 'composite supply' within the definition of the term as given under Section 2(30) of the CGST Act. It is also their contention that the principal supply in such case is the provision of goods and hence the entire contract should be taxable @ 5%. The term 'composite supply' is given under clause (30 )of Section 2 of the CGST Act. "composite supply" means 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 a principal supply; Illustration. - Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply; It is important to see the definition of 'principal supply' and goods along with the same. "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; A reading of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. * The other instructive indicators can be the following:- a) There is a single price or the customers pays the same amount. b) No matter how much of the package the actually received. c) The elements are normally advertised as a package. d) The different elements are not available separately. 41. From the application of the above indicators we hold that the contract for providing the design, procurement, supply, development, testing and commissioning of the Plant which includes the supply of both goods and services is a composite supply as per the definition in the Act. There are two taxable supplies- one of goods and the other of services and they both are naturally bundled and it is natural and also a practice to expect that the contractor who will supply the goods will also supply the services alongwith it. In the business of contracts for the Solar Power Generating System, it is a practice to provide a Plant as a whole along with the supply of services. We differ with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property. The term 'immovable property' has not been defined under the GST Act. The appellant has submitted certain judgements in his favour and after going through them, we find that the following principles emerge:- * If a machine is attached for operational efficiency, it does not become immoveable property. * "The degree and nature of annexation is an important element for consideration; for where a chattel is so annexed that it cannot be removed without great damage to the land, it affords a strong ground for thinking that it was intended to be annexed in perpetuity to the land." The English 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt Direct Current into Alternating Current and connection to utility grid is made through High Voltage Transformer. The appellant has submitted in the write up that in setting up of a solar power generation plant, the following steps are involved: * Soil and Topo Survey * Plant coordinate fixing, Boundary fencing and Plant layout * T/L Survey, Piling, Building Construction * Structure erection, inverter erection, equipment foundation * Charging transmission, DC system erection, module mounting * DC cabling * Commissioning of the solar power plant. As part of the services contract, various services are provided including the following: * Construction of complete buildings including control rooms and inverter rooms, roads and drainage system, boundary walls/ fencing, bore wells * 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. 42.5 There are generally two types of Solar Power Systems 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a solar power system for a home. What we have in the instance is a 'WHOLE SOLAR POWER GENERATION SYSTEM.' one look at the Agreements gives an idea of the scope of the work. The array of goods includes Solar PV Modules, inverters and Inverter Transformer, Tracker Components, Module Mounting Structure, Switchyard Supply, Transmission Line Supply, AC/DC Cables ,Chain Link Fencing ,Battery Charger, Power Transformer, LD Switchgear and complete switchyard, Inverter transformers and auxiliary transformers, Battery and battery charger, SCADA system, Module cleaning system, Illumination and ventilation system, Earthing system ,Site enabling facilities and Mandatory spares. The initial steps includes the drawings and detailing of the system. * The activities given in Schedule-I (Scope of work) shows that the Obligation of the Contractor amongst other things includes Plant information and 'Plant Information' in turn includes works relating to 'Plant land' which in turn includes identification of land, legal due diligence, registration of land, fencing of land, storage yard for storing the materials etc. and module mounting structure. * The works relating to 'Module Mounting Structure' in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure, subsequently and the evacuation of power is possible from the Plant to the Grid Substation'. * Clause 15.5 refers to the details regarding the commissioning of the project. The requirement for achievement of Commissioning includes the following:- a) Successful installation, testing and commissioning including generation of electrical energy. b) The Plant is mechanically and electrically completed meeting the functional, technical and safety requirement. c) The data acquisition system has been commissioned. d) The Plant has been continuously running for minimum period of 3 days. * Clause 20 which refers to liabilities provided that all the risk and liabilities shall be borne by the Contractor till the completion of the Plant. It is only of the completion of the Plant that the risk and liabilities are shifted to the owner. All of the above (quoted from the details given by the appellant) goes to show that the erection of the solar power generating system is not as simple or movable as it is made out to be. It is an entire system comprising a variety of different structures which are installed after a lot of prior work which involves detailed designing, ground work a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the CEGAT was right in reaching the conclusion that what ultimately emerged as a result of processes undertaken and erections done cannot be described as "goods" within the meaning of the Excise Act and exigible to excise duty." In the above case, the Supreme Court took note of the fact that the various components of the Mudguns and the Drilling machines are mounted piece by piece on a metal frame, and the components are lifted by a crane and landed on a cast house floor 25 feet high. The volume and weight of these machines are such that there is nothing like assembling them at ground level and then lifting them to a height of 25 feet for taking to the case house floor and the to the platform over which it is mounte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earth to constitute a fertiliser plant in the instant case, are definitely embedded permanently with a view to utilise the same as a fertiliser plant. The description of the machines as seen in the Schedule attached to the deed of conveyance also shows without any doubt that they were set up permanently in the land in question with a view to operate a fertilizer plant and the same was not embedded to dismantle and remove the same for the purpose of sale as machinery at any point of time. The facts as could be found also show that the purpose for which these machines were embedded was to use the plant as a factory for the manufacture of fertiliser at various stages of its production. Hence, the contention that these machines should be treated as movables cannot be accepted. " Thus what can be seen from the above is that when machines are embedded with no visible intention to dismantle them and they are intended to be used for a fairly long period of time, they are 'immoveable property. 42.9 The Authority for Advance Ruling has also referred to certain clauses and argument in support of the finding that the contract leads to erection of immovable property. We agree with them when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CBEC under Section 37B (Order No 58/1/2002 -CX dt 15.1.2002). The order gives directions as to what would be excisable goods and what are not (immoveable property). The clarification says in Para 5 (i) that 'Turnkey projects like Steel plants, Cement Plants, Power plants etc involving supply of large number of components , machinery, equipment, pipes and tubes etc for their assembly /installation/ erection/integration/inter-connectivity on foundation/civil structure etc at site will not be considered as excisable goods for imposition of central excise duty =the components would be dutiable in normal course." The clarification therefore holds the erection of plants as immoveable property and not goods. 43.3 The appellant has submitted that under Section 9(1), the Government is enabled to issue notifications prescribing the rate qua "goods" "services" or "both". In the present case, as per S. No. 234 of Notification 1/2017, the Government has chosen to tax solar products in a particular manner: Devices and parts Solar power generating system } all at 5% Photo voltaic cells Hence, the clear legislative intent is that at all levels, from part to system, GST will be payable at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ARA has held that no details were brought before them and therefore in the absence of documents they have expressed their inability to deal with the question. As no fresh documents were produced before us and also there being no original ruling of the ARA, we hold that we will not deal with the question in the present proceedings. 44. JUDGEMENTS QUOTED BY THE APPELLANT Apart from the judgements already discussed in the 'FINDINGS' part of this order, we also discuss here the other judgements quoted by the appellant. * Rajasthan Construction- The judgement is given under the provisions of the Central Excise Law. Also, there was no case of any agreements made which had to be decided on the touchstone of law but a case of classification. * Phenix Construction Technology vs. CCE, Ahmedabad-II [2017-TlOL-3281-CESTAT-AHM] = 2017 (8) TMI 307 - CESTAT AHMEDABAD The question here for consideration was whether the structures and parts of structures are parts of solar power plant and eligible for the benefit of Notification. This issue is also different from the issue before us. * Jindal strips Ltd. vs. CC, Bombay [2002-TIOL-347-CESTAT-DEL-LB] = 1997 (5) TMI 152 - CEGAT, NEW DELH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Tax Act, 2017? A. 1. The Appellant poses before us to decide if the Engineering, Procurement and Construction contract falls within the definition of 'composite supply' as found in the GST Act. The question is answered in the positive as supply of the said turnkey EPC contract is a 'composite supply' u/s.2(30) of the CGST Act, 2017. The said composite supply falls within the definition of works contract u/s.2(119) of the CGST Act, 2017. Q.2. If yes, whether the Principal Supply in such case can be said to be 'solar power generating system' which is taxable at 5% GST? Ans. We have treated the transaction as a 'Composite supply' and a works contract falling u/s. 2(119) of the CGST Act, 2017 and Para 6 of SCHEDULE II [ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES] treats "works contracts" u/s 2(119) as supply of 'services'. In view thereof, there arises no occasion to go into the issue of 'principle supply'. We proceed to the third question. Q.3. Whether benefit of concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors? A.3 In the absence of any documents before us, we would not be able to deal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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