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TMI Blog2018 (9) TMI 1339X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of supply clearly show that the implementation schedule is not only for supply but also for erection, testing and commissioning of the plant. Schedule A of the supply agreement part II makes it clear that the complete supplies required for the construction of the 60MW (AC/81 MW DC) Solar PV project shall be in the scope of the supply. The supply of the goods and the supply of works are inextricably linked with each other. It is not that the appellant has been assigned with the work of supply of goods only. But the appellant has been given the task of setting up the Solar generating system . Thus, though the agreements are made separately, it is one indivisible contract for the setting up of the solar power generating plant - The functions relating to the supply of goods and the installation thereof are clearly inter-dependent and though distinct agreements are made they are linked to each other and are indivisible. Whether the contract for the setting up of the solar power generation plant is a composite supply ? - Held that:- By making two separate agreements - one for the supply of goods and the other for the supply for services what is purported to be done is an art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as never to tax the entirety of the goods and services in relation to setting up an SPGS at a significantly higher rate of 18%. Whether parts supplied on standalone basis (when supplied without PV modules) would also be eligible to concessional rate of 5% as parts of solar power generation system? - Held that:- The Advance Ruling Authority had not given any ruling on the above on the following grounds, In the absence of any document before us, we would not be able to deal with this question in the present proceedings. 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 Advance Ruling Authority had not given any ruling on the above on the following grounds, In the absence of any document before us, we would not be able to deal with this question in the present proceedings. Ruling:- The agreements tendered in support of this question are for setting up and operation of a solar photovoltaic plant and are in the nature of a works contract in terms of clause (119) of section (2) of the GST Act. Schedule II ( Activities to be treated as supply of goods or supply of services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aharashtra State for understanding the way forward so that the appellant s right to file an appeal is not adversely affected. 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. M/s. Fermi Solar Farms Private Ltd. (hereinafter referred to the Appellant ) is engaged in operation of renewable energy power plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Authority passed the following order: a. The agreement tendered in support of the transaction reveal that the impugned transaction is for setting up and operation of a solar photovoltaic plant which is in the nature of a works contract in terms of clause (119) of Section 2 of the GST Act, and hence, should be taxable at the rate of 18% b. In the absence of any documents, the AAR was not able to deal with the question regarding applicability of concessional rate of tax on parts of solar power generating system in the present proceedings. 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. Being aggrieved by the Impugned Order, the Appellant prefers the present appeal on the following grounds amongst others to be urged at the time of hearing: GROUNDS OF APPEAL Case 1 - Where all goods are supplied by the contractor including PV modules 1. The proposed transaction is for composite supply of solar power generating system ( SPGS ) as a whole and hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... together as a mechanism or interconnecting network . Similarly, the system is defined in Chambers 20th Century Dictionary as anything formed of parts placed together or adjusted into a regular and connected whole . Hence, system typically includes various components/ parts which are manufactured/ assembled together for performing a function. In the present case, the term system should include all goods provided under the contract which help in end to end generation as well as transmission of electricity. 1.2.3. Furthermore, under erstwhile law also, solar power generating systems were not 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 (hereinafter referred to as Notification 12/2012 ), is 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 sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it to the compact fluorescent lamp of a solar lantern. In view of the above, expert opinion, we hold that e 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. Furthermore, in M/s. Phoenix Construction Technology vs. Commissioner of Central Excise and Service Tax, Ahmedabad-II [2017-TlOL-3281-CESTAT-AHM] = 2017 (8) TMI 307 - CESTAT AHMEDABAD , 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. In Jindal strips Ltd. vs. CC, Bombay [2002-TIOL-347-CESTAT-DEL-LB] = 1997 (5) TMI 152 - CEGAT, NEW DELHI ] CESTAT has observed that component means a constituent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncipal supply. The relevant para of Section 8 of the CGST Act provides as follows: 8. Tax liability on composite and mixed supplies. - The tax liability on a composite or a mixed supply, shall be determined in the following manner, 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. Concept under erstwhile Service tax Laws: 1.3.2. The Appellant submits that the concept of composite supply under GST is identical to the concept of naturally bundled services prevailing in the erstwhile Service Tax regime. Under Section 66F (3) of the Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be provided as a package then such a package could be treated as naturally bundled in the ordinary course of business Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such 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. For example service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business. Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are: There is a single pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted article and in such circumstances are treated as such by the purchaser. The fact that either the frame or the lenses may be purchased separately is not to the point. Similarly the fact that one component, the lenses, is GST-free or that one component is subject to a discount does not alter the characterization. In the case of Saga Holidays, Stone J focused on the social and economic reality of the supply and found that there was a single supply of accommodation and the adjuncts to that supply (including the use of the furniture and facilities within each room, cleaning and linen services, access to common areas and facilities such as pools and gymnasiums and various other hotel services such as porterage and concierge) were incidental and ancillary to the accommodation part of the supply. Per the above, composite supply is taxed as supply of the dominant activity to which others are merely ancillary. In the present case also, the dominant supply is those of goods (which together constitute as solar power generating system) and hence should be taxable as supply of SPGS. European Union Per the European Union Directive, a composite supply is a transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the instant case the intention of the parties is to supply solar power generating system. A perusal of the draft agreement also proves that the intent of the parties is to supply SPGS wherein goods are supplied through onshore and offshore modes for the purpose of setting up SPGS. The relevant extract of the agreement is reproduced below: The Supplier shall perform or cause to be performed all actions as may be required in connection with the supply of the solar power generating system including the design, engineering, manufacturing, inspection, shop testing, packing, fabricating, procuring and delivering all the Equipment, Spare Parts and Materials which are integral part of the Plant, at the Plant Site(for onshore supplies)/destination port in India for off shore supply items (ICD, Airport, Seaport) as set out in detail in Schedule E as per the Specifications in accordance with the terms of this Agreement. The Equipment, Spare Parts and Materials shall be suitable and fit for its intended purpose as provided in this Agreement. All Equipments, Spare Parts and Materials supplied shall be new and without defects. Separate prices are specified for different e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are integral for setting up of the SPGS. It is imperative to note that such activities are integral to provision of SPGS and does not form substantial part of the contract. The contract should be understood as that of supply of SPGS which consists of various components such as PV modules, structures, transmission lines etc. Even if the contract is said to be a composite contract, the principal supply in that case would still be that of SPGS, and hence, the entire contract should be taxable at the rate of 5%. As mentioned in the statement of facts above, it has been acknowledged by the AAR in its order itself that the Appellant is entering into wholesome contracts for supply of SPGS, and hence, the contract should be taxable as SPGS at the rate of 5%. 1.3.6. It is further submitted that Ministry of New and Renewable Energy (hereinafter referred to as MNRE ) in various instances has also approved entire BOQ consisting of various parts e.g. cables, module mounting structures, spares, transmission lines etc. as essential to solar power generating system and hence the concessions applicable have been extended to all goods to be used in solar power plant. Drawing a corollary, con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtracts of the MNRE Circular are reproduced below: Structurals, as such, do not qualify as immovable property and, hence, are outside the domain of works contract service . Whether the EPC contracts qualify as composite supply (u/s 2(30) of the CGST Act) as supply of goods or services or both, naturally bundledor supplied in conjunction with each other in the ordinary 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, since the contract is for supply of SPGS, the same should qualify as a composite supply wherein the principal supply is of SPGS and hence, entire contract should be taxable at 5% 1.3.11. Per the definition of composite supply and scope of work as defined in the agreement, the Appellant submits that the appellant has entered into an agreement for supply of SPGS and the entire agreement should qualify as a composite supply agreement wherein the principal supply is that of SPGS. Thus, the supply should be taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Benchmark Capital Cost Norm for Solar PV Power Project for FY 16-17. In the said case also, the CERC, of the total cost of the project including land cost, PV Modules cost is considered as 62%. 1.4.4. Reliance in this regard can also be placed on the Chartered Engineer s Certificate (hereinafter referred to as CEC ) which provides that the most critical component is PV modules both in terms of the value and functionality that such modules perform. 1.4.5. Reference in this regard is made to the judgment of Delhi Tribunal in the case of Rajasthan Electronics Instruments Ltd. vs. Commr. Of C. Ex., Jaipur = 2004 (7) TMI 259 - CESTAT, NEW DELHI , wherein a Solar Photovoltaic Module was held to be a Solar Power Generating System. Relevant extract of the judgement is reproduced below for ease of reference: 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 notificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er plant. The relevant extract of the draft contract is reproduced below for ease of reference: The Supplier shall perform or cause to be performed all actions as may be required in connection with the supply of the solar power generating system including the design, engineering, manufacturing, inspection, shop testing, packing, fabricating , procuring and delivering all the Equipment, Spare Parts and Materials which are integral part of the Plant, at the Plant Site(for onshore supplies)/destination port in India for off shore supply items (ICD, Airport, Seaport) as set out in detail in Schedule E as per the Specifications in accordance with the terms of this Agreement. The Equipment, Spare Parts and Materials shall be suitable and fit for its intended purpose as provided in this Agreement. All Equipments, Spare Parts and Materials supplied shall be new and without defects. Separate prices are specified for different equipments which are supplied under the agreement for commercial convenience. However, as a general trade practice all the equipments which are being supplied under the agreement are supplied together for setting up a solar power generating system. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, the underlying intention of the parties is to supply SPGS, , and hence, should be taxable at the rate of 5%. As mentioned above, the underlying activities like design, engineering, commissioning etc. are integral for the contractor for providing SPGS under the contract, and hence, such activities are not substantial enough to make the contract as a works contract taxable at the rate of 18%. The Solar power generating s stem is movable in nature and hence is not an immovable property to qualify as works contract 2.3. The Appellant submits that firstly, under the contract for supply of SGPS, the service element is so minimal that it cannot make the contract a works contract. However, AAR in the Impugned Order 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 SPGS is an immovable property and hence, contracts for SPGS would qualify to be works contract. 2.4. The Appellant would, therefore, like to reiterate that the SPGS, as proposed to be supplied by the Appellant is not an immovable property, and hence, cannot qualify to be works contract. However, interestingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant that the machine must be treated as a part of the immovable property of the company. Just because 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 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 ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs, the property is a movable property and for its beneficial use or enjoyment, it is necessary to imbed it or fix it on earth though permanently that is, when it is in use, 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. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and machinery assembled at site: (v) 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 as moveable 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. A conjoint reading of the above along with the judicial precedents, clearly demonstrates that the solar power plant once installed is capable of being moved from one place to another without substantial damage, therefore the solar power plant cannot qualify as an immovable property, and the impugned AAR order should be set aside on this gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that contracts in relation to SPGS are commonly qualified as works contract. In this regard, it is submitted that the intention of the parties to the contract is to procure SPGS and services like design and engineering work, implementation, operation and maintenance are essential for supplying the solar power system. The contract for supply of SPGS cannot be said to be a works contract only because of the fact that the supplier performs certain services to make the same available to the buyer. 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 this regard, it is submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latform. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovable property for the reason that the plant was not intended to be permanent at a given place and the plant can be moved and is 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 at the site only for operational efficiency and not with the intention of permanently affixing the plant to the earth. The AAR has distinguished the aforesaid judgment on the basis that the plant was indeed moved after the road construction or repair project for which it is set up is completed. In this regard, it is submitted that the fact that something is capable of being moved shows that it is not immovable in nature. The fact whether it is actually moved or not, does not change the nature of the property, and hence, the AAR has misinterpreted the judgment in the instant case. Rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Supply of parts/components of solar power generating system should be taxable at the rate of 5% as supply of parts of solar power generating system 3.1. In certain cases, not all parts of solar power generating system are supplied by the 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 the contractor for supply of remaining goods. In such case, the parts supplied should be eligible to concessional rate of 5% as the entry covers Renewable energy devices and parts for their manufacture , which means parts of SPGS would also qualify for concessional rate of 5%. 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 whole equipment, which has a specific function. 3.3. Compared to a part , an accessory is essentially a piece which enhances the functionality of equipment and adds to the function of the equipment. However, even without the accessory the equipment can function on its own. 3.4. In the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bles, earthing cables, wind farmer computer will be eligible for benefit of exemption under Notification No. 64/94 - Cus. The Tribunal held that power cables and control cables together form part of inside cabling of wind turbine controller. Since, control cables are eligible for exemption, the benefit of exemption has to be extended to power cables also. In Pushpam Forging vs. CCE, Raigad [2006 (193) ELT 334 (Tri-Mum)] = 2005 (7) TMI 242 - CESTAT, MUMBAI , the Tribunal held that flanges are parts of windmill tower which is in turn 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 Wind Operated Electricity Generator In CCE vs. Megatech Control Pvt. Ltd. [2002 (145) ELT 379 (Tri-Chennai)] = 2002 (5) TMI 112 - CEGAT, CHENNAI , the Tribunal heid that control panels are part of wind operated electricity generators and are meant specifically for wind 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular kind of machine (described in Chapter 84) is required to be classified with machine of that kind mentioned in Chapter 84. Therefore, what has now to be examined is, when Heading No. 84.31 describes the goods (article) classified thereunder as machinery for making or finishing cellulosic pulp, paper or paper-board whether the goods or article Granite Press Roll , which is held by CEGAT itself, to be a part or component of paper making machinery, does warrant its classification thereunder. In our view, when Note 2 to Section XVI requires classification of parts of machines to be made according to rules given thereunder and when rule (a) thereunder requires goods (part of machine) of a kind described in any of the Headings of Chapters 84 and 85 (other than Nos. 84.65 and 85.28) under respective Headings, every machinery for making or finishing cellulosic pulp, paper or paper-board, requires to be classified under Heading 84.31. Then coming to `Granite Press Roll the imported article under consideration, being a part of machine of goods `Machinery for making or finishing cellulosic pulp, paper or paper-board which is suitable for use solely or principally as machinery for fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olar power generating system, thus the same should be classified as SPGS itself. 3.11. It is submitted that generation of power by way of solar energy is one of the key promoters for the Government s aspiration of Make in India . The Government has set target of 175 GW of renewable power by 2022 which includes 100 GW of solar power. Per Make in India website set up by the Government of India, India s annual solar installations would grow four times by 2017. If the goods supplied under the contract for construction of solar power plants is taxed at separate rates applicable on the individual goods, it would lead to higher tax burden on the developer of the solar power plants. Please note that since electricity has been exempted from GST, GST payable on the input side would burden the developer and hence, would prove detrimental to the growth of solar power generating plants in the country. Accordingly, concessional rate of 5% should also be available to parts of solar power generating system supplied on standalone basis. 3.12. Basis the understanding, it can be deduced that the components which are essential for setting up of the solar power plant together will qualify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough 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 Specification Manual and in accordance with the terms of this Agreement, to the satisfaction of the Owner. It is further clarified that the Owner will have a right to accept or reject a Affiliates or Subcontractor at its discretion and Owner s decision in this regards would be binding on the Contractor, provided such acceptance shall not be unreasonable withheld. In terms of Schedule III of the agreement, the scope of work includes design, engineering and studies, transportation, unloading, storage and site handling, installation and commissioning of equipments and material services. It further includes erection, testing and commissioning of solar power projects, erection testing and commissioning of solar modules, module mounting structures etc. Under GST, service has been defined as anything other than goods and the general rate of services is 18%. The Appellant in this regards submits that such contract is a separate contract for services itself and hence has to be taxed on independent basis. In our understanding, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arts used for setting up of SPGS should also be eligible for concessional rate of tax (if in heading 84, 85 and 94) and the said benefit should be available to sub-contractors as well. Further, the contract for supply of services, is an independent contract for pure services, wherein the contractor is required to undertake services such as installation, civil works related activities etc. Hence, the said contract should be read and considered independent of the contract for supply of SPGS, and should be taxable at the rate of 18%. ADDITIONAL SUBMISSIONS 6. At the outset, reference requires to be made to the charging provision under the Central Goods and Services Tax Act, 2017 ( CGST Act ), viz. Section 9. 9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar 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/plants (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 Heading 9954 (Construction services) (ii) composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017. 9 - (xii) Construction services other than (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x)and (xi) above. 9 - 11. Section 8 of the CGST Act then prescribes the tax liability in case of inter alia a composite supply , as follows: 8. The tax liability on a composite or a mixed supply shall be dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and suffer two distinct levies of GST on the respective consideration for each supply, at the rates prescribed for goods/ services by way of notification. In the present case, under Section 7(1)(a), the Supply Agreement would be taxed qua the consideration mentioned therein, as a supply of goods at the rate of 5% under Notification 1/2017. The Services Agreement would be taxed as a supply qua the consideration mentioned therein as a supply of services at the rate of 18% under Notification 11/2017. 14. Furthermore, in terms of the settled principles for interpretation of contracts, the Hon ble Supreme Court had held time and again that the Department cannot question the commercial wisdom of the parties entering into an agreement, and must proceed on the basis that what is stated in the contract reflects the true nature of the intent and transactions. It is therefore impermissible for the tax authorities to go behind the language of the contract or act contrary to it. Reliance in this regard is placed on the below decisions: Union of India v. Mahindra and Mahindra [1995 (76) E.L. T. 481 (S.C.)] = 1995 (3) TMI 88 - SUPREME COURT OF INDIA The collaboration agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read together, constitute a works contract which is taxable at the rate of 18%, as the liability of the contractor does not end with the procurement of materials but extends till the successful testing and commissioning of the system (refer Pg. 63 of the Appeal Memo). The requirement that a works contracts must be for immovable property is met, as the solar power plant could not be shifted without first dismantling it and the re-erecting it at another site (refer Pg. 76 of the Appeal Memo). Once it has been determined that the transaction is a works contract , there is no need to enter into any discussion as to the transactions involving a composite supply (refer Pg. 74 of the Appeal Memo). 18. It is submitted that the aforesaid findings under the Impugned Order are completely unsustainable and bad in law, as the same completely misread the provisions of: (i) Schedule II to the CGST Act pertaining to works contract ; and (ii) the rate prescription for works contract under Notification 11/2017. Both as per Schedule II and Notification 11/2017, the contract in question must first be a composite contract and then it is to be determined whether it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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%. 23. 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; A system could be movable or immovable. 24 . In this regard, the word system (which is undefined under GST) is to be understood as follows: Ordnance Factory vs. CCE, Nagpur [2013 (295) ELT 600 (Tri-Mum)] = 2011 (12) TMI 401 - CESTAT, MUMBAI As per the Oxford Dictionary (Tenth Edition), the definition of the term system is a complex whole, a set of things working together as a mechanism or interconnecting network . Similarly, the system is defined in Chambers 20th Century Dictionary as anything formed of parts placed together or adjusted into a regular and connected whole . P. Ramanatha Aiyar s Advance Law Lexicon (5th Edition) System means a set of inter-related or interacting elements 25. In terms of the aforesaid, given that S. No. 234 refers t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. The findings in the Impugned Order that the SPGS is immovable property are erroneous and unsustainable: 30. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CBEC Circular No. 58/1/2002-CX dated 15.01.2002 (l) It is submitted that the last judgement in the aforesaid line of decisions on the issue, which prescribed the 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for construction which also involves a transfer of title/ ownership in goods. The predominant element is, therefore, that there must be a contract for rendition of services, viz. construction services. Accordingly, where the predominant element is supply of manufactured goods which are imported, or, locally procured, the definition of works contract will clearly not be satisfied. 33. 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 34. 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): 35. All parts/ components supplied on a standalone basis or by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 8409, 8431, 8448, 8466, 8473, 8487, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings; (b) other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 8479 or 8543) are to be classified with the machines of that kind or in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and purchases of services. It is further observed that the agreement has been entered into not merely for supply of equipment but also for design and engineering work before supply of equipment and the Supplier is involved in the project from the engineering and design stage. Hence, the agreement is for supply of SPGS as a whole because the responsibility of the supplier also includes execution and implementation of the project. On the basis of the above observations, the Advance Ruling Authority passed the following order: a. The agreements tendered in support of the transaction reveal that the impugned transaction is for setting up and operation of a solar photovoltaic plant which is in the nature of a works contract in terms of clause (119) of Section 2 of the GST Act, and hence, should be taxable at the rate of 18% b. In the absence of any documents, the AAR was not able to deal with the question regarding applicability of concessional rate of tax on parts of solar power generating system in the present proceedings. 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 he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply is for SPGS and hence the entire contract should be taxable @ 5%. As for the ENGINEERING AND CONSTRUCTION AGREEMENT , it is argued that it is an independent contract for pure services and hence the said contract should be read and considered independent of the contract for supply of SPGS and should be taxable @18%. 39. It is seen from the agreement that though the parties have entered into distinct and separate contracts, one for the transfer of material and other for supply of services, this is in effect a single instrument embodying the intention of the parties. In turnkey projects more particularly of the kind involved in this impugned issue the same person has been entrusted with the responsibility of procuring the material and of erection and installation of equipment. Though as per the contention of the appellant, goods formed a predominant part of the contract, the obligation of the appellant under both the contract ceases only after the turnkey project becomes operational and after the final payment is made both for supply of material and for erection of the system. It is seen from the supply agreement ( B of the beginning of the agreement) that the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng works and services, they are in fact one single indivisible contract. The goods supplied to the owner by the appellant are specifically brought for the purpose of the erection of the system. The appellant is entrusted with the work mainly for their expertise in erection and installation of the plant in the execution of turnkey project. The function relating to the supply of material and the rendering of services of erection and installation are integrally connected and interdependent. The terms of supply clearly show that the implementation schedule is not only for supply but also for erection, testing and commissioning of the plant. Schedule A of the supply agreement part II makes it clear that the complete supplies required for the construction of the 60MW (AC/81 MW DC) Solar PV project shall be in the scope of the supply. 41. Thus, from the above it is seen that the supply of the goods and the supply of works are inextricably linked with each other. It is not that the appellant has been assigned with the work of supply of goods only. But the appellant has been given the task of setting up the Solar generating system . Thus, though the agreements are made separatel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant mentions the website as www.canadiansolar.com . The Internet shows that Canadian Solar is one of the three biggest solar power companies in the world. Thus, what the appellant brings to the project is his expertise in procurement as well as erection/setting up /installation of the plant. 44. We would also like to refer to certain observations made by the Advance Ruling Authority in the instance case. The Authority has referred to Schedule A of the AGREEMENT FOR SUPPLY OF SOLAR POWER GENERATING SYSTEM and has observed that the Supplier (appellant) is appointed not merely to supply equipment but there is design and engineering work. Schedule J says that Specifications/Design basis for various equipment shall be mutually agreed between Supplier and Buyer during the early engineering period . Thus, the involvement of the appellant is from the engineering stage. The definition of Other Contractors is also touched upon. This is defined as other contractors engaged by the Supplier to implement, operate and maintain the Plant . We agree with the observations of the Advance Ruling Authority that this clause shows that the Supplier (appellant) would implement, operate and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se in the agreement as below- Appendix-H of the L T Vemagiri supply agreement stipulates that 5% of the price shall be paid on successful test for the identified packages as per the pricing and technical specifications; 5% of the price on provisional acceptance; and 5% of the price on final acceptance. Provisional acceptance is defined under the supply agreement to mean the achievement of provisional acceptance as defined in the civil works and erection agreement, and in accordance with the terms thereof. It is evident, therefore, that 10% of the payment under the supply agreement is required to be made only after provisional and final acceptance as stipulated under the erection agreement . The Court concluded- The goods supplied to the owner, under the supply contracts, are tailor made goods, and cannot be bought off the shelf. Such goods cannot, ordinarily, be sold to another except for its use in turnkey projects of a similar nature. The petitioners have been entrusted with the work mainly for their expertise in erection and installation of plants in the execution of turn-key projects. As they were entrusted with the work of erection and installation, the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent elements are integral to flow of supply i.e. one or more is removed, the nature of the supply would be affected. Thus, we hold that though there are two agreements made one for the supply of goods and the other for the supply of services, what can be easily gathered from the tenor of both the agreements is that the buyer has given a contract for setting up SPGS to the appellant and therefore it is a single indivisible contract which involves element of two supplies- one for the supply of goods and other for the supply of services. By making two separate agreements - one for the supply of goods and the other for the supply for services what is purported to be done is an artificial division of contracts which though done, cannot take away the true and inherent nature of the contract. It is a single supply of a SOLAR POWER GENERATING SYSTEM consisting of two or more taxable supplies. This is clearly a case of composite supply of goods and installation thereof. The entire transaction of providing the goods and the services are naturally bundled- it is natural and also a practice to expect that a contractor who will supply the goods may also supply the services along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the same is a composite supply, we have to decide the issue about what would be the principal supply and whether it would be a supply of services or supply of goods. The ARA has held that the impugned transaction for setting up and operation of a solar photovoltaic plant which is in the nature of a works contract in terms of clause (119) of Section 2 of the GST Act, and hence, should be taxable at the rate of 18%. The moot question, therefore, is whether the agreement before us is a works contract as defined in clause (119) of section 2 of the CGST Act or otherwise. The definition of works contract is reproduced below. (119) works contract means 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; Clause 6 of the Schedule II lists the two composite supplies which shall be treated as supply of services. Clause 6(a) of Schedule II of the CGST Act states that Works Contract as defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to the plant and keep its operation vibration free then it cannot be called as Immoveable property . If the setting up of the plant itself is not intended to be permanent at a given place and if the plant can be moved and is indeed moved after the road construction or repair project for which it is set up is completed, then also it cannot be termed as Immoveable property . 51. So, what to be seen above is that in deciding whether a property is movable property or otherwise, we have to see what is the mode of necessary annexation and the object of annexation. If object is so annexed that it cannot be removed without causing damage to the land then it gives a reasonable ground for holding that it was intended to be annexed in perpetuity. Also whether the intention of the parties while erecting the system was that the plant has to be moved from place to place in the near future would also make a difference. We have to see by relying upon the above principles i.e. 1) mode of object of annexation 2) mode of annexation whether the plant was installed merely to make it wobble free or it is affixed to the earth. Also, it needs to be seen whether the setting up of the plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m in the present case is a ground mounted or ground based Solar Power system. A simple ground mounted system (for a home), requires a customized positioning at the perfect angles for absorbing sunlight. In a ground mounted system, good planning is a big part of placing solar panel ground mounts as the installer has to choose a location that receives the ideal amount of daily sunlight and uses space effectively. Installing ground-mounted solar panels always starts with building a stable base. Traditional ground-mount systems, essentially all work the same-systems anchor to the ground and hold a large number of stacked panels, often two but sometimes three or four panels high. Two rails usually support each panel, whether oriented in landscape or portrait. The anchoring to the ground is the tough part of these installations, as there are many different types of foundations. If the soil is clear of debris, steel beams are driven into the ground and the racking system is attached to the beams. If ground conditions are not suited for smoothly driven beams, anchor systems may be used- helical piles, ground screws. These can take more time to install as they have to power through boulders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d finishing schedule, building layout and details of foundations, trenches, grade slab, plinth beam, equipment foundations, roof etc. and drawings of the module supporting structures. The above itself shows the huge work and detailing of the project . The payment milestones shown in Schedule IV amongst others shows 5% against drawing submissions, 15% on completion of civil works, 15% against transmission line. The Engineering and Construction Agreement ( Services Agreement ) covers: (a) the erection, installation and commissioning of the SPGS; (b) the civil works services in terms of construction of the foundation, roads and drainage, sub-station etc. 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 and soil survey. As said earlier, the amount of drawings done indicates the magnitude of the work done. Solar systems tend to be tailored specifically to fit the dimension ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 mounted and erected. It observed that the machines cannot be lifted in an assembled condition and after taking note of these facts, it concluded that the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 57 . The appellant has produced a certificate from a Chartered Engineer stating that the Solar Power Plant is made of equipment which are largely moveable in nature, if required, the equipment can be moved from one land parcel to another. This may happen in cases where there is a requirement to shift the wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 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 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%. The said notification is reproduced below: 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/plants (h) Photo voltaic cells, whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny document/agreement which would show what solar parts are supplied by the sub-contractors. Also, it is not known as to whether a complete system is purported to be sold or the parts thereof. Therefore, in the absence of any documents we cannot give any decision in the said case Also, as an appellate authority we can only decide issues already decided and appealed against. There being no decision given by the advance ruling authority, we cannot give any decision in appeal. 66. JUDGEMENTS QUOTED BY THE APPELLANT- Apart from the judgements already discussed above, 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 fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HETHER 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%? The agreements tendered in support of this question are for setting up and operation of a solar photovoltaic plant and are in the nature of a works contract in terms of clause (119) of section (2) of the GST Act. Schedule II ( Activities to be treated as supply of goods or supply of services) treats works contract u/s 2 (119) as supply of services .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 Tax Act, 2017 (IGST Act) or the Notification no 11/2017 Central Tax/State Tax (Rate)under the CGST Act and MGST Acts. The rate of tax would be 18% under the IGST Act and 9% each under the CGST Act and the MGST Act, aggregating to 18% of CGST and MGST Act. 68. WHERE OTHER PARTS AND COMPONENTS ARE SUPPLIED BY THE CONTRACTOR (NOT PV MODULES), WHETHER THEY WOULD ALSO BE ELIGIBLE TO CONCESSIONAL RATE OF 5% AS PARTS OF SOLAR P ..... X X X X Extracts X X X X X X X X Extracts X X X X
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