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TMI Blog2018 (10) TMI 1046X X X X Extracts X X X X X X X X Extracts X X X X ..... it and then re-erecting it as another site. It was also sought to distinguish as to how a concrete base meant just to prevent wobbling of the machine would not place the machine in the category of ‘immovable property’ as something attached to the earth - Based on submission made by applicants, instant case is a single composite turnkey EPC contract of design, engineer, procure, transport, deliver, develop, erect, install, test and commission of project, as there is a single lump sum price for the entire contract. Hence the said EPC contract cannot be split in two separate contracts one of supply of goods and another that of services and taxed accordingly. The Solar Power Plant is a big project and has a permanent location as it is meant for onward sale of power to the consumer. Contract between an EPC contractor and the counter-party is entered into on the premise that the plant would continue to be situated at the place of construction. Such plant would therefore have an inherent element of permanency. The output of the project i.e. Electricity, would be available to an identifiable segment of consumer. Thus this output supply would involve an element of permanency for whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and Commissioning of Solar Power Plant falls under the ambit “Works Contract Services” (SAC 9954) of Notification no. 11/2017 Central Tax (Rate) dated 28 June, 2017 and attracts 18% rate of tax under IGST Act, or 9% each under the CGST and SGST Acts. - RAJ/AAR/2018-19/16 - - - Dated:- 15-9-2018 - NITIN WAPA, AND SUDHIR SHARMA Present for the applicant: Mr. Sumit Rahi (C.F.O.) and Ms Sagar Shah (G.S.T.P) Note : Under Section 100 of the CGST/RGST ACT 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act 2017, within a period of 30 days from the date of service of this order. The Issue raised by the applicant is fit to pronounce advance ruling as it falls under ambit of the Section 97(2) (a), it is given as under: (a) Classification of any goods or services or both; Further, M/s. Solairedirect India LLP the applicant being a registered person, GSTIN is 08ADEFS5194G1ZR, as per the declaration given by him in Form ARA-01 , the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority. Based on the above observations, the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all components Pre-commissioning Commissioning Performance tests Defect rectification 1.4.6 Generation of electricity and connection with the grid The last step in the contract execution is the commencement of production of electricity and successful connection of the power generating system with the grid for transfer of electricity. 1.5 The essence of the contracts is generation of electricity using solar power. The essential deliverable therefore, under the contracts in question is a working solar power generating system, duly connected with the grid for transmission of electricity and the electricity being generated seamlessly as per the technical specifications (like voltage, etc) of the Applicant s customer. 1.6 Applicant has sought to classify the supply of solar power generating system as a composite supply with solar panels being the principal supply under HSN 8541 basis the nature of the product and after considering relevant chapter notes and section notes. Notification No 1/2017 - Integrated Tax (Rate) dated June 28, 2017 prescribes applicable rate of IGST). Photovoltaic cells supplied by Applicant classifiable under Chapter Heading 8541are co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness with the primary intention being to get a complete and operational solar power generating system. He stated that in composite supply one supply should be a principal supply. The term principal supply is defined under Section 2 (90) of CGST Act as the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary. In the instant case, the individual components (like solar panels, inverters, cables, etc.) are not being sold individually. The intention of the parties is to enter into a contract for set up of a power generating system and not for the purchase of the individual components as such. Also, the individual components would not be of use as such unless they are assembled at the site (which would involve element of service) to work as a unit resulting in set up of the power generating system. This implies that the individual components or the services are supplied in conjunction with each other as these are not being sold as such but as a complete unit. The Applicant submitted that the contract undertaken is for supply of goods to customer and setting up power generating system wherein the installation/ ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the contract. He submitted that applicable tax rates on these products should be 5% under heading 8541 as detailed in our submissions in Para 3. Another element of the contract is the allied services. The services involved in the contract in question should be taxed at 18% in terms of the notification no 8/2017 -Integrated Tax (Rate) dated 28 June 2017. 3.4 The Applicant stated that the EPC Contract cannot be classified as a works contract in relation to immovable property or a mixed supply but as a composite supply. The Applicant stated that a contract to qualify as works contract, it must be for or in relation to an immovable property. As per section 3(26) of the General Clauses Act, 1897 immovable property shall include land, benefits arising out of land, and things attached to the earth, or permanently fastened to anything attached to the earth. As per Section 3 of the Transfer of Property Act, 1882, the expression immovable property which means a) Rooted in the earth, as in the case of trees and shrubs; b) Embedded in the earth, as in the case of walls and buildings; c) Attached to what is so embedded for the permanent beneficial enjoyment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication on them. He wanted to know that in case the above contract is not considered as composite supply, can it be split into two i.e. one of supply of goods and another of service and taxed accordingly. Secondly he wanted to know which goods would fall under entry no. 234 of the rate notification as solar generating system. They submitted few judicial precedents in support of their argument. Both these additional queries have been addressed in detail under the 5. Findings, Analysis and Conclusion of the order. Further they reiterated the submission already made in Advance Ruling Application pleaded that the case may be decided as per above submissions and requested the issue to be decided at the earliest. 4.2 The jurisdictional officer in his comments has stated that the applicant is executing the project on turnkey basis which involves planning, procurement, civil work, erection, commissioning, installation and project management services. Hence the nature of contract is that of works contract services and thus to be taxed under SAC 9954. 5. Findings, Analysis and Conclusion: Various kind of contracts usually prevalent for execution of nature of work specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plete civil work relating to invertors and control buildings, store rooms, canopies and such other civil structure and related activities as needed. iv. Erection, commissioning and installation of the solar panels as per technical specification. v. Project management services such as Engineering services of layout and foundation, Erection of the structure, Installation services of all components, Pre-commissioning, Commissioning, Performance tests, Defect rectification. vi. Generation of electricity and connection with the grid i.e. related interconnection facilities and other related infrastructure for evacuation of power (Evacuation Infrastructure). vii. Apart from installation the contractor has to successfully test run the plant over certain period of time to check and ensure the optimum output (generation of electricity) as agreed upon in contract. viii. Final acceptance and payment is done only after successful test run as per condition laid down in contract. d) Under composite EPC turnkey contracts the intention of the owner is not to procure goods of solar power generating syst em but to procure a completely functional solar power plant as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posite turnkey EPC contract as supply of goods of Solar Power Generating System is not rational. j) Applicant has submitted that under GST, there is a monumental shift in concept of Works Contract which was prevalent under erstwhile VAT and Service Tax regime. In GST, as per definition of works contract service if construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning is for immovable property only, then it will classify as works contract only. Hence it means that aforesaid activities if they are undertaken for a movable property then it will not be a works contract service. k) Relying on judgements and citations submitted in Advance Ruling Application the applicant contends that as the solar plant, once installed is capable of being removed and transferred from one place to another without substantial damage hence same should qualify as movable property. Hence in view of above precedence and facts of the case, the given supply should be treated as supply of Solar Power Plant Only. I) As per the terms and conditions usually laid in EPC Contract the contractor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply to the show cause, the respondents explained the processes involved, the manner in which the equipments were assembled and erected as also their specifications in terms of volume and weight. It was explained that the function of the drilling machine is to drill hole in the blast furnace to enable the molten steel to flow out of the blast furnace for collection in ladles for further processing. After the molten material is taken out of the blast furnace, the hole in the wall of the furnace has to be closed by spraying special clay. This function is performed by the mudgun which is brought to its position and locked against the wall for exerting a force of 240-300 tons to fill up the hole in the furnace. The blast furnace in which the inputs are loaded is a massive vessel of 1719 m cubic metre capacity and the size of its outer diameter is 10.6 metres, and the height 31.25 metres. Hot air at 1200 degrees centigrade is fed into the blast furnace at various levels to melt the raw materials. With a view to protect the shell against heat, the blast furnace is lined with refractory brick of one metre thickness. Thus, the drilling machine has to drill a hole through one metre thickne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y conceded the fact that the equipments have to be assembled/erected on the base frame projection of the furnace. She also accepted the submission urged on behalf of the appellant that if the machines are to be removed from the blast furnace, they have to be first dismantled into parts and brought down to the ground only by using cranes and trolley ways considering the size, and also considering the fact that there is no space available for moving the machines in assembled condition due to their volume and weight. She considered the authorities on the subject and came to the conclusion that erection of mudgun and tap hole drilling machine results in erection of immovable property. She noticed the judgment of this Court in Narne Tulaman Manufacturers Pvt. Ltd. (1988 (9) TMI 51 - SUPREME COURT OF INDIA) and also noticed the judgment of the Tribunal in Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd. v. CCE - 1993 (65) E.L.T. 121 = 1992 (10) TMI 188 - CEGAT, NEW DELHI ; which held that the issue of immovable property was never raised before the Supreme Court in Narne Tulaman Manufacturers Pvt. Ltd = 1988 (9) TMI 51 - SUPREME COURT OF INDIA . She found support for her conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the asphalt layer. There were no bolts and nuts for holding the tanks on to the foundation. The tanks remained in position by its own weight, each tank being about 30 feet in height 50 feet in diameter weighing about 40 tons. The tanks were connected with pump house with pipes for pumping petroleum products into the tank and sending them back to the pump house. The question arose in the context of ascertaining the rateable value of the structures under the Bombay Municipal Corporation Act. The High Court held that the tanks are neither structure nor a building nor land under the Act. While allowing the appeal this Court observed :- The tanks, though, are resting on earth on their own weight without being fixed with nuts and bolts, they have permanently been erected without being shifted from place to place. Permanency is the test. The chattel whether is movable to another place of use in the same position or liable to be dismantled and re-erected at the later place? If the answer is yes to the former it must be a movable property and thereby it must be held that it is not attached to the earth. If the answer is yes to the latter it is attached to the earth. If the answer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an article to duty under the Excise Act are that it must be a goods mentioned either in the Schedule or under Item 68 and must be marketable. The word goods applied to those which can be brought to market for being bought and sold and therefore, it implied that it applied to such goods as are movable. It noticed the decisions of this Court laying down the marketability tests. Thereafter this Court observed :- The basic test therefore, of levying duty under the Act is two fold. One, that any article, must be a goods and second, that it should be marketable or capable of being brought to market. Goods which are attached to the earth and thus become immoveable do not satisfy the test of being goods within the meaning of the Act nor it can be said to be capable of being brought to the market for being bought and sold. Therefore, both the tests, as explained by this Court, were not satisfied in the case of appellant as the tube mill or welding head having been erected and installed in the premises and embedded to earth they ceased to be goods within meaning of Section 3 of the Act. In Mittal Engineering Works Pvt. Ltd. v. CCE - 1996 (88) E.L.T. 622 (S.C.) = 1996 (11) TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court in Municipal Corporation of Greater Bombay, Quality Steel Tubes and Mittal Engineering Works Pvt. Ltd. (supra) as also the earlier judgment of this Court in Sirpur Paper Mills Ltd. v. Collector of Central Excise, Hyderabad - 1998 (97) E.L.T. 3 (S.C.) = 1997 (12) TMI 109 - SUPREME COURT OF INDIA . This Court observed :- There can be no doubt that if an article is an immovable property, it cannot be termed as excisable goods for purposes of the Act. From a combined reading of the definition of 'immovable property' in Section 3 of the Transfer of Property Act, Section 3(25) of the General Clauses Act, it is evident that in an immovable property there is neither mobility nor marketability as understood in the Excise Law. Whether an article is permanently fastened to anything attached to the earth require determination of both the intentions as well as the factum of fastening to anything attached to the earth. And this has to be ascertained from the facts and circumstances of each case. It was also held that the decision of this Court in Sirpur Paper Mills Ltd. v. Collector of Central Excise, Hyderabad - 1998 (97) E.L.T. 3 (S.C.) = 1997 (12) TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the drilling machines are really a component of the plant and machinery of the steel plant, but we are satisfied that having regard to the manner in which these machines are erected and installed upon concrete structures, they do not answer the description of goods within the meaning of the term in the Excise Act. Thus, it can be seen that the Hon. Supreme Court while holding the machines as immovable property took into account facts such that the machines could not be shifted without first dismantling it and then re-erecting it as another site. It was also sought to distinguish as to how a concrete base meant just to prevent wobbling of the machine would not place the machine in the category of immovable property as something attached to the earth. m) Applicant has further submitted that if the contract is not to be considered as composite supply, it should be considered as two separate contracts of supplies of goods and services with goods being taxed at the rate of 5% and services being taxed at the rate of 18% i.e. division of contract in two, one for supply of material and other for designing, installation, commissioning and maintenance of plant. Based on submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or supply of goods and another for supply of services and taxed accordingly. 6) An Overview of all makes us observe that the impugned transaction for EPC Contract for the Solar Power Plant which includes engineering, design, procurement, supply, development, testing and commissioning is a works contract in terms of clause (119) of section 2 of the GST Act. 7) Since the impugned transaction for EPC Contract for the Solar Power Plant is a works contract under section 2(119) as supply of services hence question of principal supply does not arise and so GST tax rate of Solar power Generating System under notification No 01/2017-CT (Rate) dated 28.06.2017, at S. No. 234, under HSN Classification 84, 85 and 94 is not applicable. RULING As per the statement of facts submitted by the applicant, the scope of work in respect of Turnkey Composite EPC Contract includes designing, planning civil works, procurement of good, erection, testing and commissioning. Accordingly, Turnkey EPC Contract is not covered under Entry 234 of Schedule I of the Notification no. 1/2017 - Integrated Tax (Rate), Entry 234 of Schedule I of the Notification no. 1/2017 - Central Tax (Rate) both dat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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