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TMI Blog2019 (3) TMI 920X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the Advance Ruling No. RAJ/AAR/2018-19/08 Dt. 1.8.2018 = 2018 (9) TMI 693 - AUTHORITY FOR ADVANCE RULING, RAJASTHAN. 3. Brief Facts of the case 3.1. Appellant undertakes itself in executing 'Engineering Procurement, and Commissioning' - EPC contracts for Solar Power Generating Systems commonly known as 'Solar Power Plants' 3.2. Typically a contract is entered into by the Appellant to do end to end setting up of a solar power plant which includes supply of various goods (such as modules, structures, inverter transformer etc.) as well as complete design, engineering and transportation, unloading, storage and site handling, installation and commissioning of all equipments and material, complete project management as well as civil works/construction related services for setting up of a functional Solar Power Plant. Accordingly, the contract entered into by the Appellant includes end to end activities supply of various goods and services and hence is for the supply of Solar Power Generating System. 3.3. The intent of the contract is that the entire contract would be undertaken by the Appellant for supply and setting up of the Solar Power Plant which includes supply of both goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d attracts 18% rate of tax under IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%. 4. GROUNDS OF APPEAL: 4.1 SUPPLY OF GOODS As per terms of the contract and definition of Composite and Mixed supply, the given work requires classification as composite supply only. Since the contract is in relation to Solar Plant (supply and installation) they are bundled in ordinary course of business. The term "goods" has been defined under section 2(52) as "goods" means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. The term "services" has been defined under section 2(102) "services" means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. Further, section 7(1)(d) of the CGST Act 2017 provides for the activities which shall be treated as either supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 works contract service. That in the typical Erection and Supply of Solar Power Generating System, which is also proposed to be undertaken here, the process which is followed by the appellant is as under : * The Appellant submits the implementation schedule which is reviewed and approved by the purchaser. * The Solar panels and other related items are procured by the Appellant and delivered to the site. * Post receiving the access to the project site, the appellant starts the assembling of items and also creating of foundations for erection of the Solar Panels. After this, other related equipment like inverters, wiring and other connections are completed. * The Project Management is also part and parcel of the contract like Engineering services, Erection of the structure, Installation, Performance Tests and Defect rectification. * The last step of the contract execution is the commencement of the production of electricity and successful connection of the power generating sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractor) during the personal hearing. 6. DISCUSSION & FINDINGS : We have heard the appellant and have gone through the entire case records and written and oral submissions made by him. The issues to be decided are : (i) Whether contract for supply of/construction of a Solar Power Plant, wherein both goods and services are supplied, can be construed to be a composite supply in terms of Section 2(30) of the Central Goods and Services Tax Act, 2017 as claimed by the appellant or the same is Works Contract Services as per the Ruling made by the AAR. (ii) Whether 'Solar Power Generating System' is a movable or immovable property (iii) If the transaction is treated as a 'composite supply', whether the Principal Supply in such case can be said to be 'solar power generating system' which is taxable at 5% GST? 6.2. From the said copy of the composite EPC contract, it is seen that there is a single contract for supply of '15 MWAC /21 MWDC Solar Power Plant' in the State of Karnataka and Kushtagi Solar Power (P) Ltd., the owner, has appointed the RFE Solar (P) Ltd., the appellant, for supply of the 'Solar Power Plant' which includes 'Engineering, design, procurement, supply, development, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the intention of the buyer in giving the contract. The supply of goods and services are provided as a package and the different elements are integral to flow of supply i.e. one or more is removed, the nature of the supply would be affected. Thus, from a reading of the entire contract as well as from the definition of composite supply what can be easily gathered is, that the buyer has given a contract for setting up Solar Power Generating System to the Appellant and therefore it is single composite supply of goods and services and installation thereof. 6.9. In order to understand the scope of a 'composite supply' and also to know what may be the criteria to judge a supply as a 'composite supply', the CBIC has published an e- flier on the subject. As per the e-filer, 'Composite supply' entails the concept of 'naturally bundled supply', and whether services are bundled in the ordinary course of business would depend upon the normal or frequent practice followed in the area of business. It also says that in order to qualify for a composite supply one of the characteristic would be that ' none of the individual constituents are able to provide the essential character of the service'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence, should be taxable at the rate of 18%. The moot question, therefore is whether the contract before us is a 'works contract' as defined in clause (119) of section 2 of the CGST Act. 6.12. 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; 6.13. 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 in Clause (119) of Section 2 of the CGST Act shall be treated as 'supply of services'. 6.14. From the definition it is clear that it defines only those supplies as works contract which are contracts for building, construction, fabrication etc of any immovable property. 6.15. Whether the erection of the 'Solar Power Generating System' amounts to erection of immovable property? In or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The entire mechanism of a SPGS is that solar panels/PV modules are connected together to create a solar array. Multiple panels are connected together both in parallels and in series to achieve higher current and higher voltage. The electricity produced by solar array is direct current, and therefore, inverters are required to convert Direct Current into Alternating Current and connection to utility Grid is made through High Voltage Transformer. 6.19. As per the said contract, for setting up of a Solar Power Generation System, the following steps are involved : * Soil 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. 6.20. 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 equip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a frame and checking the foundation work, the panels are installed. The panels have to be carefully positioned. Finally, panels are wired to the inverter, trenches are dug and connections between the system and the property's electrical panel or solar home battery is buried. 6.22. What is described above is a solar power system for a home. What we have in the instance is a 'WHOLE SOLAR POWER GENERATION SYSTEM'. One look at the contract, gives an idea of the scope of the work. The array of goods includes Solar PV Modules, lnverters 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, Module cleaning system, Illumination and ventilation system, Earthing system ,Site enabling facilities and Mandatory spares. The initial steps include the Drawings and Detailing of the system. * As per contract, obligation of the Contractor amongst other things includes Plant information and 'Plant Information' in turn includes works relating to 'Pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be in the interest of the buyer to move it from one place to the other. Thus, the project fulfils both the conditions of an immoveable property - The mode of annexation shows that the groundwork, being the necessary foundation, is an important part of the project. The object of annexation, as said earlier, cannot be to make it movable from one place to the other. It simply cannot be equated to the Asphalt mix (the issue in Solid &Concrete Engg) which was intended to be moved from one place to another. In the present case, we have seen that the detailing of the system being what it is, it cannot be called a 'simple machine' by any stretch of imagination. The PV module may be an important part of the system but what is intended to be bought is not the PV module but an entire system. Thus, we affirm the conclusion drawn by the AAR that the contract entered into, lead to the erection of a Solar Power Generating System. 6.24. We shall refer to certain judgements in this regard. The Advance Ruling Authority has referred to the Supreme Court judgement in the case of M/s. T.T.G. Industries Ltd., vs Collector of Central Excise [2004 (167) ELT 501 (SC)] = 2004 (5) TMI 77 - SUPREME COURT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Mittal Engineering Works (P) Ltd. 1996 (88) ELT 622 (SC) = 1996 (11) TMI 66 - SUPREME COURT OF INDIA. 6.25. Reference is also made to another Supreme Court decision in the case of Duncans Industries Ltd Vs State of U.P. & Ors on 3 December, 1999 = 1999 (12) TMI 857 - SUPREME COURT OF INDIA where the SC had to decide whether the 'plant and machinery' in the fertilizer is goods' or 'immoveable property. The Apex Court held that the same is immovable property and observed : "The question whether a machinery which is embedded in the earth is movable property or an immovable property, depends upon the facts and circumstances of each case. Primarily, the court will have to take into consideration the intention of the parties when it decided to embed the machinery whether such embedment was intended to be temporary or permanent. A careful perusal of the agreement of sale and the conveyance deed along with the attendant circumstances and taking into consideration the nature of machineries involved clearly shows that the machineries which have been embedded in the earth to constitute a fertiliser plant in the instant case, are definitely embedded permanently with a view to utilise the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant has also produced order of 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, however, would be dutiable in normal course." The clarification therefore holds the erection of plants as immoveable property and not goods. 6.30. The appellant has submitted that the Government, as per S. No. 234 of Notification 1/2017, 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 5%. and not at a significantly higher rate of 18%. The said Notification is reproduced below: Sl.No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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