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TMI Blog2020 (3) TMI 1041X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the tender is for Implementation of ESCO project which includes Supply, Installation, Operation and Maintenance of LED Street Lights . Hence the predominant and principal factor is to supply and install LED street lights, on the existing street light poles and then to perform the activity of day to day management of the said LED street lights by operating maintaining such equipment to achieve energy savings. Thus the day to day operation maintenance of the LED Street lights can only take effect after the supply and installation of the said LED street lights. Without installation, there can be no day to day management in the form of operation maintenance of LED street lights. In view of the above, the principal supply in the impugned transaction is that of supply of goods i.e. LED street lights. The impugned transaction consists of supply of goods and services, made in conjunction with each other in the ordinary course of business; supply of goods / services are naturally bundled; the contract becomes a composite supply where the principal supply is that of goods and the supply of service is incidental / ancillary to such supply of goods. It is an undisputed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Representative ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2017 UNDER 98(4) or THE KGST ACT, 2017 1. M/s. Karnataka State Electronics Development Corporation Limited, (called as the Applicant hereinafter), 2nd Floor, TTMC A Block, BMTC Complex, K H Road, Shanthinagar, Bengaluru - 560 027, Karnataka., having GSTIN number 29AABCK6661P1ZT, have filed an application for Advance Ruling under Section 97 of CGST Act,2017 KGST Act, 2017 read with Rule 104 of CGST Rules 2017 KGST Rules 2017, in form GST ARA-01 discharging the fee of ₹ 5,000/- each under the CGST Act and the KGST Act. 2. The applicant (KEONICS), a Karnataka State Government Entity, is engaged into providing street lighting services, under the Performance Contract (ESCO contract) to the Thane Municipal Corporation (TMC), Thane for a period of 7 years. The ESCO contract is on shared saving model and is to reduce the overall consumption of electricity in street lighting. 3. The Applicant has to operate and maintain 12,000 street lighting fixtures respective feeder panels i.e. installation of LED fixtures, smart electric panels for automation, metering comprehensive maintenance. The role of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship in goods are vested to TMC at the end of tenure? What would be the value of the aforesaid taxable supply given the fact that it is based on energy savings which can be computed only when the energy auditor certifies the workings submitted by KEONICS ? 6. APPLICANT S UNDERSTANDING OF THE LAW: 6.1 The applicant contends that their activity amounts to supply of pure service, in terms of GST Act, on the basis of the following reasons. a) Dominant object of contract is street lighting and saving, but not supply of LED lights. b) The only supply involved is supply of LIGHT and LIGHT is not goods. c) Installation of LED lights is a self-activity no separate consideration is received. The applicant has the control and access of lighting systems during the entire contract period. d) The transaction is not a composite supply at all. e) Even if the transaction amounts to composite supply, it would not be works contract and the principal supply would be energy performance service. f) Consideration / remuneration is computed purely on the basis of energy savings and performance, on monthly basis. g) The applicant is liable for penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following sequential manner: Due date of payment as per contract, where due date is ascertainable Actual receipt of payment where due date is not ascertainable. Payment linked to completion of event, the date of completion of event. Section 13 provides the time of supply of service and also the liability to pay tax, as the earliest of the following: Date of issue of invoice which should necessarily be 30 days from the date of provision of service (r/w Section 31 and Rule 47 of the CGST Rules 2017) Date of provision of service where invoice is not issue within 30 days Date of receipt of payment. In the instant case, the applicant should submit the monthly invoices along with the savings calculation as per schedule 3 of the contract. The payment would be released to the applicant only after the energy savings report is submitted to TMC third party energy auditor and the same is verified approved. In view of the above, the applicant contends that the due date of payment is not the end of the month, but is only after the energy savings report is submitted verified by TMC/energy auditor. The payments are released only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant, M/s. R Singhvi Associates, duly authorised representative of the applicant during the personal hearing. We have also considered the issues involved, on which advance ruling is sought by the applicant, and relevant facts. 8.2 At the outset, we would like to state that the provisions of both the CGST Act and the KGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the KGST Act. 8.3 The applicant, consequent to winning of the bid for implementation of ESCO (Energy Saving Contract) project i.e. Design, Supply, Installation, Testing, Commissioning including operation maintenance of LED street lights , has been awarded ESCO with the responsibility of street lighting with LED fittings in Thane Municipal Corporation (TMC) area, for a period of 7 years. 8.4 The applicant s responsibilities, pursuant to the aforesaid contract, include installation, operations maintenance of the street lights; on off of the street lights; repair replacement of the street lights at their own cost; ensuring of the street li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f issue of invoice or last date of its issuance as per Section 31 of the CGST Act 2017 (ii) date of receipt of payment with respect to supply; consideration is received on monthly basis during the entire tenure of the contract and is equivalent to the value of 90% of energy saved; the goods are handed over at the time of termination of contract and hence the time of supply of goods would be at the end of the tenure of contract i.e. at the end of 7 years, 9. The main issue before us to decide is whether the activity of the applicant herein amounts to supply of goods or supply of services and then the time of supply of the said supply. We proceed to examine, the nature of supply, of the applicant. 9.1 We examine the Tender Notice No.46, wherein the nature of work is mentioned as Implementation of ESCO project which includes Design, Supply, Installation, Operation and Maintenance of LED Street Lights . It is clearly evident from the aforesaid nature of work that the contract involves design, supply installation of LED Street Lights and thereafter operation Maintenance of the same. The entire contract depends on supply of LED Street Lights without which the other aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es within 48 hours of replacement. (Clause 7. I of the contract) (vi) The Contractor shall remain the owner of the equipment and systems installed, during the term of the contract; shall undertake all the procurement of equipment and services necessary for the project; shall handover any replaced equipment (which shall be free of lien), fittings or other items to TMC with proper documentation for TMC s verification; shall submit to TMC a list of all the equipment, fittings or other items that were replaced during the terms of project. (Clause 7.2 of the contract) (vii) At the expiry of the term, all the rights and titles to, and interests in, all improvements and software hardware installed in control room along with equipment constructed or systems installed are vested in TMC. The contractor shall surrender possession of the said equipment and systems to TMC in good repair and condition, reasonable wear and tear accepted. (viii) The TMC shall pay the contractor a fee for the energy savings (the Energy Savings Fee ) in Indian Rupees, as consideration for the energy savings achieved with respect to the energy baseline consumption norm. The energy savings fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. LED street lights. 12. Therefore, the impugned transaction consists of supply of goods and services, made in conjunction with each other in the ordinary course of business; supply of goods / services are naturally bundled; the contract becomes a composite supply where the principal supply is that of goods and the supply of service is incidental / ancillary to such supply of goods. 13. Now we proceed to decide the classification of the aforesaid composite supply and the GST rate applicable thereon. The principal supply of the said composite supply is that of goods i.e. LED street lights along with relevant fixtures. The LED lights or fixtures including LED lamps are classified under Chapter Heading 9405 and attracts CGST @ 6%, in terms of SI.No.226 of Schedule II to the Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017, as amended. 14. The applicant contends that their impugned supply qualifies to be a supply of pure services, provided to the Thane Municipal Corporation (TMC), in terms of the functions entrusted under Article 243 W of the Indian Constitution and hence the said service is exempted under Entry No.3 of the Notification No. 12/2017-CentraI Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on energy savings; value of such invoice is equal to 90% of the energy savings. It is pertinent to mention here that the energy savings are directly related to the functioning and quality of the LED Street lights etc., i.e. the goods supplied by the applicant. Therefore, the applicant receives the consideration, through the contract period i.e. 7 years, on a monthly basis, on the energy savings. Thus the monthly consideration includes the value attributable to the supply of the goods also. The time of supply of goods in terms of Section 12(2)(a) of CGST Act 2017 is the date of issue of invoice by the supplier. Further, in terms of explanation 1 to the aforesaid Section 12(2), supply shall be deemed to have been made to the extent it is covered by the invoice. Thus the time of supply in the instant case is the date of invoice. 19. In view of the foregoing, we pass the following RULING 1. The street lighting activity under the Energy Performance Contract dated 05.12.2016 amounts to composite supply where the principal supply is that of supply of goods. 2. The rate of tax applicable on this transaction is 12% (CGST-6% SGST-6%), in terms of Sl. No. 226 of Schedule II ..... X X X X Extracts X X X X X X X X Extracts X X X X
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