2021 (2) TMI 1292 - AAR - GST

Classification of goods & services in EPC contract for solar power unit: GST rate ruling

In Re: M/s. Zuberi Engineering Company,

The case involved the classification of goods and services in an EPC contract for a solar power unit in an irrigation system. The applicant sought ... Rate of tax - construction and installation of solar power unit as a part of the EPC contract - irrigation system has to be operated on solar power - scope of the works contract - HELD THAT:- is clear that the applicant is neither manufacturing renewable energy devices & parts thereof nor providing Service by way of construction or engineering or installation or other technical services in relation of setting up of renewable energy. The tender is for supply of the lift irrigation project as a whole and not only for solar power generating system. The applicant will be undertaking the construction of a lift irrigation project for irrigation (Sprinkler system) in various villages of Banswara district, where solar power would be used only for power, which is a small fraction of the whole project. Whereas the applicant has claimed that the whole project system is a “solar power device” which is incorrect and contrary to their own contention made in their application. From the definition of the Solar power device & the nature of work to be undertaken by the applicant, it cannot be classified as solar power device, resultantly would not be covered under the entry 234 of Schedule I of the notification No. 1/2017 & entry no. 38 of Notification No. 11/2017 -Central Tax (Rate) dated 28.06.2017. The activity proposed to be undertaken is a composite supply of works contract, the rate of tax in given service shall be determined in accordance with the Notification No 11/2017-CT (Rate) dated 28.06.2017, as amended from time to time. As per tender document the setting up the irrigation project including Construction of Intake well, Pump House, Panel Room and Supply, Erecting/Laying, Testing Commissioning Submerge V.T. Pumps, Rising Mains, Distribution network of Pipe Line at Chaks, O&M for Eight years including installation of Solar Power unit of 5x100 KW capacity, EPC contract on turnkey basis by the applicant is a Works Contract of Composite Supply. This composite supply is a mixed of goods and services. Since this supply is undertaken for a Water Resources Department, a unit of Government of Rajasthan, hence shall attract GST @12% (6% CGST and 6% SGST) under S. No. 3 (Heading 9954) (iii) of Notification No. 11/2017, dated 28.06.2017. Issues Involved:1. Classification of goods and/or services or both.2. Applicable rate of tax on the supply of goods and services involved in the EPC contract on a turnkey basis.Detailed Analysis:Classification of Goods and/or Services or Both:- Applicant's Submission: The applicant, a partnership firm engaged in multidisciplinary projects, sought clarification on the applicable GST rate for an EPC contract involving the construction and installation of a solar power unit for a pressurized irrigation system. They argued that the solar power unit is essential for the irrigation system and should be classified under renewable energy devices.- Relevant Provisions:- Section 7 of the CGST Act, 2017 defines 'supply' to include all forms of supply of goods or services for consideration.- Section 2(52) defines 'goods' as movable property.- Section 2(102) defines 'services' as anything other than goods.- Section 9 of the CGST Act, 2017 is the charging section for GST.- Notification No. 01/2017 - Central Tax (Rate) and Notification No. 11/2017 - Central Tax (Rate) outline GST rates for goods and services, respectively.Applicable Rate of Tax on the Supply of Goods and Services:- Applicant's Argument: The applicant contended that the EPC contract should be taxed at 8.9% of the gross consideration, based on the combined application of Entry 234 (for goods) and Entry 38 (for services) of the respective GST rate notifications.- Goods: Classified under Entry 234, which includes renewable energy devices like solar power-based devices, taxable at 5%.- Services: Classified under Entry 38, which includes construction and installation services for renewable energy devices, taxable at 18%.- Combined Rate: 70% of the gross consideration for goods at 5% and 30% for services at 18%, resulting in an effective rate of 8.9%.Jurisdictional Officer's Comments:- The officer agreed with the classification but emphasized the need for compliance with GST procedures. They noted that the turnkey nature of the project could affect tax applicability over time.Authority's Findings:- Nature of Supply: The supply involves setting up a complete irrigation project, including solar power units, which constitutes a 'works contract' under Section 2(119) of the CGST Act, 2017.- Immovable Property: The project results in immovable property, as it involves land acquisition, civil structures, and equipment installation.- Composite Supply: Classified as a composite supply of works contract, which is explicitly treated as a supply of services under Schedule II of the CGST Act.- Applicable Rate: The supply is to the Water Resources Department, a government unit, and falls under S.No. 3(Heading 9954) (iii) of Notification No. 11/2017-CT (Rate), attracting a GST rate of 12% (6% CGST and 6% SGST).Ruling:The activities of supply, design, installation, and commissioning of the irrigation project, as per the tender document floated by the Water Resources Department, a unit of the Government of Rajasthan, shall attract GST at 12% (6% CGST and 6% SGST).