2018 (5) TMI 963 - AAR - GST

Taxability of Solar Power Plant Contracts: Clarity on Works Contracts and Tax Rates

The case involved determining the taxability of goods and services in contracts related to setting up solar power plants. The court concluded that the ... Works contract - supply of services - immovable property - composite supply - principal supply - concessional rate for solar power generating system - tax rate under IGST/CGST/SGSTWorks contract - supply of services - immovable property - tax rate under IGST/CGST/SGST - Impugned agreements for setting up a solar PV plant constitute a works contract and are to be treated as supply of services; applicable GST rate is 18% (IGST) or 9%+9% (CGST+SGST). - HELD THAT: - The agreements submitted, read as a whole, evidence design, engineering, procurement, erection, testing, commissioning and obligations continuing until plant completion. Applying the tests developed by higher courts for attachment/immovability, the setting up of a solar power plant results in an immovable outcome and the contractual obligations extend beyond mere supply of movable goods. Consequently the transactions fall within clause (119) of section 2 (works contract). Schedule II treats works contracts as supply of services. Therefore taxability must follow the entry for composite supply of works contract in the relevant notifications: 18% under IGST or 9% CGST + 9% SGST for intra-State supplies. As the contract is a works contract, the concept of 'principal supply' for composite supply analysis is not determinative here.The agreements represent works contracts treated as supply of services; taxable at 18% IGST or 9%+9% CGST/SGST.Concessional rate for solar power generating system - parts of solar power generating system - Whether standalone parts (supplied without PV modules) attract the concessional 5% rate could not be decided on the materials before the Authority and requires documentary evidence for determination. - HELD THAT: - The concessional 5% entry in Notification No.1/2017 covers renewable energy devices and parts for their manufacture including 'solar power generating system' and parts. Determination of eligibility for the concessional rate depends on the precise nature of the supply, classification of the specific items, and documentary proof showing that the items qualify as parts of the solar power generating system. No such documents or particulars were placed before the Authority in these proceedings; accordingly the question cannot be adjudicated on the record available.Question left undecided for want of documents; issue requires fresh evidence and determination.Concessional rate for solar power generating system - sub-contractors - Whether sub-contractors are eligible for the concessional 5% rate could not be decided on the materials before the Authority and requires application/ documents from the supplier/sub-contractor for adjudication. - HELD THAT: - The notification granting concessional rate does not specify the class of person; however, application of the concessional rate to sub-contractors depends on facts and supporting documentation (e.g., supply nature, certification). The present record lacks such documents and the Authority declines to decide the general question in absence of particulars; the matter must be brought by the concerned supplier/sub-contractor with supporting documents for determination.Question left undecided for want of documents; issue requires fresh consideration upon production of relevant records by the party concerned.Final Conclusion: The Authority holds that the sample agreements for setting up a solar PV plant constitute works contracts and are to be treated as supply of services taxable at 18% (IGST) or 9%+9% (CGST+SGST). Questions on concessional 5% treatment for standalone parts and the entitlement of sub-contractors were left undecided for want of documents and must be examined afresh on production of relevant evidence. Issues Involved:1. Separate taxability of goods and services in solar power plant contracts.2. Eligibility of concessional rate for parts supplied on a standalone basis.3. Availability of concessional rate benefit to sub-contractors.Detailed Analysis:Issue 1: Separate Taxability of Goods and ServicesThe applicant, engaged in setting up solar power plants, entered into separate contracts for the supply of goods and services. The question was whether these contracts should be taxed separately, with goods as 'solar power generating system' at 5% and services at 18%.Findings:- The agreements were examined to determine whether they constituted separate contracts for goods and services or a composite supply.- The first agreement, titled 'AGREEMENT FOR SUPPLY OF SOLAR POWER GENERATING SYSTEM,' was found to involve not just the supply of goods but also services like design, engineering, and implementation, indicating it was a 'works contract.'- The second agreement, titled 'Engineering and Construction Agreement,' also involved both goods and services, including construction and commissioning, making it a 'works contract.'- Both agreements, when read together, were for setting up a single solar power plant and constituted a 'works contract' as defined in clause (119) of section 2 of the GST Act.Conclusion:The transaction of setting up and operating a solar photovoltaic plant is a 'works contract' and is treated as a supply of services under Schedule II of the GST Act. The applicable tax rate is 18% under the IGST Act or 9% each under the CGST Act and MGST Act, aggregating to 18%.Issue 2: Concessional Rate for Parts Supplied StandaloneThe applicant sought clarification on whether parts supplied independently, without PV modules, would be eligible for the concessional rate of 5% as parts of the solar power generation system.Findings:- The applicant referenced Notification No.1/2017-Integrated Tax (Rate), which provides a concessional rate of 5% for renewable energy devices and parts for their manufacture.- The question was whether standalone parts would qualify for this concessional rate.Conclusion:Due to the lack of specific documents and details about the transactions, the authority was unable to provide a definitive answer on this issue within the present proceedings.Issue 3: Concessional Rate Benefit for Sub-ContractorsThe applicant inquired whether the concessional rate of 5% for solar power generation systems and their parts would also apply to sub-contractors.Findings:- The applicant argued that the concessional rate should be extended to all suppliers, including sub-contractors, as long as the parts are used in solar power generation systems.- The claim was based on the provisions of Notification No.1/2017-Integrated Tax (Rate).Conclusion:Similar to Issue 2, the lack of specific documents and details precluded the authority from addressing this question in the present proceedings. The question would need to be posed by the sub-contractors themselves with appropriate documentation.Order:1. Separate Taxability: The agreements are considered 'works contracts' and are treated as a supply of services, taxable at 18%.2. Standalone Parts: Unable to determine eligibility for the concessional rate due to lack of documents.3. Sub-Contractors: Unable to determine applicability of the concessional rate due to lack of documents.