2018 (6) TMI 466 - AAR - GST

Solar power system contracts: EPC gets 18% GST, separate supply contracts eligible for 5% concessional rate

In Re : Dinesh Kumar Agrawal

AAR Andhra Pradesh ruled on GST classification for solar power generating systems under various contract structures. For turnkey EPC contracts including ... Classification of Supply - supply of solar power generating system - Turnkey EPC Contract - split contract for supply of goods and supply of services - 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 dated 28 June 2017 and Entry 234 of Schedule I of the Notification No. 1/2017-State Tax (Rate) dated 29 June 2017? Turnkey EPC Contract - Other EPC Contract - supply of solar power plant under ‘Turnkey EPC Contract’ - Held that:- The scope of work in respect of “Turn key EPC Contract” and “Other EPC Contract” includes civil works, procurement of goods and erection and commissioning. Accordingly, “Turnkey EPC Contracts” and “Other EPC Contracts” are not getting covered under supply of ‘solar power generating system’ under Entry 234 of Schedule I of the N/N. 1/2017- Integrated Tax (Rate), Entry 234 of Schedule I of the N/N. 1/2017- Central Tax (Rate) both dated 28 June 2017 and Entry 234 of Schedule I of the N/N. 1/2017- State Tax (Rate) dated 29 June 2017. Supply Contract - supply of ‘solar power generating system - the assembly, erection, and commissioning of the solar power plant is undertaken by the Applicant under a separate contract - Held that:- It depends upon the terms and conditions of the agreements as to whether the split of contract is an artificial and colourable device to avoid the legitimate tax or the requirement of the contractee demands separation of contract for better execution. In case the contract is an artificial split, the Clarification for Issue 2 (two) is applicable. In other case the rate of tax applicable for the supply of goods subject to condition of eligibility of being “device and parts” of the solar power generating system attracts 5% rate of tax as per Entry 234 of Schedule I of Notification No 1/2017 -Central tax (Rate), dated 28th June, 2017. And the supply of service attracts at the rate specified thereon in Notification No. 11/2017 -Central tax (Rate). Supply Contract - the assembly, erection, and ‘commissioning of the solar power plant is undertaken by a third party contractor - Held that:- In this scenario, the goods are supplied by one contractor, and the services were supplied by the other contractor. Therefore the rate of tax applicable for supply of goods as long as it satisfies the condition of being “ device and parts” of the solar power generating system attracts 5% rate of tax as per Entry 234 of Schedule I of Notification No 1/2017 -Central tax (Rate), dated 28th June, 2017. Balance of Plant Supply Contract - supply of ‘solar power generating system - What would be nature of supply i.e. composite supply or mixed supply? - Held that:- The nature of transaction falls under composite transaction as both the goods and services are naturally bundled. Even though the primary commodity has been supplied by the customer, the ancillary goods for the purpose of service are to be supplied by the applicant only. The principle supply in this context is supply of service and the ancillary goods supplied are in conjuction with the services provided - the rate of tax applicable in such transaction is liable at the rate as per the Entry 25 of 25 (Heading 9987) of Notification No. 11/2017 - Central Tax (Rate), dated : 28th June 2017, and attracts 18% rate of tax. Whether contract for assembly, erection, and commissioning of the plant undertaken by the Applicant under a separate contract would be a service contract liable to be taxed under Service heading 9954? - Held that:- The referred contract doesn’t fall under the ambit of SAC 9954, but falls under the Entry 25 of 25 (Heading 9987) of Notification No.11/2017 -Central Tax (Rate), dated: 28th June 2017, and attracts 18% rate of tax. Whether the time of supply of power plant shall be determined under Section 31 (4) of the CGST Act/SGST Act read with Section 12(2) thereof? - Held that:- Yes, the time of supply of power plant shall be determined under Section 31 (4) of the CGST Act/SGST Act read with Section 12(2) thereof. Issues Involved:1. Classification of supply under various EPC contracts.2. Applicability of tax rates under specific notifications.3. Nature of supply (composite or mixed).4. Taxability of service contracts.5. Determination of time of supply.Detailed Analysis:Issue No. 1: Classification under Turnkey EPC Contract- Ruling: Turnkey EPC Contracts, which include civil works, procurement, erection, and commissioning, do not fall under the supply of 'solar power generating system' as per Entry 234 of Schedule I of the relevant notifications.Issue No. 2: Classification under Other EPC Contract- Ruling: Similar to Turnkey EPC Contracts, Other EPC Contracts also do not qualify as the supply of 'solar power generating system' under Entry 234 of Schedule I of the relevant notifications.Issue No. 3: Classification under Supply Contract with Separate Assembly by Applicant- Ruling: The determination depends on whether the contract split is artificial or necessary for execution. If artificial, the ruling for Issue 2 applies. Otherwise, supply of goods as 'device and parts' of the solar power generating system attracts a 5% tax rate, while services are taxed as per Notification No. 11/2017.Issue No. 4: Classification under Supply Contract with Third-Party Assembly- Ruling: When goods are supplied by one contractor and services by another, the supply of goods, if qualifying as 'device and parts' of the solar power generating system, attracts a 5% tax rate.Issue No. 5: Classification under Balance of Plant Supply Contract- Ruling: This is a composite supply where goods and services are naturally bundled. The principal supply is service, and the applicable tax rate is 18% as per Entry 25 of Notification No. 11/2017.Issue No. 6: Nature of Supply if Issue 5 is Negative- Ruling: This issue is covered under the clarification for Issue 5, confirming it as a composite supply.Issue No. 7: Taxability of Separate Assembly, Erection, and Commissioning Contract- Ruling: Such contracts do not fall under SAC 9954 but under Entry 25 of Notification No. 11/2017, attracting an 18% tax rate.Issue No. 8: Determination of Time of Supply- Ruling: The time of supply shall be determined under Section 31(4) of the CGST Act/SGST Act read with Section 12(2).Note: All rulings are valid until any amendments in the relevant statutory provisions occur, and any deviation in facts will render the rulings null and void.