Classification of Solar Power Plant EPC Contract under GST Laws: Works Contract Services Ruling

The case involved the classification of a contract for Erection, Procurement, and Commissioning (EPC) of a Solar Power Plant under the Central Goods and Services Tax Act and the Rajasthan State Goods and Services Tax Act. The court classified the contract as a "works contract" under the GST Act, considering the creation of immovable property due to significant civil work involved in setting up the solar power plant. Consequently, the contract was deemed to fall under "Works Contract Services" attracting an 18% tax rate under the IGST Act or 9% each under the CGST and SGST Acts, totaling 18%.

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Issues Involved:
1. Classification of any goods or services or both.
2. Determination of the liability to pay tax on any goods or services or both.

Issue-wise Detailed Analysis:

Issue 1: Classification of any goods or services or both

The primary question was whether the contract for Erection, Procurement, and Commissioning (EPC) of a Solar Power Plant should be classified as a supply of goods or services under the Central Goods and Services Tax Act 2017 and the Rajasthan State Goods and Services Tax Act 2017.

Findings:

- The applicant, M/s. RFE Solar Private Limited, is engaged in the business of developing solar power projects, including design, engineering, supply, installation, testing, and commissioning of solar power plants.
- The contract involves a composite EPC contract for setting up a Solar Power Plant, including civil work and the installation of various components.
- The applicant argued that the solar power plant is movable as it can be dismantled and reinstalled elsewhere without substantial damage, suggesting it should be classified as a supply of goods.
- The term "works contract" under Section 2(119) of the CGST Act includes contracts for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of any immovable property.
- The solar power plant involves significant civil work and is intended to be a permanent installation, which implies immovability.
- Judicial precedents and CBEC circulars were considered, which generally classify installations that require dismantling and reassembly as immovable property.

Conclusion:

The contract for EPC of the Solar Power Plant is classified as a "works contract" under Section 2(119) of the GST Act, as it involves the creation of immovable property.

Issue 2: Determination of the liability to pay tax on any goods or services or both

The second issue was to determine the tax liability and the appropriate HSN classification if the supply is classified as goods or services.

Findings:

- The applicant claimed that if the supply is classified as goods, it should fall under Chapter 84: Solar Power Generating System with a tax rate of 5% as per Notification No. 01/2017-CT (Rate).
- However, since the supply is classified as a "works contract," it is treated as a supply of services.
- The applicable tax rate for "works contract services" under SAC 9954 is 18% (9% CGST and 9% SGST) as per Notification No. 11/2017-Central Tax (Rate).

Conclusion:

The EPC contract for the Solar Power Plant falls under "Works Contract Services" (SAC 9954) and attracts an 18% tax rate under the IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%.

Ruling:
1. The "Turnkey EPC Contract" for the Solar Power Plant is not classified under the supply of 'Solar Power Generating System' under Entry 234 of Schedule I of the relevant GST notifications. It is classified as a "works contract" as per Section 2(119) of the GST Act.
2. The contract for Erection, Procurement, and Commissioning of the Solar Power Plant falls under "Works Contract Services" (SAC 9954) and attracts an 18% tax rate under the IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%.

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