2018 (9) TMI 1339 - AAAR - GST

Appeal delay condoned due to formation delay. Solar plant contracts treated as works contracts.

The delay in filing the appeal was condoned as the Appellate Authority was not formed initially. The contracts for supply of goods and services for a ... Composite supply - works contract - immovable property - principal supply - taxability of goods and services - rate of taxWorks contract - composite supply - immovable property - taxability of goods and services - rate of tax - Whether separate contracts for supply of goods and services for a solar power plant are to be treated as a single composite/works contract and taxed as a works contract (service) at 18% (9% CGST + 9% SGST) or whether they attract separate taxability of goods at 5% and services at 18%. - HELD THAT: - The Appellate Authority examined the two agreements (Supply of SPGS and Engineering & Construction) and found that, despite being drafted as separate documents, they constitute one indivisible turnkey contract for setting up the solar photovoltaic plant. The terms show that supply of goods and erection/commissioning services are inextricably linked: risk and liability remain with the supplier till plant completion; payment milestones (including retention of a percentage until completion) and contractual obligations (design, procurement, erection, testing and final acceptance) demonstrate a single unified purpose. Applying the statutory definitions, the Authority held the transaction satisfies the conditions of a composite supply and, on the facts, amounts to a contract in the nature of a works contract for erection/installation of an immovable solar power generating system. The Authority applied the tests of annexation and object of annexation from the precedents - mode and purpose of fixation, extent of site works, civil foundations, bespoke design and permanence of installation - and concluded the plant, as arranged under the contracts, is in the nature of immovable property for the purposes of the works contract definition. Accordingly, the composite/turnkey transaction is to be treated as a works contract and taxable as a supply of services at the applicable works-contract rate (18% IGST or 9% CGST + 9% SGST). [Paras 47, 49, 50, 54, 67]The agreements collectively constitute a composite turnkey contract in the nature of a works contract for erection/installation of a solar power generating system (immovable property) and are taxable as a works contract at the rate of 18% (9% CGST + 9% SGST).Parts of solar power generating system - classification of parts - concessional rate - Whether other parts and components supplied by the contractor (excluding PV modules supplied separately) are eligible for the concessional 5% rate as parts of solar power generating system. - HELD THAT: - The Appellate Authority recorded that the Advance Ruling Authority had not ruled on this question because no factual documents or specific contracts addressing such standalone supplies were placed before it. As the appellate body, AAAR confined itself to issues decided by the AAR and did not make a fresh determination in absence of the requisite documents and specific factual matrix. Therefore the question remains undetermined by the Authority in this appeal for want of underlying documentation and because it was not decided by the AAR. [Paras 61, 62, 68]No decision rendered on eligibility of standalone parts/components for the 5% concessional rate; matter not decided for want of documents and because AAR had not adjudicated it.Sub-contractors - concessional rate - eligibility of suppliers - Whether the benefit of concessional 5% rate on SPGS and its parts is available to sub-contractors. - HELD THAT: - The Authority observed that the AAR did not decide this question due to absence of documents delineating the role and contracts of sub-contractors. As an appellate authority it limited itself to issues decided by the AAR and accordingly refrained from deciding this factual/contractual question in the appeal. The Authority therefore left the matter undecided in the present proceedings. [Paras 63, 65, 69]No decision rendered on availability of the 5% concessional rate to sub-contractors; issue remains undecided for lack of documents and because it was not decided by the AAR.Final Conclusion: The Appellate Authority upheld the AAR's conclusion that, on the facts and contractual terms before it, the separate supply and services agreements together constitute an indivisible turnkey transaction in the nature of a works contract for erection/installation of a solar power generating system and are taxable as a works contract (supply of services) at 18% (9% CGST + 9% SGST). Questions regarding concessional 5% treatment of standalone parts/components and the availability of that benefit to sub-contractors were not decided for want of specific documents and because those questions were not adjudicated by the AAR. Issues Involved:1. Condonation of Delay2. Taxability of Separate Contracts for Supply of Goods and Services for a Solar Power Plant3. Eligibility of Concessional Rate for Parts Supplied by the Contractor4. Eligibility of Concessional Rate for Sub-Contractors5. Taxability of Contract for ServicesIssue-wise Detailed Analysis:1. Condonation of Delay:The appellant argued that the delay in filing the appeal should be condoned due to the non-formation of the Appellate Authority for Advance Ruling in Maharashtra. The delay was condoned as the appellant had taken steps within the stipulated period and filed the appeal within one month of the formation of the authority.2. Taxability of Separate Contracts for Supply of Goods and Services for a Solar Power Plant:The appellant contended that the supply of goods (SPGS) should be taxed at 5% and services at 18%. However, the authority held that the contracts, though separate, are inextricably linked and form a single indivisible contract for setting up a solar power generating system. The agreement included design, engineering, manufacturing, inspection, testing, erection, and commissioning, which are integrally connected. The authority concluded that the transaction is a composite supply of works contract, taxable at 18% as per the GST Act.3. Eligibility of Concessional Rate for Parts Supplied by the Contractor:The appellant did not provide sufficient documents or agreements to support this claim. The authority could not determine the eligibility for a concessional rate of 5% for parts supplied by the contractor in the absence of detailed agreements and terms.4. Eligibility of Concessional Rate for Sub-Contractors:Similarly, no documents or agreements were provided to determine if sub-contractors could avail the concessional rate of 5%. The authority did not give a decision due to the lack of specific details and agreements.5. Taxability of Contract for Services:The appellant argued that the contract for services should be taxed independently at 18%. The authority noted that the services contract included various activities such as construction, civil works, and commissioning, which are essential for setting up the solar power plant. The authority held that the entire contract, including both goods and services, forms a composite supply of works contract, taxable at 18%.Additional Findings:- The authority emphasized that the agreements, though separate, were essentially for setting up a solar power generating system and could not be artificially split into separate contracts for goods and services.- The authority referred to several judgments to conclude that the solar power generating system is immovable property due to the nature of its installation and annexation to the earth.- The authority affirmed that the agreements lead to the erection of a solar power generating system, which is immovable property, and hence, the entire contract is taxable as a works contract at 18%.Order:1. The agreements for setting up and operating a solar photovoltaic plant are in the nature of a works contract and taxable at 18%.2. No determination was made regarding the eligibility of a concessional rate for parts supplied by the contractor due to the absence of specific agreements.3. No determination was made regarding the eligibility of a concessional rate for sub-contractors due to the absence of specific agreements.This detailed analysis preserves the legal terminology and significant phrases from the original text while providing a comprehensive summary of the judgment.