2018 (10) TMI 1144 - AAR - GST

Determining GST Rate for Solar Power System Installation: Works Contract Service Ruling 18%

The case involved the classification and determination of the applicable GST rate for the supply and installation of a solar power generating system. The ... Rate of GST - supply of solar power generating system and its installation at the site - Classification of supply - EPC Contract - Composite supply - works contract services - What is the applicable GST Rate on supply of Solar Power Generating System? Held that:- The applicant in his Advance Ruling Application and later in additional statement has stated that they are engaged in supply of solar power generating system and its installation at the site which involves simultaneous supply of goods and services under a single contract.. As per submissions made by them the nature of work undertaken by them can be best categorized as Composite turnkey EPC contract. All arguments and submission put forth by applicant categorically classify the nature of work to be supply of solar power generating system and its installation at the site. It is not clear whether the applicants wants clarification of GST rate applicable on 'supply of Solar Power Generating System' under a supply contract or wants clarification of GST rate applicable on execution of contract of 'supply of solar power generating system along with its installation at the site - In case, if the clarification is sought for 'Applicable GST Rate on supply of Solar Power Generating System.' then the goods should be supplied under a single 'Supply Contract' subject to condition of eligibility of them being 'devices and parts' of solar generating system and only then it would be covered under Entry 234 under notification No 01/2017-CT (Rate) dated 28.06.2017 and would attract 5% rate of tax . The scope of work in instant case is of supply of solar power generating system and its installation at the site which involves simultaneous supply of goods and services under a single contract where Applicant has to inter alia, design, engineer, procure, transport, deliver, develop, erect, install, test , commission and at times maintain & service the project after installation. Hence Applicant intends to undertake an ' EPC contract' and not a 'Supply Contract'. The installation of the Solar Power generating system has a permanent location as it is meant for onward sale of power to the consumer. Contract between an EPC contractor and the counter-party is entered into on the premise that the plant would continue to be situated at the place of construction. Such plant would therefore have an inherent element of permanency. The output of the project i.e. Electricity would be available to an identifiable segment of consumer. Thus this output supply would involve an element of permanency for which it would not be possible and prudent to shift base from time to time or locate the plant elsewhere at frequent intervals. The Solar generating system cannot be shifted to any other place without dismantling the same. Further it is a tailor made system as per technical specification which cannot be sold as it is to the other person. Installation of solar power generating system necessarily includes civil work such as development of site, structure foundation, building cable trenches, civil work relating to invertors and control buildings, store rooms , canopies and such other civil structure and related activities as set out in Scope of work and the Technical Specifications. Civil structure cannot be dismantled and moved. Instant case is a single composite turnkey EPC contract of design, engineer, procure, transport, deliver, develop, erect, install, test and commission of project. Contracts of this kind are entered on premise to procure a functional solar power generating system as per specification of the owner for which there is a single lump sum price for the entire contract. Hence on demand of contractor to avoid the legitimate tax the said composite EPC contract cannot be split in two separate contracts, one for supply of goods and another that of services and taxed accordingly. The impugned transaction for EPC Contract for the Solar Power generating system which includes engineering, design, procurement, supply, development, testing and commissioning is a 'works contract' in terms of clause (119) of section 2 of the GST Act - Since the impugned transaction for EPC Contract for the Solar Power generating system is a works contract under section 2(119) as supply of services hence question of principal supply does not arise and so GST tax rate of Solar power Generating System under notification No 01/2017-CT (Rate) dated 28.06.2017, at S. No. 234, under HSN Classification 84, 85 and 94 is not applicable. Ruling:- The nature of work is of Erection, Procurement and Commissioning of Solar Generating System which falls under the ambit 'Works Contract Services' (SAC 9954) of Notification no. 11/2017 Central Tax (Rate) dated 28 June, 2017 and shall attract 18% rate of tax under IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%. Issues Involved:1. Classification of the solar power generating system under GST.2. Determination of the applicable GST rate for the supply and installation of the solar power generating system.Issue-Wise Analysis:1. Classification of the Solar Power Generating System under GST:The applicant, engaged in the supply and installation of solar power generating systems, sought an advance ruling to determine the applicable GST rate. They argued that the solar power generating system falls under entry no. 234 of notification no. 01/2017-Central Tax (Rate) dated 28.06.2017, prescribing a CGST rate of 2.5% on the supply of solar power generating systems. The applicant contended that the installation of the system, which is affixed to the earth, does not constitute an immovable property and hence should not be classified as a composite works contract attracting an 18% GST rate. They emphasized that the principal supply is the solar power generating system, and its installation is ancillary, thus the GST rate should be 5%.2. Determination of the Applicable GST Rate for Supply and Installation:The applicant argued that the GST rate for the installation and commissioning of the solar power generating system should be 5%, as it is a composite supply where the principal supply is the solar power generating system. They further contended that the intention of the government is to promote solar energy, and a higher GST rate would be contrary to this intention. The jurisdictional officer, however, stated that the contract involves the supply, installation, and commissioning of a solar power generating system, which constitutes an immovable property and should be treated as a works contract subject to an 18% GST rate.Findings and Analysis:The applicant did not submit a specific copy of the contract. Based on the nature of work described, the authority categorized the contract as a 'Composite Turnkey EPC Contract' involving the design, procurement, supply, installation, testing, and commissioning of a functional solar power plant. The authority noted that such contracts are not merely for the supply of goods but also involve significant services, making the transaction a works contract under section 2(119) of the GST Act. The authority cited various judicial precedents to conclude that the solar power generating system, once installed, becomes immovable property due to its permanency and the need for dismantling for relocation.The authority observed that the contract involves a single lump sum price for the entire scope of work, and the intention is to procure a functional solar power generating system, not just the devices and parts. Therefore, the transaction is classified as a works contract service, attracting an 18% GST rate under notification no. 11/2017-Central Tax (Rate) dated 28.06.2017.Ruling:The authority ruled that the nature of work involving the erection, procurement, and commissioning of the solar generating system falls under 'Works Contract Services' (SAC 9954) and shall attract an 18% GST rate under the IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%.