2019 (2) TMI 834 - AAR - GST

Classification and GST Rate for Solar Energy Systems and RO Plants Supply

The case involved determining the classification and applicable GST rate for the supply of solar energy-based bore well water pumping systems and Reverse ... Classification of supply - Supply of goods or supply of services - activity of supply, design, installation, commissioning and testing of reverse osmosis plant - rate of GST - composite supply of works contract - CBEC Circular 58/1/2002-CX dated 15/1/2002 - Held that:- The supply of Reverse Osmosis plant along with its installation, commissioning and operation and maintenance is a single supply. According to definition of works contract under GST regime, the supply of goods and services are done by the supplier simultaneously which is for immovable property. Hence in works contract supply of goods and services together is compulsory - Thus, based on above facts and concept such contract shall be a single supply and cannot be treated as distinct supplies. Since all the conditions of composite supply are satisfied, it is a composite supply. The activity proposed to be undertaken is a composite supply of works contract, the rate of tax in given service shall be determined in accordance with the Notification No 11/2017-CT (Rate) dated 28.06.2017, as amended from time to time. Thus, the activity of supply, design, installation, commissioning and testing of reverse osmosis plant and O &M work by the applicant is a Works Contract of Composite Supply. This composite supply is a mixed of goods and services and predominant supply is supply of services. Since this supply is undertaken for a Government Department viz. PHED which is a Government of Rajasthan Department, hence the rate of tax applicable on given service (as it is a works contract service) shall fall under Entry 3(iii) with HSN Code 99544 and it should be IGST @ 12% (CGST @ 6%, SGST @6%). Issues Involved:1. Classification of the supply as goods or services.2. Determination of the applicable GST rate.Detailed Analysis:1. Classification of the Supply:The applicant is engaged in designing, providing, installing, commissioning, operating, and maintaining solar energy-based bore well water pumping systems and Reverse Osmosis (RO) Plants. The applicant sought clarification on whether this activity should be classified as a supply of goods or services.The applicant argued that the supply of RO plants, along with installation, commissioning, and maintenance, constitutes a single supply, thus falling under the ambit of composite supply. The applicant contended that the predominant element is the supply of RO plants, making it a supply of goods under HSN code 8421, taxable at 18%. Alternatively, if considered a works contract service, the applicant suggested a tax rate of 12% under Entry 3(iii) of Notification No. 11/2017-CT (Rate).2. Determination of Applicable GST Rate:The jurisdictional officer agreed with the applicant's classification as a composite supply but emphasized that it should be treated as a supply of services. The Authority for Advance Ruling (AAR) analyzed the definitions and provisions under the Central Goods and Services Tax (CGST) Act, 2017.Findings and Conclusion:- Composite Supply: As per Section 2(30) of the CGST Act, a composite supply involves two or more taxable supplies of goods or services naturally bundled and supplied in conjunction with each other, with one being the principal supply.- Principal Supply: Defined under Section 2(90) as the predominant element of a composite supply.- Works Contract: Defined under Section 2(119) as a contract involving the construction, erection, installation, etc., of any immovable property.The AAR observed that the supply in question is a composite supply, as it involves multiple taxable supplies naturally bundled together. The principal supply in this case is the service component, as the activities involve significant installation and commissioning work, making it a works contract.The AAR referenced the General Clauses Act, 1897, and CBEC Circular No. 58/1/2002-CX to determine the nature of immovable property. It concluded that the RO plant installation, being attached to the earth and not easily dismantled, qualifies as immovable property.Ruling:The activity of supply, design, installation, commissioning, and testing of the RO plant, along with operation and maintenance (O&M) work, constitutes a works contract of composite supply. This composite supply is predominantly a supply of services. As it is undertaken for a Government Department (PHED, Rajasthan), the applicable tax rate falls under Entry 3(iii) with HSN Code 99544, taxable at IGST 12% (CGST 6%, SGST 6%).Conclusion:The ruling clarifies that the applicant's activities are classified as a composite supply of services under a works contract, with the applicable GST rate being 12%.