Dispute over GST rate for solar water pumping systems resolved with ruling on works contract classification

The case involved a dispute regarding the classification of activities related to solar energy-based water pumping systems and the determination of the applicable GST rate. The authority ruled that the activities constituted a composite supply of works contract predominantly for services, attracting a GST rate of 12% (IGST@12%, CGST@6%, SGST@6%) under Entry 3(iii) with HSN Code 99544 when supplied to a government department.

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

Issue-wise Detailed Analysis:

1. Classification of Goods and/or Services:
The applicant, engaged in providing comprehensive water services, sought clarity on the classification of their activities related to the design, installation, commissioning, operation, and maintenance of solar energy-based water pumping systems. The applicant argued that these activities should be considered a composite supply of goods with the principal supply being the solar power-based water system, which is movable property. They contended that the supply should be classified under Entry 234 of Notification No. 1/2017-CT (Rate) as a solar power-based device, attracting a GST rate of 5%.

2. Determination of the Liability to Pay Tax:
The applicant sought an advance ruling on whether their activities constituted a supply of goods or services and the applicable GST rate. They argued that the activities were naturally bundled and thus a composite supply, with the principal supply being the solar power-based water system. They further contended that if considered a works contract, the applicable GST rate should be 12% under Entry 3(iii) of Notification No. 11/2017-CT (Rate).

Findings, Analysis & Conclusion:

a. Composite Supply:
According to Section 8 of the CGST Act, 2017, the tax liability on a composite supply is determined based on the principal supply. Section 2(30) defines composite supply as consisting of two or more taxable supplies naturally bundled and supplied in conjunction with each other, with one being the principal supply. Section 2(90) defines the principal supply as the predominant element of a composite supply.

b. Works Contract:
As per Section 2(119), a works contract involves construction, fabrication, erection, installation, etc., of any immovable property. The determination of whether a supply is a works contract depends on whether the property is movable or immovable. The General Clauses Act, 1897, defines immovable property as including land and things attached to the earth. CBEC Circular No. 58/1/2002-CX clarifies that items assembled or erected at the site and attached to the earth, which cannot be dismantled without substantial damage, are immovable.

c. Nature of Supply:
The authority observed that the supply in question is a composite supply involving the design, supply, installation, testing, commissioning, and maintenance of solar energy-based water pumping systems. The activities are naturally bundled and supplied in conjunction, with the principal supply being the installation and operation of the system. The supply is for immovable property, making it a works contract under GST.

d. Tax Rate:
The applicable GST rate for works contract services supplied to the government is determined under Notification No. 11/2017-CT (Rate). Entry 3(iii) specifies a 12% GST rate (6% CGST and 6% SGST) for works contracts involving water supply or treatment.

Ruling:
The activity of supply, design, installation, commissioning, and testing of solar energy-based water pumping systems, along with operation and maintenance work, is a composite supply of works contract. This composite supply is predominantly a supply of services. Since the supply is to a government department, the applicable GST rate is 12% (IGST@12%, CGST@6%, SGST@6%) under Entry 3(iii) with HSN Code 99544.

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