Applicant liable for 8.9% GST on supply of goods and services; transformers classified under Chapter Heading 8504

The applicant is held liable for GST on the total value of both the supply of goods and services, with an effective GST rate of 8.9%. The ruling determined that the supply of goods and services was an indivisible contract, despite attempts to separate them artificially. The applicant's argument for a 5% GST rate based on the classification of transformers as parts of solar power generating systems was rejected, and the transformers were classified under Chapter Heading 8504 for GST purposes.

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Issues Involved:

1. Classification of Aluminium Foil Type Winding Inverter Duty Transformer under Chapter Heading 8504.
2. Applicability of GST rate under Sr. No. 234 in Schedule-I to Notification No. 01/2017-Central Tax (Rate) dated 28th June 2017.
3. Determination of GST rate considering separate contracts for supply of goods and services.

Issue-wise Detailed Analysis:

1. Classification of Aluminium Foil Type Winding Inverter Duty Transformer under Chapter Heading 8504:

The applicant, a manufacturer of various types of transformers, received an order for Aluminium Foil Type Winding Inverter Duty Transformers. The product to be supplied falls under Chapter Heading 8504, which covers "ELECTRICAL TRANSFORMERS, STATIC CONVERTERS (FOR EXAMPLE, RECTIFIERS) and INDUCTORS." The impugned product, i.e., Inverter Duty Transformer, is classifiable under Tariff Heading 8504, and parts of transformers are classifiable under CTH 85049010. Thus, the goods satisfy the classification under Chapter 85 of the Customs Tariff Act, 1975.

2. Applicability of GST rate under Sr. No. 234 in Schedule-I to Notification No. 01/2017-Central Tax (Rate) dated 28th June 2017:

The applicant sought to classify the supply of Aluminium Foil Type Winding Inverter Duty Transformers under Sr. No. 234 of Notification No. 01/2017-CT (Rate), which prescribes a 5% GST rate for renewable energy devices and parts for their manufacture. The relevant entry includes solar power generating systems and parts. The applicant argued that the transformers are essential parts of solar power generating systems, which typically include solar panels, inverters, controllers, and batteries. The transformers are used to convert electrical power and are essential for the functioning of solar power systems. Therefore, the Aluminium Foil Type Winding Inverter Duty Transformers are considered parts of a solar power generating system and fall under the specified entry, thus qualifying for the 5% GST rate.

3. Determination of GST rate considering separate contracts for supply of goods and services:

The applicant received two separate purchase orders from the recipient: one for the supply of transformers and another for supervision of erection, testing, and commissioning services. The applicant contended that these should be treated as separate supplies, with goods taxed at 5% and services at 18%. However, the Authority examined the technical specifications and found that the scope of work included both supply and services, indicating an indivisible contract for setting up the transformers. The recipient had artificially bifurcated the contract to avoid the deemed bifurcation of value into 70% goods and 30% services, as per the explanation added to Entry No. 234 by Notification No. 24/2018-CT (Rate).

The Authority concluded that the supply of goods and services are inextricably linked and should be treated as a single contract. Therefore, the applicant is liable for GST on the total value of both purchase orders, with 70% deemed as goods and 30% as services, leading to an effective GST rate of 8.9%.

Ruling:

The applicant is liable for payment of GST on the total value of both the supply of goods and services in terms of the explanation inserted in Entry No. 234 of Notification No. 01/2017-CT (Rate) dated 28th June 2017, as amended by Notification No. 24/2018-CT (Rate) dated 31st December 2018. The effective rate of GST is 8.9%, calculated as 70% of the value at 5% for goods and 30% of the value at 18% for services.

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