GST Treatment of Street Lighting Services in Energy Performance Contract: Composite Supply & 18% Tax Rate

The street lighting activity under the Energy Performance Contract was classified as a Composite Supply under the CGST/KGST Act 2017, with the principal supply being the service of operation and maintenance. The applicable GST rate on this supply is 18% (9% CGST and 9% KGST). The applicant was not eligible for exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate). The time of supply for the luminaries was deemed irrelevant as the transaction was considered a supply of service. The value of the taxable supply included all amounts received from BBMP under the contract.

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Issues Involved:
1. Classification of street lighting activity under the Energy Performance Contract as a Composite Supply.
2. Determination of the principal supply and applicable rate of GST.
3. Eligibility for exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate) dated 28-06-2017.
4. Time of supply for the transaction.
5. Value of the taxable supply.

Issue-wise Detailed Analysis:

1. Classification of Street Lighting Activity as Composite Supply:
The applicant entered into an Energy Performance Contract with BBMP to install, operate, and maintain energy conservation measures for the Public Lighting Network in Bengaluru for ten years. The applicant contends that their supply includes LED luminaires and other equipment, along with operation and maintenance services, qualifying the supply as a composite supply under Section 2(30) of the CGST Act. The Authority concluded that the street lighting activity under the Energy Performance Contract is indeed a composite supply involving both goods and services.

2. Determination of Principal Supply and Applicable Rate of GST:
The applicant argued that the principal supply is the supply of LED luminaires, which constitutes approximately 70% of the total project cost. However, upon examination, it was observed that the LED luminaires, feeder panels, and other equipment are not handed over to BBMP but are installed, operated, and maintained by the applicant. The consideration received is based on energy savings and fixed payments for operation and maintenance (O&M) services. The Authority determined that the principal supply is the service of operation and maintenance, classified under SAC 999112. The applicable rate of GST on this composite supply is 18% (9% CGST and 9% KGST) as per entry Sl.No.29 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.

3. Eligibility for Exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate):
The applicant sought exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate), which provides exemption for composite supply where the value of goods does not exceed 25% of the total value. Since the value of goods in this contract exceeds 25%, the applicant is not eligible for this exemption.

4. Time of Supply for the Transaction:
The applicant argued that the time of supply should be the date of the invoice, as per Section 12(2)(a) of the CGST Act. However, since the transaction is considered a supply of service, the time of supply for the luminaries is not relevant.

5. Value of the Taxable Supply:
The value of the taxable supply includes all amounts received from BBMP under the contract dated 01.03.2019. This includes payments based on energy savings and fixed payments for O&M services.

Ruling:
i. The street lighting activity under the Energy Performance Contract is a Composite Supply under the CGST/KGST Act 2017, with the principal supply being the service classified under SAC 999112.
ii. The applicable rate of GST on this supply is 18% (9% CGST and 9% KGST).
iii. The principal supply is the O&M of the installed equipment, and the applicable rate of GST is as stated above.
iv. The applicant is not entitled to the exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate).
v. The time of supply of luminaries is not relevant as the transaction is considered a supply of service.
vi. The value of the taxable supply includes all amounts received from BBMP under the contract.

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