2022 (4) TMI 1333 - AAR - GST

Specially designed transformers for wind generators taxed at 9% CGST, not concessional WOEG rates

AAR Gujarat ruled that specially designed transformers for wind operated electricity generators (WOEG) are not part of WOEG itself. The transformers ... Classification of goods - specially designed Transformers for Wind Operated Electricity Generators which are meant to perform dual function of Step Down and Step Up manufactured by Suzlon and supplied to the customers of Suzlon as a part of Wind Operated Electricity Generator - to be treated as part of Wind Operated Electricity Generator or not - falls under Sr.No. 234 in Schedule-I to Notification No. 01/2017-Central Tax (Rate) dated 28th June, 2017 read with Notification No. 1/2017- State Tax(Rate) dated 30th June, 2017 or not - liable to Central GST at the rate of 2.5% along with Gujarat State GST at the rate of 2.5% up to 30th September, 2021 and 6% each towards CGST and SGST with effect from 1st October, 2021? Whether Transformers are part of WOEG to determine entry at sr no 201A of schedule II of said Notification? - HELD THAT:- What is forthcoming is that Transformers connect/link the WOEG to distribution network. Nothing on record substantiates that Transformers are inalienable part of WOEG. Transformer could have been considered a part of WOEG if WOEG cannot function without it. But the fact is WOEG is able to generate electricity with the kinetic energy of the wind by itself. The very acronym WOEG stands for Wind operated electricity generator. Whereas, transformers for WOEG is installed on the ground adjoining to WOEG to make the electrical energy generated by WOEG usable for consumption or distribution purpose. It is noted that the transformers are neither placed in nacelle nor tower but on the ground beside the WOEG. Suzlon’s submission in this regard that transformers are placed in nacelle/ tower at para 6 is not correct. WOEG and transformer inclusive devices to form a wind power system/ wind generating system/ project. But WOEG per se is capable of generating electricity with wind. Now if a specially designed transformer with step down function is designed to rotate the blades/fan in WOEG that does not make it a part of WOEG, but makes the transformer per se a dual function transformer with step up and step down function - the word used in the said Notification is WOEG, which is generator per se. WOEG generates electricity per se and to include the aspects of transmission, distribution and supply of electricity for which Transformer is requisite is to add extra words ‘WOEG system’ to a clearly worded Notification with the words ‘WOEG’ and not ‘WOEG system’. GST Rate on Transformers - HELD THAT:- Suzlon, Vadodara ( the applicant) is supplying Transformers directly to recipients, on Principal to Principal basis and the invoices produced are not bill to ship with reference to Transformers supplied. Also that there is no tripartite agreement between Suzlon Daman, Suzlon Vadodara (applicant) and Malaiamman (recipient). Also that Suzlon Daman has no contract/ sub contract entered with the applicant for supply of transformers to Malaiamman. Further, the phrase ‘Bill to Ship to’ is misleading and incorrect with respect to Transformers, as the ‘bill to’ by ‘Suzlon the applicant’ was not to Suzlon Daman but to Mailaiamman at Erode and ‘Ship to’ was directly by ‘Suzlon the applicant’ to Malaiamman at Tuticorin. Transformers are not part of WOEG and are leviable to CGST @ 9% vide Sr. No. 375 of Schedule-III of Notification No. 1/2017-CT (Rate) dated 28-6-2017. Issues Involved:1. Whether the specially designed transformers for Wind Operated Electricity Generators (WOEG) are considered as part of WOEG.2. Determination of the applicable GST rate on these transformers.Issue-wise Detailed Analysis:A. Whether Transformers are Part of WOEG:36. The judgment refers to Sr. No. 234 of Schedule I of Notification 1/2017-CT (Rate) dated 28-6-17, and Sr. No. 201A of Schedule II of said Notification. The key difference noted is the change from 'solar power generating system' to 'solar power generator,' indicating a narrower scope.37-38.1. The term 'solar power generating system' includes more devices than just the generator itself, as clarified by the Madhya Pradesh High Court in Belectric Photovoltaic India Pvt. Ltd. (2019 (21) GSTL 319 (MP)). This case emphasized that a system includes all components necessary for its function.38.2-38.3. The judgment stresses strict interpretation of notification wording. WOEG is identified as a generator, distinct from a wind power project or system that might include transformers.38.4-38.5. The Ministry of New and Renewable Energy's clarification and CBEC Instruction dated 7-12-2015 both do not list transformers as parts of WOEG.38.6-38.7. The IEC standard for transformers used in wind turbine applications indicates that transformers connect the WOEG to the distribution network but do not constitute an integral part of the WOEG itself.38.8. WOEG is capable of generating electricity independently. The transformer, although essential for linking generated electricity to the grid, does not alter the WOEG's status as a generator.B. Determination of GST Rate on Transformers:39-39.1. Suzlon clarified that the transformers are supplied directly by Suzlon Vadodara to the customers, not through any subcontract with Suzlon Daman. The invoices support this direct supply.40. The transformers are supplied directly to recipients, indicating a principal-to-principal transaction without any tripartite agreement involving Suzlon Daman.41. The judgment aligns with CBEC Circular No. 1008/15/2015-CX dated 20-10-2015 and CBEC Instruction dated 7-12-2015, which do not classify transformers as parts of WOEG.42. The cited case laws, including Rakhoh Enterprises, Elecon Engineering, and SKF Technologies, do not directly address the issue at hand under the GST law. The judgment emphasizes the need for specific analysis under the GST framework, distinct from other tax laws.43. Based on the detailed analysis, the judgment concludes that transformers are not part of WOEG and are subject to a GST rate of 9% as per Sr. No. 375 of Schedule-III of Notification No. 1/2017-CT (Rate) dated 28-6-2017.RULING:Transformers are not part of WOEG and are leviable to CGST @ 9% vide Sr. No. 375 of Schedule-III of Notification No. 1/2017-CT (Rate) dated 28-6-2017.