2022 (5) TMI 531 - AAAR - GST

Solar water pumping systems with installation classified as composite supply under Section 2(30) CGST Act 2017

The AAAR-Rajasthan ruled on GST classification for solar water pumping systems. The authority determined that supply of complete solar water pumping ... Classification of goods - rate of GST - sale of solar energy products as Solar Water pumping system as a whole - sale of one of the products on standalone basis - sale of the products under various combinations to be undertaken by them and supply of parts of the system along with installation - HELD THAT:- There are clear provisions in the GST Act itself as regards “composite supply” as defined under Section 2(30) and “mixed supply” under Section 2(74) of CGST Act, 2017 which deal with situations where supply consisting of two or more taxable goods or services or both is involved. In this regard, the appellant’s primary contention is agreed to the effect that without applying and refuting the applicability of “composite supply”, conclusion regarding mixed supply cannot be reached. Accordingly, it is found appropriate to examine the matter with reference to the concept of “composite supply” in order to reach a logical conclusion. As per Section 2(30) of the CGST Act, 2017 “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. An illustration provided under the said definition provides that “where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply - it is obvious that the supply of packing material, supply of service of insurance or transport is not independent of the supply of goods. Hence, the transportation of goods, supply of packing material and insurance are covered by the definition of “composite supply” with the supply of goods which is a principal supply in the illustration. The supply of different type of items such as Solar Panel, Controller, Solar Pump or Structure in different possible combinations, if any, without anyone of the goods being supplied as principal supply would be covered by the definition of “mixed supply” of different type of goods - In the instant case the appellant is obliged to supply a complete solar water pumping system alongwith the service of its installation and commissioning and, therefore, it would be appropriate to analyze the relevant notifications. On careful consideration of the relevant entries of the notifications, we find that Solar Energy based bore well water pumping system as a whole (hereinafter also referred to as “the System”) as proposed to be supplied by the appellant qualifies as ‘Solar Power based devices’ mentioned under entry No. 234 of Notification No. 01/2017-Central Tax (Rate), dated 28.06.2017 as the same is a device based on solar power used for pumping, water. Further, services by way of installation and commissioning of solar power based devices are governed by entry No. 38 of Notification No. 11/2017-Central Tax. (Rate), dated 28.06.2017. The effective rate of GST on supply of Goods and Services in relation to the Solar Power Based Devices upto 30.09.2021 is as follows:- (a) 5% on value of goods where the value of goods is to be taken as 70% of the gross consideration arid (b) 18% on the value of services where the value of services is to be taken as 30% of the gross consideration. Hence, the effective rate of GST for the composite supply will work out to 8.9% [(5% x 70%) plus (18% x 30%)]. However, with the amendments effected vide Notification No. 06/2021-Central Tax (rate) dated 30.09.2021 and Notification No. 08/2021-Central Tax (rate) dated. 30.09.2021, the rate of tax on goods portion stands increased from 5% to 12% and accordingly, the effective rate of GST for the-period post 30.09.20121 will stand increased to that extent. Issues Involved1. Classification and GST rate on solar energy products and their combinations.2. Classification and GST rate on the supply of a complete solar water pumping system along with installation.3. Classification of controllers and structures and their applicable GST rates.4. Determination of whether the supply of various combinations of solar products constitutes a composite or mixed supply.Detailed Analysis1. Classification and GST Rate on Solar Energy Products and Their CombinationsThe appellant sought an advance ruling on the classification and GST rate for various solar energy products and their combinations. The Authority for Advance Ruling (AAR) held:- Solar Panels: Taxable at 5% GST under S. No. 234 of Schedule-I of GST Tariff.- Solar Pump: Classified under S. No. 234 of Notification No. 01/2017-CT (Rate) and taxable at 5% GST.- Controller: Classified under Chapter 85 of GST Tariff, attracting 18% GST.- Structure: Classified under Chapter 7308, attracting 18% GST.- Solar Water Pumping System: Considered a mixed supply of goods and services, attracting the highest GST rate among the supplied goods.- Various Combinations of Solar Products: Also considered mixed supplies, attracting the highest GST rate among the supplied goods.- Supply of Solar Water Pumping System with Installation: Classified as a works contract service, attracting 18% GST under S. No. 3 of Heading 9954 of Notification No. 11/2017.2. Classification and GST Rate on the Supply of a Complete Solar Water Pumping System Along with InstallationThe appellant contested the classification of the supply of a solar water pumping system with installation as a works contract service, arguing that it should be considered a composite supply of goods and services with a split GST rate of 70% for goods and 30% for services. The appellate authority agreed with the appellant, referencing the relevant notifications and previous rulings, and concluded:- Supply of Solar Water Pumping System with Installation: Should be taxed at 5% GST on 70% of the gross consideration for goods and 18% GST on 30% of the gross consideration for services, resulting in an effective GST rate of 8.9%. Post-30.09.2021, the effective rate increased due to amendments, making it 13.8%.3. Classification of Controllers and Structures and Their Applicable GST RatesThe appellant argued that controllers and structures should be classified as parts of solar water pumping systems, attracting a lower GST rate. The appellate authority upheld the AAR's decision:- Controllers: Classified under Chapter 85, attracting 18% GST. The authority noted that controllers are electrical devices suitable for multiple uses and not limited to solar applications.- Structures: Classified under Chapter 7308 (for iron or steel) or 7610 (for aluminum), attracting 18% GST. The authority emphasized that structures are designed according to specifications for intended use but remain classified as structures under their respective headings.4. Determination of Whether the Supply of Various Combinations of Solar Products Constitutes a Composite or Mixed SupplyThe appellant argued that the supply of various combinations of solar products should be considered composite supplies. The appellate authority examined the definitions of composite and mixed supplies under the CGST Act, 2017, and concluded:- Combinations of Solar Products: Classified as mixed supplies since they do not meet the criteria for composite supplies, such as natural bundling and the presence of a principal supply. Therefore, the highest GST rate applicable to any of the goods in the combination will apply.ConclusionThe appellate authority upheld the AAR's ruling on the classification and GST rates for solar panels, pumps, controllers, and structures. It also agreed with the AAR that combinations of solar products constitute mixed supplies, attracting the highest GST rate among the supplied goods. However, the appellate authority modified the ruling regarding the supply of a complete solar water pumping system with installation, aligning it with the relevant notifications and previous rulings, resulting in a split GST rate for goods and services.