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 - taxability of solar power based devices - composite supply - mixed supply - principal supply - Section 2(30) of the CGST Act - Section 2(74) of the CGST Act - valuation rule for supplies comprising goods and services (70:30 explanation) - application of highest rate for mixed supply - classification under Chapter headings 84, 85 and 73/76Classification of goods - classification under Chapter headings 84, 85 and 73/76 - Classification and applicable GST rate on the Controller supplied by the appellant - HELD THAT: - The appellant contended that the controller supplied is a specialist SPV controller incorporating MPPT/VFD features and therefore part of a solar power based device eligible under the solar entries. The Authority examined the technical claims but observed that a controller is an electrical device capable of multiple uses and not necessarily confined to solar pumping systems. The Authority therefore held that the controller, in standalone condition, is properly classifiable under Chapter Heading 8504 (electrical transformers, static converters and inductors). The taxable rate is that applicable to items classifiable under the said heading, and the controller cannot be treated as a solar power based device or part thereof merely because it can be used in solar pumping systems. [Paras 6]Controller classifiable under Chapter Heading 8504 and taxable at the rate applicable to that heading.Classification of goods - classification under Chapter headings 84, 85 and 73/76 - taxability of solar power based devices - Classification and applicable GST rate on the Structure (mounting structure) supplied by the appellant - HELD THAT: - The appellant argued that the metal structures are specifically designed for solar water pumping systems and thus are parts of the machine falling under Chapter 84 and eligible as parts of a solar power based device. The Authority examined the relevant tariff headings, Section Notes and prior authorities but noted that structures of iron or steel are generally classifiable under Chapter Heading 7308 (or 7610 for aluminium). The Authority observed that mere specification for intended use does not take a structure out of the general heading for structures. The Tax Research Unit clarification confirming that solar panel mounting structures fall under 7308/7610 and attract 18% GST was relied upon. Accordingly the structures cannot be classified as solar power based devices or treated under the solar entries. [Paras 6]Structures are classifiable under Chapter Heading 7308 (iron/steel) or 7610 (aluminium) and attract the rate applicable to those headings.Composite supply - mixed supply - principal supply - application of highest rate for mixed supply - Section 2(30) of the CGST Act - Section 2(74) of the CGST Act - Nature and tax consequence of supply when different solar components are sold in various combinations (whether composite or mixed supply) and the applicable tax rate - HELD THAT: - The Authority considered definitions of composite supply (Section 2(30)) and mixed supply (Section 2(74)) and the facts that each component (panel, pump, controller, structure) can be sold separately and is not inherently bundled in the ordinary course of business. The Authority found absence of the requisite element of a principal supply and natural bundling for a composite supply. Therefore, supplies of different possible combinations of these independent goods constitute a mixed supply. In terms of Section 8(b) of the CGST Act, a mixed supply is to be treated as supply of that component attracting the highest rate of tax. The Authority accordingly upheld the AAR finding that such combinations attract the highest rate applicable among the items in the mix. [Paras 6]Where the appellant sells components in various combinations (and no principal supply or natural bundling exists) the supply is a mixed supply and will be taxed at the highest rate applicable to any individual item in that combination.Taxability of solar power based devices - composite supply - valuation rule for supplies comprising goods and services (70:30 explanation) - Classification and taxation of supply of a Solar Water Pumping System supplied as a whole along with installation and commissioning (whether composite supply and valuation applicable) - HELD THAT: - The Authority examined the notifications and their explanations linking the goods entry for solar power based devices with the services entry for installation/setting up (Sl. No. 234 of Notification No.1/2017 and Sl. No. 38 of Notification No.11/2017). Finding that the appellant supplies the solar water pumping system and also provides installation and commissioning services specified in the notifications, the Authority held that the condition precedent in the explanations is satisfied. The supply therefore falls to be considered under those entries with the deeming explanation which apportions value of goods as seventy percent and value of service as thirty percent of the gross consideration. Applying the rates prescribed (5% on the goods portion and 18% on the services portion) yields an effective rate of 8.9% for the period up to 30.09.2021. The Authority noted that amendments notified on 30.09.2021 change the goods portion rate and therefore the effective rate post-amendment will be correspondingly higher. [Paras 6]Supply of the Solar Water Pumping System with installation/commissioning is governed by the linked entries and explanation; value to be apportioned 70% (goods) and 30% (services) with applicable rates yielding an effective rate of 8.9% up to 30.09.2021, and a higher effective rate after the amendments notified on 30.09.2021.Final Conclusion: The appeal is disposed of by upholding the AAR on all contested points: (i) controllers are classifiable under Chapter Heading 8504 and taxed at the rate applicable to that heading; (ii) mounting structures are classifiable under Chapter Heading 7308/7610 and taxed accordingly; (iii) sales of components in various combinations (absent natural bundling/principal supply) are mixed supplies and taxed at the highest applicable rate among components; and (iv) supply of a Solar Water Pumping System with installation/commissioning qualifies under the linked goods and services entries with value apportioned 70:30 (goods:services), producing an effective rate of 8.9% up to 30.09.2021, with the effective rate increased thereafter by subsequent notifications. 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.