2022 (12) TMI 260 - HC - GST

GST demand on solar power project remanded for fresh consideration under Circular 163/19/2021

The AP HC allowed the appeal by remand in a GST dispute concerning solar power project services. The petitioner challenged an order demanding GST with ... Rate of GST on services relating to setting up of solar power projects - 18% or 5% - Determination of value of services involved - Violation of principles of natural justice - contention of the Petitioner that the impugned order is not legal and proper and is in violation of principles of natural justice, as the impugned order communicated is without any preamble intimating the method and procedure - demand of GST with interest and penalties - HELD THAT:- A perusal of Circular No.163/19/2021-GST dated 06.10.2021 issued by the Department of Revenue, Ministry of Finance, Government of India, which is now placed on record, would show that GST Council has given clarity on specified Renewable Energy Projects that GST can be paid in terms of 70:30 ratio, for the goods and services, for the period 1st July, 2017 to 31st December, 2018, in the same manner prescribed for the period on or after 01.01.2019, as per the explanation in the Notification No.24/2018 dated 31st December, 2018. In view of the Circular No.163/19/2021-GST, dated 06.10.2021, we deem it appropriate to remand the matter back to the 1st respondent/Appellate Authority to consider the issue afresh in terms of the above Circular. Appeal allowed by way of remand. Issues Involved:1. Classification of the supply as 'Works Contract Service' or 'Composite Supply'.2. Applicable GST rate for the supply.3. Legality of the demand notice and recovery proceedings.4. Violation of principles of natural justice.Issue-wise Detailed Analysis:1. Classification of the Supply as 'Works Contract Service' or 'Composite Supply':The Petitioner argued that their activities in the erection and commissioning of solar equipment do not fall under 'Works Contract Service' as the equipment can be dismantled and reassembled, making it movable. They contended that the activity is a composite supply with the predominance of goods, thus attracting GST on the principal supply. The Respondent, however, maintained that the supply is a 'Works Contract Service' as defined under Section 2(119) of the AP GST Act, 2017, emphasizing that the solar power generating system is immovable once installed. The appellate authority upheld the Respondent's view, classifying the contract under heading 9954, entry no.(ii) of S.No.3 of Notification No.11/2017, thus attracting 18% GST.2. Applicable GST Rate for the Supply:The Petitioner paid GST at 5% on the supply value of equipment and 18% on the erection and installation. They sought a refund for the accumulated Input Tax Credit (ITC) due to the inverted duty structure. The Respondent argued that the entire supply should be taxed at 18% as per the explanation inserted in Notification No.24/2018, effective from 01.01.2019, which was not retrospective. The appellate authority confirmed this view, demanding GST at 18% for the period from November 2017 to September 2018. However, Circular No.163/19/2021-GST clarified that GST on renewable energy projects could be paid in a 70:30 ratio for goods and services from 1st July 2017 to 31st December 2018, similar to the post-01.01.2019 period.3. Legality of the Demand Notice and Recovery Proceedings:The Petitioner challenged the demand notice dated 17.09.2019, which proposed GST at 18% on the grounds that the assessment activity was classified under 'Works Contract Service'. The original authority confirmed the demand and imposed penalties. The appellate authority upheld this decision, leading to the issuance of a recovery notice (DRC-09) on 23.10.2020. The Petitioner contended that the recovery proceedings initiated without allowing the stipulated three-month period violated Section 78 of the AP GST Act, 2017.4. Violation of Principles of Natural Justice:The Petitioner argued that the impugned order was issued without proper communication of the method and procedure, violating the principles of natural justice. They also claimed that the appellate authority's findings were incorrect and failed to consider their arguments regarding the classification and applicable GST rate.Conclusion:The court set aside the order under challenge and remanded the matter to the first respondent/appellate authority for fresh consideration in light of Circular No.163/19/2021-GST. The appellate authority is directed to re-evaluate the issue within six weeks, allowing the Petitioner to raise all objections. The authorities are restrained from taking any coercive steps for eight weeks from the date of receipt of the order. If the matter is not disposed of within the stipulated time, the Petitioner may seek interim orders from the concerned authorities.Order:The writ petition is disposed of with no order as to costs. All miscellaneous petitions, if any, pending shall stand closed.