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 ... Composite supply - works contract service - principal supply - predominance test - deeming provision for value allocation 70:30 - retrospective effect of rate amendment - stay of coercive actionComposite supply - works contract service - principal supply - predominance test - deeming provision for value allocation 70:30 - retrospective effect of rate amendment - Whether the supplies made by the petitioner are taxable as works contract service at 18% or as composite supply with the principal supply being goods taxable at 5%, and whether the 70:30 deeming provision (Notification No.24/2018) or its subsequent clarification applies to the tax periods in question. - HELD THAT: - The appellate authority had held the contracts to be works contract services taxable at 18% and relied upon the amendment by Notification No.24/2018 (with effect from 01.01.2019) to reject the claim for earlier periods. The Court noted Circular No.163/19/2021-GST dated 06.10.2021, in which the GST Council clarified that specified Renewable Energy Projects may be taxed in terms of the 70:30 goods:services allocation for the period 1 July 2017 to 31 December 2018, in the same manner as prescribed from 01.01.2019, while stating that no refunds shall be granted where GST already paid exceeds the amount determined by that mechanism. In view of this subsequent clarification, the Court did not decide the merits of the characterisation (works contract v. composite supply) for the appealed tax periods but considered it appropriate to remit the controversy to the first appellate authority to re-examine the classification and tax liability for the periods in question in light of the Circular and applicable law, permitting the petitioner to raise all objections afresh. [Paras 23, 24, 25]Order under challenge set aside and matter remanded to the first respondent/appellate authority for fresh consideration in accordance with the Circular and law.Stay of coercive action - Whether coercive recovery steps against the petitioner should be stayed pending fresh consideration by the appellate authority. - HELD THAT: - Having remanded the matter for fresh consideration, the Court directed that the authorities are restrained from taking any coercive steps for a limited period to ensure effective adjudication on remand. The petitioner was permitted to raise objections before the appellate authority, and provision was made for the petitioner to seek interim orders from the authority if the matter could not be disposed of within the stipulated time. [Paras 25]Authorities restrained from initiating coercive recovery for eight weeks from receipt of the order; matter to be decided preferably within six weeks, with provision for interim relief applications if required.Final Conclusion: The appellate order confirming tax and penalty is set aside and the matter is remanded to the first appellate authority to reconsider classification and tax liability for the specified renewable-energy-related tax periods in light of Circular No.163/19/2021-GST and applicable law; coercive recovery is restrained for a limited period and the petitioner may press all objections before the authority. 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.