Aluminium Foil Transformers with supervision services ruled as single composite supply despite separate purchase orders

The AAAR Gujarat ruled that the appellant's supply of Aluminium Foil Type Winding Inverter Duty Transformers along with supervision services for a solar project constituted a single composite supply, not separate transactions. Despite the appellant receiving two purchase orders from different entities, the Authority found this to be artificial splitting to circumvent GST provisions. The supply was classified under Schedule-I Entry 234 of Notification 01/2017, with 70% deemed goods and 30% services. The appellant was held liable for GST on the combined value of both orders, with different rates applying before and after October 1, 2021.

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Issues Involved:
1. Classification of Aluminium Foil Type Winding Inverter Duty Transformer under Chapter Heading 8504.
2. Applicability of Sr. No. 234 in Schedule-I to Notification No. 01/2017-Central Tax (Rate) dated 28th June 2017.
3. Rate of GST applicable on the supply of goods and services.
4. Determination of composite supply and whether the contracts should be treated as one single indivisible contract.
5. Applicability of the explanation inserted in Entry No. 234 of Notification No. 01/2017-CT (Rate) dated 28.06.2017.
6. Validity of separate contracts for supply of goods and services.

Detailed Analysis:

1. Classification of Aluminium Foil Type Winding Inverter Duty Transformer under Chapter Heading 8504:
The appellant, M/s Shilchar Technologies Limited, manufactures electronics and telecom, power & distribution transformers. They supplied Aluminium Foil Type Winding Inverter Duty Transformers to M/s Adani Green Energy Limited (AGEL) for a solar project. The appellant classified these transformers under Chapter Heading 8504, arguing they are parts of a Solar Power Generating System.

2. Applicability of Sr. No. 234 in Schedule-I to Notification No. 01/2017-Central Tax (Rate) dated 28th June 2017:
The appellant sought an advance ruling on whether the supply of transformers falls under Sr. No. 234 in Schedule-I to Notification No. 01/2017-Central Tax (Rate) dated 28th June 2017, which would subject the supply to a GST rate of 2.5% CGST and 2.5% SGST. The Gujarat Authority for Advance Ruling (GAAR) affirmed that the transformers are essential parts of the Solar Power Generating System and thus fall under the specified notification.

3. Rate of GST applicable on the supply of goods and services:
GAAR ruled that the appellant is liable for GST on the total value of both the purchase order for goods and the service order for supervision of erection, testing, and commissioning. The explanation inserted in Entry No. 234 of Notification No. 01/2017-CT (Rate) dated 28.06.2017 states that 70% of the gross consideration is deemed to be on account of goods and 30% on account of services, leading to an effective GST rate of 8.9%.

4. Determination of composite supply and whether the contracts should be treated as one single indivisible contract:
The appellant argued that the contracts for supply of goods and services were separate, with goods supplied to M/s Adani Green Energy Limited and services provided to M/s Adani Solar Energy Chitrakoot One Limited. However, GAAR found that the contracts were linked and should be treated as a single composite supply. The technical specifications issued by AGEL included both supply of goods and supervision services, indicating an integrated contract.

5. Applicability of the explanation inserted in Entry No. 234 of Notification No. 01/2017-CT (Rate) dated 28.06.2017:
GAAR noted that the appellant artificially bifurcated the contract to avoid the GST implications of the explanation inserted in Entry No. 234. This explanation mandates that 70% of the gross consideration is deemed for goods and 30% for services, applicable when goods and services are supplied together. The appellate authority upheld this view, emphasizing that the supply of goods and services were interconnected and intended for the initial setting up of the Solar Power Generating System.

6. Validity of separate contracts for supply of goods and services:
The appellant contended that they received separate purchase orders from two distinct entities, but GAAR found that the technical specifications and purchase orders indicated a single, comprehensive contract. The appellate authority supported this finding, noting the artificial nature of the contract split and the consistent involvement of AGEL in both orders.

Conclusion:
The appellate authority modified the GAAR ruling to clarify that the appellant is liable for GST on the total value of both purchase orders. The effective GST rate was determined to be 8.9% until 30.09.2021, after which the rate changed to 13.8% due to amendments in the relevant notifications. The explanation provided in Entry No. 234 is supplier-based, not recipient-based, and applies to the appellant's supply of goods and services for the initial setting up of the Solar Power Generating System.

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