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The core legal questions considered by the Authority for Advance Ruling (AAR) pertain to the Goods and Services Tax (GST) treatment of contracts involving supply and erection of rooftop solar power plants. Specifically, the issues are:
(a) Whether the supply of components of the solar power plant along with erection and installation constitutes a composite supply under GST;
(b) If so, the correct classification and applicable GST rate on such composite supply;
(c) The valuation basis on which the GST rate should be applied;
(d) Applicability of Notification No. 24/2018-Central Tax (Rate) dated 31st December 2018, which provides an explanation regarding the apportionment of value between goods and services in such composite supplies.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (a): Nature of Supply - Composite Supply or Works ContractRs.
Relevant legal framework and precedents: Section 2(30) of the GST Act defines composite supply as a supply consisting of two or more taxable supplies naturally bundled and supplied in conjunction, with one principal supply. Section 2(119) defines works contract as a contract involving building, construction, erection, installation, or commissioning of immovable property where transfer of property in goods is involved. Entry no. 6 of Schedule II treats works contract as supply of services.
The General Clauses Act, 1897 (Section 3(26)) and Transfer of Property Act, 1882 provide the definition of immovable property, which is critical to determine whether the contract qualifies as a works contract. The Apex Court in Commissioner of Central Excise, Ahmedabad v. Solid and Correct Engineering Works laid down the test for immovability involving rootedness, embedment, or permanent attachment for beneficial enjoyment.
Court's interpretation and reasoning: The AAR examined the nature of the rooftop solar power plant installation, considering the components (monocrystalline panels, inverters, mounting structures, wiring, etc.) and the installation process. The solar panels are mounted on structures fastened to the roof with concrete foundations, nuts, bolts, and other fixtures, making the entire system integrated and inseparable from the building.
The Authority noted that although the solar panels themselves are not rooted or embedded in the earth like trees or walls, the mounting structures are permanently fastened to the roof, which is part of an immovable building. The civil works involved (e.g., concrete foundations for mounting structures) and the permanence of installation imply the solar power plant is immovable property.
The AAR distinguished the recent Andhra Pradesh High Court ruling which held that the solar power plant was not immovable property because the modules were not permanently attached for beneficial enjoyment of the building. The AAR found that in the present case, the civil foundation is embedded in the earth for the permanent beneficial enjoyment of the solar power plant, thus making the entire installation immovable.
Key evidence and findings: The contract is an Engineering Procurement Construction (EPC) contract, involving supply, design, installation, testing, and commissioning. The detailed installation process, including preparation of roof, mounting structures, electrical wiring, and grid connection, was considered. The permanence and inseparability of the installation were emphasized.
Application of law to facts: Given the permanent attachment and nature of the installation, the supply is a composite supply of the nature of works contract as defined under Section 2(119) of the GST Act.
Treatment of competing arguments: The AAR acknowledged the conflicting rulings by various Advance Ruling Authorities-some treating similar contracts as works contracts (Karnataka, Maharashtra, Rajasthan) and others as composite supplies not amounting to works contract (Haryana, Andhra Pradesh High Court). After detailed analysis, the AAR aligned with the view that the contract constitutes a works contract.
Conclusion: The supply of components along with erection and installation of the rooftop solar power plant is a composite supply of the nature of works contract.
Issue (b): Classification and Rate of GST on the Contract
Relevant legal framework and precedents: Notification No. 1/2017-Central Tax (Rate) and Notification No. 11/2017-Central Tax (Rate), both dated 28th June 2017, as amended, provide GST rates on renewable energy devices and related services. Entry no. 201A of Schedule II prescribes 6% CGST + 6% SGST (total 12%) on goods such as solar power devices. Entry no. 38 of Notification No. 11/2017 prescribes 18% GST on services related to construction, engineering, installation, or other technical services for setting up renewable energy plants.
Notification No. 24/2018-Central Tax (Rate) dated 31st December 2018 provides an explanation that when goods specified in entry no. 201A are supplied along with taxable services specified in entry no. 38, the value of goods shall be deemed as 70% of the gross consideration and the remaining 30% as value of taxable services.
Court's interpretation and reasoning: The AAR held that although the contract is a works contract (which is treated as supply of services under GST), the tax rate on the composite supply cannot be a single rate. Instead, the contract value must be bifurcated into goods and services components as per the 70:30 ratio prescribed in Notification No. 24/2018.
The goods component (solar power devices and parts) attracts GST at 12%, while the services component (installation, erection, commissioning) attracts GST at 18%. The effective GST rate on the entire contract is thus 13.8% (70% x 12% + 30% x 18%).
Key evidence and findings: The contract documents, relevant notifications, and prior rulings (including Rajasthan AAR and others) were examined. The AAR emphasized that the two entries (201A and 38) are interlinked and must be read conjointly.
Application of law to facts: The contract is classified as a works contract composite supply, but the tax rate is applied separately on goods and services components as per the prescribed ratio.
Treatment of competing arguments: The AAR considered the Revenue's submission that the entire contract should be taxed at the works contract service rate of 9% CGST + 9% SGST (18% total). However, it preferred the applicant's and other AARs' interpretation that the bifurcation and differential rates apply.
Conclusion: The GST rate applicable is 12% on 70% of the gross contract value (goods) and 18% on 30% of the gross contract value (services).
Issue (c): Valuation for GST Purposes
Relevant legal framework and precedents: The value for GST is the gross consideration charged by the supplier for the entire supply as per the GST Act and relevant notifications.
Court's interpretation and reasoning: The AAR confirmed that the valuation basis for the composite supply is the gross contract value charged by the supplier, which is then apportioned between goods and services in the 70:30 ratio.
Key evidence and findings: The contract value of Rs. 1.76 crore was considered, with Rs. 1.08 crore (70%) attributable to goods and Rs. 0.46 crore (30%) to services.
Application of law to facts: The gross consideration is the value on which GST is calculated, apportioned as per the notification.
Conclusion: GST is applicable on the gross contract value, apportioned 70% to goods and 30% to services.
Issue (d): Applicability of Notification No. 24/2018-Central Tax (Rate)
Relevant legal framework and precedents: Notification No. 24/2018-Central Tax (Rate) dated 31st December 2018 contains an explanation prescribing the 70:30 ratio of goods to services valuation for composite supplies involving renewable energy devices and related services.
Court's interpretation and reasoning: The AAR held that this notification is squarely applicable to the contract under consideration, providing clarity on valuation and tax rates.
Key evidence and findings: The notification explicitly covers solar power generating systems and related services.
Application of law to facts: The notification governs the valuation and tax rate apportionment for the contract.
Conclusion: Notification No. 24/2018 is applicable and governs the valuation and GST rate apportionment for the contract.
3. SIGNIFICANT HOLDINGS
"The supply of components of the solar power plant along with the erection of the same would be treated as a composite supply of the nature of works contract."
"As per Entry no. 201 of Notification No. 01/2017, the tax rate should be 12% IGST on seventy per cent of the gross value charged by the supplier and 18% IGST on thirty per cent of the gross value charged by the supplier."
"The value referred to here is the gross consideration charged by the supplier for the entire supply."
"Notification No. 24/2018-Central Tax (Rate) dated 31 December 2018 containing the explanation with the ratio of goods and services as 70:30 is applicable."
Core principles established include:
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