TaxTMI 
TaxTMI 
2018 (6) TMI 1127
X X X X Extracts X X X X
X X X X Extracts X X X X
....s as well as services. The applicant has sought advance ruling in respect of the following questions: a) Whether supply of turnkey Engineering, Procurement & Construction ('EPC') Contract for construction of solar power plant wherein both goods and services are supplied can be construed to be a Composite Supply in terms of Section 2(30) of CGST Act, 2017. b) If Yes, Whether the Principal Supply in such case can be said to be 'Solar Power Generating System' which is taxable at 5% GST. c) Whether benefit of concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors. 4. The applicant furnishes, in exhibit II to the application, some facts relevant to the stated activity: a. The applicant is an EPC contractor & enters into contract with various developers who desire to set up and operate solar photovoltaic plants for supply of power generated. In various cases, the Applicant also is a project developer wherein it is engaged in operation of renewable energy power plant projects. b. Typically a turnkey contract is entered into by the Applicant to do end to end setting up of a solar ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is term has not been defined * Parts for manufacture of solar power generating system and PV modules - There is no restriction provided on what would qualify as parts and in such case all goods which qualify as 'parts' of solar power generating system should be eligible for concessional rate of tax 4.1.2 Concept of composite supply and mixed supply Section 2(30) of CGST Act defines composite supply to mean 'a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply'. Section 2(90) defines principal supply as -principal supply" means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary'. Further, mixed supply has been defined under the Act as "mixed supply" means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply. Further, in terms of Section 8 of the CGST Act, it has been clarified that a composite supply comprising two or more supplies, one of which is a principal supply will be treated as supply of such principal supply. The relevant para of Section 8 of the CGST Act provides as follows: '8. Tax liability on composite and mixed supplies. - The tax liability on a composite or a mixed supply, shall be determined in the following manner, namely:- (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply' Per the above, the essential conditions for a supply to qualify as composite supply can be highlighted as under: a) 2 or more taxable supplies of goods or services or both b) The taxable supplies should be naturally bundled c) The taxable supplies should be supplied in conjunction with each other d) One taxable supply should be a principal supply In such case, the supply which is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tation including the evacuation system up to the Grid inter-connection point'. Typically the term system has a wide ambit. As per the Oxford Dictionary, the definition of the term 'system is -a complex whole, a set of things working together as a mechanism or interconnecting network". Similarly, the system is defined in Chambers 20th Century Dictionary as "anything formed of parts placed together or adjusted into a regular and connected whole". Hence, system typically includes various components/ parts which are manufactured/ assembled together for performing a function. In the present case, the term system should include all goods provided under the contract which help in end to end generation as well as transmission of electricity. Further, under erstwhile law also, solar power generating systems have not been defined. However, under erstwhile excise law, various exemptions were extended to non-conventional energy devices which included solar power generating systems - List 8 of Notification no. 12/2012-Central Excise, dated 17 March 2012. Reference is made to the judgment of Delhi Tribunal in the case of Rajasthan Electronics 8z Instruments Ltd. vs. Commr. Of C.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of such services"The rules prescribed are explained as under: 1. If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character' 2. If various elements of a bundled service are not naturally bundled in the ordinary course of business, it shall be treated as provision of a service which attracts the highest amount of service tax. The concept of naturally bundled services was explained in the Education Guide issued by the CBEC in the year 2012 (the Education Guide'). The relevant extract of the Education Guide is reproduced as under for case of reference: Bundled service means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. An example of 'bundled service' would be air transport services provided by airlines wherein an element of transportation of passenger by air is combined with an element of provision of catering service on board. Each service involves differential treatment ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mer pays the same amount, no matter how much of the package they actually receive or use * The elements are normally advertised as a package * The different elements are not available separately. * The different elements are integral to one overall supply - if one or more is removed, the nature of the supply would be affected. Per the above, the following conclusions can be drawn: * In case more than two supplies are supplied together wherein one of the supply is principal supply would qualify as composite supply. * Further, goods supplied under the composite supply are supplied in conjunction with each other. Also, such composite supply is supplied in the ordinary course of business. * The composite supply would qualify as supply of the principal supply. Taxes would be applicable as on such principal supply. Drawing reference to the above, it is submitted that the customer perceives the entire contract is for supply of solar power generating system as the intent of both the parties is supply of the goods/ system which would help in generation of electricity. Hence, the entire contract (both goods and services) and b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dominant activity to which others are merely ancillary. In the present case also, the dominant supply is those of goods (which constitutes solar power generating system' and services is merely incidental to provision of such goods. 4.2.4.2. European Union Per the European Union Directive, a composite supply is a transaction where supplies with different VAT treatments are sold together as one. The supplies with a composite supply may consist of parts that, if assessed separately, have different tax rates. Some have standard rates, reduced rates or are exempt from VAT. The European Court of Justice ('ECJ') has delivered several judgements on the aspect of composite supply under European Union Value Added Tax laws ('EU-VAT'). In the case of Card Protection Plan Ltd. Vs. C & E Commrs [1994] BVC 20 , the ECJ held that 'a service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself but a means of better enjoying the principal service supplied'. Per the above principal, in the present case also, what the customer wishes or intends to obtain is the main supply of solar power generating syst....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ds. 4.4. Contract does not constitute works contract It is submitted additionally that works contract is also defined as a composite contract and includes a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. It is our case that the intent of the contract executed by the Applicant are not in the nature of erection, commissioning or fitting out, etc. Instead the contract is entered for provisioning of solar power generating system and the main intent of parties is to procure a solar power generating system to which the activity/ services of erection/ commissioning etc are only incidental. In the present case, even if the contract qualifies as composite contract, the principal supply would be that of provision of solar power generating system and not provision of works contract services. This is because as highlighted above, the principal supply or dominant intent is provision of goods as s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r power generating system taxable at 5%. * Concessional rate of 5% for supply of solar power generating system or its parts should also be available to sub-contractors. Further to above submissions, we most respectfully pray that: 1. Allow us to reiterate all the submissions without prejudice to one another; 2. Grant a personal hearing put forth our contentions and explain our submissions before passing any order in this regard; 3. Allow us to amend, alter and add to the present reply; 4. Allow us to produce additional documents and other material during the time of Personal Hearing; and 5. In that behalf pass such other orders and directions as may be deemed proper and necessary. PERSONAL HEARING: / PROCEEDINGS HELD ON 09.02.2018. 5. The Applicant submitted Specific Power of Attorney appointing M/s Price Waterhouse Coopers Private Limited, represented by Shri Prashanth Agarwal, as their authorized legal representative, who attended the proceedings held before the Authority on Advance Ruling in Karnataka, Bengaluru on 09.02.2018 and furnished additional written submissions. The authorized representative during the proce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment or availing trade credits etc., however, as a general trade practice all the equipment which are being supplied under the agreement are supplied together for setting up/ supply of a solar power generating system. 6.2 The second assertion by the applicant is that the Contract does not constitute works contract. The following submissions have been made in this regard. (a) Works contract is defined as a composite contract and includes a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. (b) Therefore, in order to determine whether the supply made by the Applicant is of works contract, it is imperative to understand (i) the essence of the contract and the intention of the parties involved in the contract to determine whether the parties intend to undertake works contract or supply of solar power plant and (ii) whether the activities are undertaken on an immovable property for t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... land/premises of the Owner, while development of Plant, due to the requirement of transferring the Plant to another location, would be borne by the Owner. Such costs incurred would be charged by the Contractor from Owner separately and does not form part of the Contract price highlighted in Schedule 3 of the Contract. The amount to be charged due to the changes will be mutually decided between the parties. Reliance is also placed on the Chartered Engineer Certificate which clearly provides that Solar Power Plant if required can be shifted to another location and is highly moveable. The applicant has also made reference to Circular issued by Central Board of Customs and Excise ('CBEC'), vide 37B Order No. 58/1/2002 - CX issued under F.No. 154/26/99 - CX4 dated 15 January, 2002 ('the Circular), after realizing the anomaly in case of plant and machinery assembled at site, issued the Circular clarifying the following: (i) If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered asmoveable and will, therefor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cipal supply. The relevant para of Section 8 of the CGST Act provides as follows: "8. Tax liability on composite and mixed supplies. - The tax liability on composite or a mixed supply, shall be determined in the following manner, namely :-" (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply' Per the above, the essential conditions for a supply to qualify as composite supply can be highlighted as under : a. 2 or more taxable supplies of goods or services or both b. The taxable supplies should be naturally bundled c. The taxable supplies should be supplied in conjunction with each other d. One taxable supply should be a principal supply. In such case, the supply which is the principal supply is treated as the main supply and the entire transaction is taxed as per the principal supply. The Applicant would like to highlight that mounted Photovoltaic module (PV module) comprises around 6o%-7o% of the entire Solar Power Plant, and the rest of the components constitute for around 30-34% and are merely parts or sub parts which are....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies PV Modules as the Major Equipment "Major Equipment(s)" means PV solar modules which is an assembly of solar cells that helps in converting solar power into electricity and all other Equipments specified in Schedule 3 (Contract Price and Payment Milestones) for facilitation of Payment under this Contract; Reference in this regard is made to the judgment of Delhi Tribunal in the case of Rajasthan Electronics & Instruments Ltd. vs. Commr. Of C. Ex., Jaipur wherein a Solar Photovoltaic Module was held to be a Solar Power Generating System. Relevant extract of the judgement is reproduced below for ease of reference: "7. The adjudicating authority admitted the fact that Solar Photovoltaic Module is a Solar Power Generating System. We find that other parts are only panel housing consisting of controllers and switches. Hence the whole system is a Solar Power Generating System and is entitled for the benefit of notification. Therefore, the denial of benefit of notification by the adjudicating authority is not sustainable. The impugned order is set aside and the appeals are allowed'. Basis the above submissions, it is clearly evident that the PV Modules qualif....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the additional submissions of the applicant during the hearing proceedings and the copy of draft contract. 8.1 The Applicant has sought Advance Ruling on the following questions: 1. Whether supply of turnkey Engineering, Procurement & Construction ('EPC') Contract for construction of solar power plant wherein both goods and services are supplied can be construed to be a Composite Supply in terms of Section 2(30) of CGST Act, 2017. 2. If Yes, Whether the Principal Supply in such case can be said to be 'Solar Power Generating System' which is taxable at 5% GST. 3. Whether benefit of concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors. 9. Question No. 1 is ―Whether supply of turnkey Engineering, Procurement & Construction ('EPC') Contract for construction of solar power plant wherein both goods and services are supplied can be construed to be a Composite Supply in terms of Section 2(30) of CGST Act, 2017?‖. 9.1 Composite Supply is defined under Section 2(30) of the CGST Act, 2017 as a supply made by a taxable person to a recipient consisting of two or more taxable supplies....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taic array of a photovoltaic system that generates and supplies solar electricity. In other words they are nothing but an assembly of solar cells that helps in converting solar power into electricity. Hence PV module is the most important component of solar power generating system. Further the Applicant claims that they would be supplying PV module, which is a major equipment and installation of the same, for which they supply connectors etc. 9.3.4 The contents of the draft contract have been examined closely and the following facts emerge: 1. As per clause D of the contract, the equipment (PV modules) is imported and directly transferred to the owner by way of High Sea Sale. Therefore the legal title of the goods shifts to the owner and also the Bill of Entry to clear goods from Customs Area is filed by the owner and not the Applicant. This indicates that the owner has procured the goods and made them available to the Applicant. This is in contrast to what the Applicant has claimed. Once the owner files the Bill of Entry at the time of import they become the titleholders in respect of those goods. After clearance of the goods once they are made available to the Applica....