TaxTMI 
TaxTMI 
2018 (6) TMI 1127
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....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 power plant which includes supply of various goods (such as modules, struc....
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....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 other by a taxable person for a single price where such supply does not constitute a composite supply". Hence, for mixed supply there should be a single price and entire contract g....
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.... 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 the principal supply is treated as the main supply and the entire transaction is taxed as per the principal supply. In the present case, the Applicant would like to submit that the main intent of the contract is provision of the solar power generation system whic....
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....nnecting 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. Ex., Jaipur wherein it was held that '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 Po....
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....ents 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 as a manner of determination of value of two services for the purpose of charging service tax is different.' The Education Guide also clarifies that in cases of composite transactions, i.e. transactions involving an element of provision of service and an element of transfer of title in goods in which various ....
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....lowing 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 bundled and linked wherein the main intent is provision of the goods which constitute solar power generating system. 4.2.4. Global Jurisprudence - Meaning of Composite Supply The concept of 'composite supply' is a global concept and has been discussed in various countries. Provided below is relevant extract from various countries regarding the same: 4.2.4.1. Australia In terms of Goods and Se....
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....ly 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 system and services are only a means to enjoy the same and hence, services are incidental to the main supply of goods. 4.2.4.3. United Kingdom Under the UK VAT laws, a multiple supply (also known as a combined or composite supply) involves the supply of a number of goods or services. The supplies may or may not be liable to the same VAT rate. If a supply is seen as insignificant or incidental to the main supply, then for the purposes of VAT it ....
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....n 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 solar power generating system and hence, entire contract should be taxable as the principal supply itself. 4.5. Whether benefit would also be available to sub-contractor 4.5.1 In certain cases, the turnkey contractor engages various sub-contractors (manufacturers/supplies/ sub-contractors) who further supply the goods to such contractor or engage in provisioning of certain portion of the turnkey contract. 4.5.2 Further, there may be cases wherein the Developer divid....
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....ly; 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 proceedings stated / pleaded that the contract is for supply of system / solar plant only which includes both supply of goods (PV plates) and installation & does not include maintenance; also the contract is for one lump sum amount; the rate of GST should be at 5% as per specific entry in schedule; it is not a works contract as the equipments are not immovable property, the predominant cost is that of Photovoltaic cells which are chargeable at 5% and hence this contract should not be considered as works contract. The written additional submis....
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...., 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 the contract to qualify as works contract. Essence of the contract and intention of the parties involved in the contract is clearly to supply As explained above, the intention of the parties entering into a contract with the Applicant, is to procure a completely functional solar power plant wherein the Applicant undertakes end to end responsibility of supply of equipment for solar power plant including designing, engineering, supply, installation, testing and commissioning of the solar power plant. The intention of the parties is not to undertake any activity on an immovable property, ....
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....ued 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, therefore, not be excisable goods. (vi) If any goods installed at site (example paper making machine) are capable of being sold or shifted as such after removal from the base and without dismantling into its components/parts, the goods would be considered to be movable and thus excisable. The mere fact that the goods, though being capable of being sold or shifted without dismantling, are actually dismantled into their components/parts for ease of transportation etc., they will not cease to be dutiable merely because they are transported in dismantled condition.....' Relying on the aforesaid circular the Applicant contends that as the solar power plant....
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....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 required for panel housing or setting up the module such as controllers and switches. This is due to the fact that PV module is a packaged, connect assembly of typically 6xio photovoltaic solar cells, which constitute the photovoltaic array of a photovoltaic system that generates and supplies solar electricity. In other words PV modules 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 and therefore, would squarely qualify as the 'principal supply'as per the provisions of the GST law. Accordingly, it is submitted that the GST rate of PV modules which is 5% should be applic....
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.... 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 qualifies as 'principal supply' and hence the whole contract even if construed as composite supply should be liable to tax considering it to be supply of PV Modules, which is liable to GST at the rate of 5%. 6.4 Whether benefit would also be available to sub-contractor In certain cases, the contractor engages various sub-contractors (manufacturers/ supplies/ sub-contractors) who further supply the goods to such contractor or engage in provisioning of certain portion of the contract. Further, there may be cases wherein the Developer divides the contract between two separate contracts of construction of solar power generation system. Notification no. 1/2017-Integrated Tax (Rate), which provides concessional rate on solar power generating system does....
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....on ('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 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 the principal supply. 9.2 In order that a supply be categorised as a Composite supply its essential to have (a) two or more taxable supplies and (b) they should be naturally bundled in conjunction with each other. In the present application before us and in terms of the draft contract the applicant contends that they are supplying the goods and are also carrying out services related to the installation of the supplied good. Thus they are engaged in the supply of both goods and services. They have further contended in the concluding part under Para 2.3, Page 12 of the application that the customer perceives that the entire contract is for the....
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....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 Applicant for further action of installation etc, then the Applicant cannot claim to have supplied the goods. 2. As per clause 1.1.45 of the contract ―Free Issue Equipment‖ is defined as Photovoltaic Modules to be supplied by the owner to the contractor as free issue equipment at the plant site for the installation and commissioning of the solar power plant. Hence it is clearly evident from this clause that the major equipment i.e PV modules, are not being supplied by the contractor / Applicant. 3. As per the scope of contract, as mentioned at clause 3 of the contract, the contractor (Applicant) shall supply all the equipment as per the terms of the said contract and in accordance with the execution schedule, to the plant site and complete development, installation and commissioning of the works in accordance with the technical s....