TaxTMI 
TaxTMI 
2018 (9) TMI 1339
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....e Advance Ruling No. GST-ARA03/2017/B-03 dated 3rd March, 2018. = 2018 (5) TMI 963 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA The impugned order was passed on 3 March, 2018. In terms of Section 100 of the MGST Act, 2017, the time period of filing the appeal is 30 days from the date of communication of the advance ruling. The time period of 30 days can be further extended up to period of 30 days in terms of provision to Section 100(2) of the CGST Act. However, it is stated by the appellant that they could not file the appeal before the Appellate Authority for Advance ruling, since it was not constituted in the State of Maharashtra at the prevalent time. Since the Appellate Authority was not formed, the appellant filed letters dated 2 April, 2018 and 26 April 2018 before the Commissioner of Central Tax and the Chief Commissioner of Central Tax, Mumbai Zone and Commissioner of State Tax, Maharashtra State for understanding the way forward so that the appellant's right to file an appeal is not adversely affected. CONDONATION OF DELAY The first issue relates to the issue of condonation of delay in filing the appeal as the Appellate Authority for advance Ruling was not formed ....
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....) TMI 963 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA (hereinafter referred to as 'Impugned Order') observed as under: a. The intent of the purchaser according to the agreement is to purchase the solar power generating system with various components and not only the components. b. The agreement has been entered into not merely for supply of equipment but also for design and engineering work before supply of equipment. c. Supplier is involved in the project from the engineering and design stage. d. The contract will be complete only after the system has been put in place and payment is linked to the successful completion of the project. e. Hence, the agreement is for supply of SPGS as a whole because the responsibility of the supplier also includes execution and implementation of the project. Basis the above observations, the Advance Ruling Authority passed the following order: a. The agreement tendered in support of the transaction reveal that the impugned transaction is for setting up and operation of a solar photovoltaic plant which is in the nature of a 'works contract' in terms of clause (119) of Section 2 of the GST Act, and hence, should be taxable....
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....1.2.1. The Appellant submits that the term 'solar power generating system' has not been defined under GST. Generally, solar power generating systems are the systems which absorb sunlight and convert it into electricity which can be put to further use. 1.2.2. Further, the term solar power system has been defined under Solar Power-Grid Connected Ground Mounted and Solar Rooftop and metering Regulation -2014 issued by State of Goa. Solar power system as per the regulation means 'a grid-connected solar generating station 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 hel....
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.... Tribunal in the case of BHEL Versus COMMISSIONER OF CENTRAL EXCISE, HYDERABAD - 2007 (10) TMI 165 - CESTAT, BANGALORE it was held that: 'In the present case, the appellants have claimed exemption in respect of "inverter charger card" as solar power generating system. The appellants actually manufactured SPV lantern. The above lantern required electricity for its It is possible to convert solar energy to electricity with the help of inverter charger manufactured by the appellants. The Dy. General Manager has certified that the inverter merger constitutes solar power generating system as it performs the function of generating the required high frequency AC power from in-light with, the help of SPV module and supplying it to the compact fluorescent lamp of a solar lantern. In view of the above, expert opinion, we hold that e impugned item can be considered as solar power generating system and is entitled for the benefit of the exemption Notification. Therefore, we allow the appeal with consequential relief.' Furthermore, in M/s. Phoenix Construction Technology vs. Commissioner of Central Excise and Service Tax, Ahmedabad-II [2017-TlOL-3281-CESTAT-AHM] = 2017 (8) TMI 307 - CESTA....
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....'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'. Thus, principal supply refers to the supply which is the predominant element in a composite supply. In this regard, the GST law provides an illustration - In case goods are packed and 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, Section 8 of the CGST Act provides 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....
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....the application of the dominant nature test. Further, the following was provided in the Education Guide: '9.2.4 Manner of determining if the services are bundled in the ordinary course of business Whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below - • The perception of the consumer or the service receiver. If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package then such a package could be treated as naturally bundled in the ordinary course of business • Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines • The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If t....
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....ly is treated as supply of one thing. There have been various precedents in which the courts have defined a composite supply. Few are highlighted below: • The Full Federal Court in the case of Luxottica found that while 'supply' is widely defined it 'invites a commonsense, practical approach to characterisation. It was observed that while 'Supply' is defined broadly, it nevertheless invites a commonsense, practical approach to characterisation. An automobile has many parts which are fitted together to make a single vehicle. Although, for instance, the motor, or indeed the tyres, might be purchased separately there can be little doubt that the sale of the completed vehicle is a single supply. Like a motor vehicle, spectacles are customarily bought as a completed article and in such circumstances are treated as such by the purchaser. The fact that either the frame or the lenses may be purchased separately is not to the point. Similarly the fact that one component, the lenses, is GST-free or that one component is subject to a discount does not alter the characterization. • In the case of Saga Holidays, Stone J focused on the 'social and economic reality' o....
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....ed) and a magazine (potentially zero rated) as well as the right to attend classes which would be standard rated. The Court decided that there was a single standard rated supply of the right to belong to the playgroup and the T shirt and magazine were incidental to that main supply. No one who was not in the playgroup would have bought the T shirt or magazine separately. Per the above, it is clear that globally also composite supply means a supply of more than one goods/services wherein one supply qualifies as principal supply. Therefore, taxes as applicable on the principal supply are applied on the whole composite supply. Supply of all equipments, including the main equipment PV modules, required to set up SPGS is a composite supply 1.3.4. In the instant case the intention of the parties is to supply solar power generating system. A perusal of the draft agreement also proves that the intent of the parties is to supply SPGS wherein goods are supplied through onshore and offshore modes for the purpose of setting up SPGS. The relevant extract of the agreement is reproduced below: 'The Supplier shall perform or cause to be performed all actions as may be required in conne....
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....oning and maintenance of the SPGS. Hence, it becomes clear that the parts or components form an integral part of the solar power generating system being supplied by the contractor. 1.3.5. The Appellant would like to submit that the AAR in its order has held that the contract for supply of all equipment also covers activities like engineering, designing etc., and hence, there is a clear intent to purchase the SPGS with various components and not the components merely. In this regard, it is submitted that the contract for supply of SPGS majorly covers supply of all equipments required for setting up of the SPGS including the spare parts, and also includes activities which are in relation to provision of such goods and are integral for setting up of the SPGS. It is imperative to note that such activities are integral to provision of SPGS and does not form substantial part of the contract. The contract should be understood as that of supply of SPGS which consists of various components such as PV modules, structures, transmission lines etc. Even if the contract is said to be a composite contract, the principal supply in that case would still be that of SPGS, and hence, the entire con....
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....y of solar power generating system. 1.3.10. Additionally, the Appellant would like to submit that the MNRE has recently issued a clarification vide Circular issued under F.No. 283/11/2017 - GRID SOLAR dated 3 April, 2018 (hereinafter referred to as 'the MNRE Circular') to specified industry players wherein it has been categorically stated that 'structurals' as such do not qualify as immovable property and hence are outside the domain of works contract. Further, it has been highlighted that if the supplies under the contract can be treated as 'composite supply' with supply of solar power generating systems as the principal supply, then such suppliers may be eligible for 5% GST rate as a whole. Relevant extracts of the MNRE Circular are reproduced below: 'Structurals, as such, do not qualify as immovable property and, hence, are outside the domain of 'works contract service'. Whether the EPC contracts qualify as composite supply (u/s 2(30) of the CGST Act) as supply of goods or services or both, naturally bundledor supplied in conjunction with each other in the ordinary course of business will depend on the facts of the case. If such (EPC contracts) supplies could be treated as....
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....ricity. Solar modules constitute more than 60% of the solar power generating system, hence, qualify as one of the most significant parts in the SPP - Delivered at Project Site directly by way of High Seas Sale.' 1.4.2. Hence, PV module is the most important component of solar power generating system and therefore, even if the contract is construed as a composite supply, PV modules can be 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 applicable on the whole of the contract. 1.4.3. The Appellant in this regard places reliance on the CERC Order dated 23 March, 2016 involving determination of Benchmark Capital Cost Norm for Solar PV Power Project for FY 16-17. In the said case also, the CERC, of the total cost of the project including land cost, PV Modules cost is considered as 62%. 1.4.4. Reliance in this regard can also be placed on the Chartered Engineer's Certificate (hereinafter referred to as 'CEC') which provides that the most critical component is PV modules both in terms of the value and functionality that such modules perform. 1.4.5. Reference in this regard is made t....
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....is involved in the execution of such contract'. Further, in terms of Serial Number 6 of Schedule Il to the CGST Act, works contract is treated as a supply of service and the general rate of tax applicable on works contract is 18%. It is further submitted that in terms of the definition of works contract, installation and commissioning services can said to be works contract only if it is in relation to immovable property. Essence of the contract and intention of the parties involved in the contract is clearly to supply SPGS 2.2. The Appellant submits that the intention of the parties entering into the contract is to procure/supply a solar power plant. The relevant extract of the draft contract is reproduced below for ease of reference: 'The Supplier shall perform or cause to be performed all actions as may be required in connection with the supply of the solar power generating system including the design, engineering, manufacturing, inspection, shop testing, packing, fabricating, procuring and delivering all the Equipment, Spare Parts and Materials which are integral part of the Plant, at the Plant Site(for onshore supplies)/destination port in India for off shore sup....
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....system and the supplier also has additional responsibility in respect of execution and implementation of the project. By relying on the judgement of the Hon'ble High Court in the case of National Organic Chemicals Industries Ltd. Vs. State of Maharashtra [2012, SCC Online Bom 2128: (2012) 54 VST 271] = 2012 (8) TMI 407 - BOMBAY HIGH COURT, the AAR has held that a contract must be read as a whole and the contract will not become a contract for supply of equipments merely by including certain clauses that say that the supplier would supply only equipments. In this regards, it is submitted that as is clear from the scope of the contract, the underlying intention of the parties is to supply SPGS, , and hence, should be taxable at the rate of 5%. As mentioned above, the underlying activities like design, engineering, commissioning etc. are integral for the contractor for providing SPGS under the contract, and hence, such activities are not substantial enough to make the contract as a works contract taxable at the rate of 18%. The Solar power generating s stem is movable in nature and hence is not an immovable property to qualify as works contract 2.3. The Appellant submit....
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....able and observed "if somebody to purchase, the whole machinery could be dismantled and sold to him in parts". In view of this finding of fact, it is not possible to hold that the machinery assembled and erected by the appellant at its factory site was immovable property as something attached to earth like a building or a tree. The tribunal has pointed out that it was for the operational efficiency of the machine that it was attached to earth. If the appellant wanted to sell the paper making machine it could always remove it from its base and sell it. In view of that finding, we are unable to uphold the contention of the appellant that the machine must be treated as a part of the immovable property of the company. Just because a plant and machinery are fixed in the earth for better functioning, it does not automatically become an immovable property.' Relying on the aforesaid judgment, the Hon'ble Supreme Court, in the matter Commissioner of Central Excise v. Solid and Correct Engg Works & Ors. (2010 (175) ECR 8 (SC)) = 2010 (4) TMI 15 - SUPREME COURT, held that Asphalt Drum/Hot Mix Plants were not immovable property as the fixing of the plants to a foundation was meant onl....
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....note that the Madras High Court in the matter of Sri Velayuthaswamy Spinning Mills v. The Inspector General of Registration and the Sub Registrar (2013 (2) CTC 551) = 2013 (3) TMI 681 - MADRAS HIGH COURT, while deciding whether setting up of windmills can be treated as movable property for the purpose of payment of stamp duty, held that windmills were installed on the cemented platform on the land for running of windmills and not for the benefit of the land, and hence the same are to be considered as movable property. The judgment was passed on the basis of the principle that if, in the nature of things, the property is a movable property and for its beneficial use or enjoyment, it is necessary to imbed it or fix it on earth though permanently that is, when it is in use, it should not be regarded as immovable property for that reason. Similar principles were also adopted in the matter of Perumal Naicker v. T. Ramaswami Kone and Anr. (AIR 1969 Mad 346) = 1967 (9) TMI 147 - MADRAS HIGH COURT, wherein the Madras High Court, while deciding whether the engine and pump set were an immovable property, held that the attachment of the oil engine to earth is for the beneficial enjoyment o....
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....ance in this regard is also placed on the Chartered Engineer Certificate (hereinafter referred to as 'CEC') which clearly states that the SPGS proposed to be supplied by the Appellant can be easily shifted from one place to another and it is highly movable. 2.8. In this regard, the Appellant also submits, that the Central Board of Customs and Excise (hereinafter referred to as 'the CBEC'), vide 37B Order No. 58/1/2002 - CX issued under F.No. 154/26/99 - CX4 dated 15 January, 2002 (hereinafter referred to as 'the Circular'), issued the following clarifications with respect to plant and machinery assembled at site: '(v) 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 as moveable 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....
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....ystem is only installed together to the grid sub-station so that the same is capable of functioning as a system together. It is further submitted that though SPGS may be shifted from one place to another only in rare circumstances, the same is still capable of being removed and hence cannot, by any stretch of imagination, be said to be an immovable property. The AAR in the Impugned order has failed to explain as to why the contract entered into by the Appellant for supply of SPGS would qualify to be an 'immovable property'. On the contrary, the AAR has baselessly assumed that contracts in relation to SPGS are commonly qualified as works contract. In this regard, it is submitted that the intention of the parties to the contract is to procure SPGS and services like design and engineering work, implementation, operation and maintenance are essential for supplying the solar power system. The contract for supply of SPGS cannot be said to be a works contract only because of the fact that the supplier performs certain services to make the same available to the buyer. 2.10. It is further submitted that the AAR has wrongly relied on the judgement of the Hon'ble Supreme Court in the....
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....oundation intended for housing drilling machine and mudgun are erected. The concrete foundation itself is 5 feet high and it is grouted to earth by concrete foundation. The first step is to secure the base plate on the said concrete platform by means of foundation bolts. The base plate is 80 mm mild sheet of about 5 feet diameter. It is welded to the columns which are similar to huge pillars. This fabrication activity takes place in the cast house floor at 25 feet above ground level. After welding the columns, the base plate has to be secured to the concrete platform. This is achieved by getting up a trolley way with high beams in an inclined posture so that base plate could be moved to the concrete platform and secured. The same trolley helps in the movement of various components to their determined position. The various components of the mudgun and drilling machine are mounted piece by piece on a metal frame, which is welded to the base plate. The components are stored in a store-house away from the blast furnace and are brought to site and physically lifted by a crane and landed on the cast house floor 25 feet high near the concrete platform where drilling machine and mudgun has....
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....other without substantial damage and hence cannot said to be immovable property. The fact that the solar power generating system is capable of being moved without substantial damage can also be substantiated with the help of the CEC. 2.12. It is further submitted that the AAR has relied on the judgement of the Hon'ble Supreme Court, in the matter of Commissioner of Central Excise v. Solid and Correct Engg Works & Ors.[(2010) 5 SCC 122] =2010 (4) TMI 15 - SUPREME COURT, and observed that the asphalt drum/hot mix plants were held to be movable property for the reason that the plant was not intended to be permanent at a given place and the plant can be moved and is indeed moved after the road construction or repair project for which it is set up is completed. 2.13. It is submitted that the AAR has ignored the fact that Asphalt Drum/Hot Mix Plants were held to be movable property as the fixing of the plants to a foundation was meant only to give stability to the plant and keep its operation vibration free and not with the intention of permanently affixing it to the ground. In the instant case also, the solar power plant is fixed at the site only for operational efficiency and not....
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...., supply of solar power plants cannot be said to be works contract. Hence, the same should be taxable as a composite supply of SPGS at the rate of 5%, as also acknowledged by the AAR in its order. This can be further substantiated by the fact that there is a separate contract for supply of services, wherein construction related services are undertaken, and hence, the contract for supply of SPGS should be taxable at the rate of 5%. Case 2 - Where other parts and components are supplied by the contractor (not PV modules) 3. Supply of parts/components of solar power generating system should be taxable at the rate of 5% as supply of parts of solar power generating system 3.1. In certain cases, not all parts of solar power generating system are supplied by the contractors (as some parts may be procured separately). For example, PV modules may be procured by the Project Developer directly and only balance contract is awarded to the contractor for supply of remaining goods. In such case, the parts supplied should be eligible to concessional rate of 5% as the entry covers 'Renewable energy devices and parts for their manufacture', which means parts of SPGS would also qualify fo....
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.... generators are installed be eligible for benefit of notification which provides exemption from payment of excise duty to wind operated electricity generators and its components and parts thereof. It was held that such doors would also be eligible for the exemption. This was also ratified by the Supreme Court [2015 (315) ELT A82 (SC)] = • In Elecon Engineering co. Ltd. vs. CC [1998 (103) ELT 395 (Tri)] = 1998 (3) TMI 359 - CEGAT, MUMBAI, the issue involved in the case was whether power cables, earthing cables, wind farmer computer will be eligible for benefit of exemption under Notification No. 64/94 - Cus. The Tribunal held that power cables and control cables together form part of inside cabling of wind turbine controller. Since, control cables are eligible for exemption, the benefit of exemption has to be extended to power cables also. • In Pushpam Forging vs. CCE, Raigad [2006 (193) ELT 334 (Tri-Mum)] = 2005 (7) TMI 242 - CESTAT, MUMBAI, the Tribunal held that flanges are parts of windmill tower which is in turn a part of Wind Operated Electricity Generators. Once tower is accepted and held to be a part of WOEG, flanges of the tower will be a part of t....
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....t is reproduced as under: '13. Coming to Rule (a) of Note 2 to Section XVI which is also excerpted by us already, goods of a kind described in any of the Headings of Chapters 84 and 85 (other than Heading Nos. 84.65 and 85.28) are in all cases to be classified in their respective Headings. Then, coming to Rule (b) of Note 2 to Section XVI, which is also excerpted by us already, other part of goods of a kind described in any of the Headings of Chapter 84, if suitable for use solely or principally with a particular kind of machine (described in Chapter 84) is required to be classified with machine of that kind mentioned in Chapter 84. Therefore, what has now to be examined is, when Heading No. 84.31 describes the goods (article) classified thereunder as "machinery for making or finishing cellulosic pulp, paper or paper-board" whether the goods or article "Granite Press Roll", which is held by CEGAT itself, to be a part or component of paper making machinery, does warrant its classification thereunder. In our view, when Note 2 to Section XVI requires classification of parts of machines to be made according to rules given thereunder and when rule (a) thereunder requires goods (part ....
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....only with centrifugal pumps or compressors fall by virtue of Note 2(b) under the Heading 84.10(1) or 84.11 (1). They are parts used in such pumps or compressors.' 3.10. From the aforesaid judgements, it can be inferred that parts of a machine which are specifically used in the particular machine are classified under the same tariff heading as that of the machine. In view of the above, the Appellant submits that the parts of solar power generating system can be used only in setting up of solar power generating system, thus the same should be classified as SPGS itself. 3.11. It is submitted that generation of power by way of solar energy is one of the key promoters for the Government's aspiration of 'Make in India'. The Government has set target of 175 GW of renewable power by 2022 which includes 100 GW of solar power. Per 'Make in India' website set up by the Government of India, India's annual solar installations would grow four times by 2017. If the goods supplied under the contract for construction of solar power plants is taxed at separate rates applicable on the individual goods, it would lead to higher tax burden on the developer of the solar power plants. Please note th....
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....• All civil and foundation works for switchyard, solar plant and all other equipment • Site enabling facilities • Leveling and grading • Erection, commissioning and testing for solar modules, mounting structures, power transformers, inverters, SCADA, complete switchyard, inverter transformers, connectors, earthing lines etc. Per clause 3.1 of the contract for supply of services, scope of supplies includes: 'The Contractor agrees that it shall, either on its own or, through one or more Subcontractors including Prime Subcontractor as may be appointed in accordance with this Clause 3.1, perform the entire Works, as per the Specification Manual and in accordance with the terms of this Agreement, to the satisfaction of the Owner. It is further clarified that the Owner will have a right to accept or reject a Affiliates or Subcontractor at its discretion and Owner's decision in this regards would be binding on the Contractor, provided such acceptance shall not be unreasonable withheld.' In terms of Schedule III of the agreement, the scope of work includes design, engineering and studies, transportation, unloading, storage and site hand....
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....ce, the Appellant would like to plead that the contract for supply of SPGS, as rightly held by the AAR in its order, is a contract for supply of SPGS as a whole, and hence, should be taxable at the rate of 5%. The AAR's findings that the contract for SPGS is an immovable property, and hence, qualifies as works contract taxable at the rate of 18% is without any substance and is bad in law, and hence, the Impugned order should be set aside. In addition, the Appellant would like to reiterate that as submitted above, parts used for setting up of SPGS should also be eligible for concessional rate of tax (if in heading 84, 85 and 94) and the said benefit should be available to sub-contractors as well. Further, the contract for supply of services, is an independent contract for pure services, wherein the contractor is required to undertake services such as installation, civil works related activities etc. Hence, the said contract should be read and considered independent of the contract for supply of SPGS, and should be taxable at the rate of 18%. ADDITIONAL SUBMISSIONS 6. At the outset, reference requires to be made to the charging provision under the Central Goods and Servic....
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.... Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 ("Notification 11/2017"). The said entries are extracted below for ease of reference: Goods: Sl.No. Chapter/Heading/Sub-heading/Tariff item Description of goods 234. 84, 85 or 94 Following renewable energy devices & parts for their manufacture (a) Bio-gas plant (b) Solar power based devices (c) Solar power generating system (d) Wind mills, Wind Operated Electricity Generator (WOEG) (e) Waste to energy plants / devices (f) Solar lantern / solar lamp (g) Ocean waves/tidal waves energy devices/plants (h) Photo voltaic cells, whether or not assembled in modules or made up into panels Services: Sl.No. Chapter, Section or Heading Description of Service Rate (per cent.) Condition Heading 9954 (Construction services) (ii) composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017. 9 - (xii) Construction services other than (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x)and (xi) above. 9 - 11. Section 8 of the CGST Act then prescribes the t....
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....the aforesaid scheme of provisions under the GST law, two separate transactions of supply for separate consideration would fall under Section 7(1)(a), and suffer two distinct levies of GST on the respective consideration for each supply, at the rates prescribed for goods/ services by way of notification. In the present case, under Section 7(1)(a), the Supply Agreement would be taxed qua the consideration mentioned therein, as a supply of goods at the rate of 5% under Notification 1/2017. The Services Agreement would be taxed as a supply qua the consideration mentioned therein as a supply of services at the rate of 18% under Notification 11/2017. 14. Furthermore, in terms of the settled principles for interpretation of contracts, the Hon'ble Supreme Court had held time and again that the Department cannot question the commercial wisdom of the parties entering into an agreement, and must proceed on the basis that what is stated in the contract reflects the true nature of the intent and transactions. It is therefore impermissible for the tax authorities to go behind the language of the contract or act contrary to it. Reliance in this regard is placed on the below decisions: Unio....
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....evising two agreements (refer Pg. 74 of the Appeal memo). The Impugned Order then proceeds to hold that: • The two agreements, read together, constitute a "works contract" which is taxable at the rate of 18%, as the liability of the contractor does not end with the procurement of materials but extends till the successful testing and commissioning of the system (refer Pg. 63 of the Appeal Memo). • The requirement that a works contracts must be for "immovable property" is met, as the solar power plant could not be shifted without first dismantling it and the re-erecting it at another site (refer Pg. 76 of the Appeal Memo). • Once it has been determined that the transaction is a "works contract", there is no need to enter into any discussion as to the transactions involving a "composite supply" (refer Pg. 74 of the Appeal Memo). 18. It is submitted that the aforesaid findings under the Impugned Order are completely unsustainable and bad in law, as the same completely misread the provisions of: (i) Schedule II to the CGST Act pertaining to "works contract"; and (ii) the rate prescription for "works contract" under Notification 11/2017. Bo....
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....t to system, GST will be payable at 5%. In fact, the effective rate for such contracts even prior to GST was approx. 3%, and an application of the "equivalence principle" also affirms that the intent of the Government was never to tax the entirety of the goods and services in relation to setting up an SPGS at a significantly higher rate of 18%. 23. Furthermore, S.No. 234 covers a solar power generating "system", when it is well known that: • A "system" would cover supply of goods and services necessary to create it; • A "system" could be movable or immovable. 24. In this regard, the word "system" (which is undefined under GST) is to be understood as follows: • Ordnance Factory vs. CCE, Nagpur [2013 (295) ELT 600 (Tri-Mum)] = 2011 (12) TMI 401 - CESTAT, MUMBAI As per the Oxford Dictionary (Tenth Edition), 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". • P. Ramanatha Aiyar's Adv....
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....d place all SPGS contracts under the 18% rate bracket. However, the view taken in the Impugned Order will ensure that the intent of the Government to tax the solar power generating system at 5% is bypassed, and that the said system suffers tax at 18%, contrary to the clearly stated and manifested intention of the Government. The findings in the Impugned Order that the SPGS is "immovable property" are erroneous and unsustainable: 30. The Impugned Order proceeds on the basis that the SPGS is an "immovable property". The said findings are unsustainable in view of: (i) The certificate provided by the expert (i.e. qualified Chartered Engineer) which clearly states that the SPGS is "highly moveable" as it is capable of being dismantled and re-assembled at another location (refer Pg. 139 of the Appeal Memo). The said expert evidence has not been controverted in any manner, the expert has not been cross-examined and no contrary evidence has been brought on record as well. It is well settled that expert evidence can only be countered with expert evidence and a judicial/ quasi-judicial authority cannot substitute his own views for that of the expert (Inter Continental (India) vs. Un....
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....RAS HIGH COURT • Perumal Naicker vs. T. Ramaswami Kone and Anr. [AIR 1969 Mad 346] = 1967 (9) TMI 147 - MADRAS HIGH COURT • CBEC Circular No. 58/1/2002-CX dated 15.01.2002 (l) It is submitted that the last judgement in the aforesaid line of decisions on the issue, which prescribed the overarching tests for determining whether an item is movable or immovable, is the judgement in Solid and Correct Engineering (supra). It is this judgement which requires to be followed and applied, as opposed to the strong reliance placed by the Impugned Order in TTG Industries Ltd. vs. CCE, Jaipur [2004 (167) ELT 501 (SC)] = 2004 (5) TMI 77 - SUPREME COURT OF INDIA where a conclusion was reached that hydraulic mudguns were immovable based on the specific processes involved and the manner in which the equipments were assembled and erected. In fact, the decision in Solid and Correct (supra), while laying down the definitive tests on this movability/ immovability, has also distinguished the decision in TTG Industries (supra) at paragraph 32 on this factual basis. (m) In this regard, it is also submitted that the various precedents have not laid down a requirement that the....
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....ad combinedly, a "works contract" will still not be constituted, as a "works contracts" by definition is a contract for construction which also involves a transfer of title/ ownership in goods. The predominant element is, therefore, that there must be a contract for rendition of services, viz. construction services. Accordingly, where the predominant element is supply of manufactured goods which are imported, or, locally procured, the definition of "works contract" will clearly not be satisfied. 33. Furthermore, works contract being a specie of composite contract (which determines taxability qua the principal supply), in order to be taxed as a service, it is a natural corollary that a "works contract" must principally be for the supply of services. In view thereof, in the instant case even if the two agreements are taken together, as service is not the principal supply, it cannot be treated as a "works contract" 34. Rather, the principal supply, in terms of both customer perception and as a value proposition, is clearly the supply of the goods (particularly, the PV module). On this basis, the entire supply would merit taxation at the rate of 5% under S. No. 234 of Notificatio....
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....to be classified according to the following rules :(a) parts which are goods included in any of the headings of Chapter 84 or 85 (other than headings 8409, 8431, 8448, 8466, 8473, 8487, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings; (b) other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 8479 or 8543) are to be classified with the machines of that kind or in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate. However, parts which are equally suitable for use principally with the goods of headings 8517 and 8525 to 8528 are to be classified in heading 8517 4. Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function. In terms of the afor....
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....clusion that the buyer by devising certain clauses sought to bring about a splitting up of the intended purchases of the system, as a one whole, into purchases of goods and purchases of services. It is further observed that the agreement has been entered into not merely for supply of equipment but also for design and engineering work before supply of equipment and the Supplier is involved in the project from the engineering and design stage. Hence, the agreement is for supply of SPGS as a whole because the responsibility of the supplier also includes execution and implementation of the project. On the basis of the above observations, the Advance Ruling Authority passed the following order: a. The agreements tendered in support of the transaction reveal that the impugned transaction is for setting up and operation of a solar photovoltaic plant which is in the nature of a 'works contract' in terms of clause (119) of Section 2 of the GST Act, and hence, should be taxable at the rate of 18% b. In the absence of any documents, the AAR was not able to deal with the question regarding applicability of concessional rate of tax on parts of solar power generating system in the present ....
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....ces. It is submitted by the appellant that the 'AGREEMENT FOR SUPPLY OF SOLAR POWER GENERATING SYSTEM' is a composite supply wherein the principal supply is for SPGS and hence the entire contract should be taxable @ 5%. As for the 'ENGINEERING AND CONSTRUCTION AGREEMENT', it is argued that it is an independent contract for pure services and hence the said contract should be read and considered independent of the contract for supply of SPGS and should be taxable @18%. 39. It is seen from the agreement that though the parties have entered into distinct and separate contracts, one for the transfer of material and other for supply of services, this is in effect a single instrument embodying the intention of the parties. In turnkey projects more particularly of the kind involved in this impugned issue the same person has been entrusted with the responsibility of procuring the material and of erection and installation of equipment. Though as per the contention of the appellant, goods formed a predominant part of the contract, the obligation of the appellant under both the contract ceases only after the turnkey project becomes operational and after the final payment is made both for su....
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....essful plant completion. 40. The aforesaid clauses show that while the contracts are ostensibly two separate contracts, one for supply of material and other for rendering works and services, they are in fact one single indivisible contract. The goods supplied to the owner by the appellant are specifically brought for the purpose of the erection of the system. The appellant is entrusted with the work mainly for their expertise in erection and installation of the plant in the execution of turnkey project. The function relating to the supply of material and the rendering of services of erection and installation are integrally connected and interdependent. The terms of supply clearly show that the implementation schedule is not only for supply but also for erection, testing and commissioning of the plant. Schedule A of the supply agreement part II makes it clear that the complete supplies required for the construction of the 60MW (AC/81 MW DC) Solar PV project shall be in the scope of the supply. 41. Thus, from the above it is seen that the supply of the goods and the supply of works are inextricably linked with each other. It is not that the appellant has been assigned with the ....
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....at the appellant is appointed by the buyer only for buying equipment but he is given the contract for setting up the plant. The letter sent by the appellant mentions the website as 'www.canadiansolar.com'. The Internet shows that Canadian Solar is one of the three biggest solar power companies in the world. Thus, what the appellant brings to the project is his expertise in procurement as well as erection/setting up /installation of the plant. 44. We would also like to refer to certain observations made by the Advance Ruling Authority in the instance case. The Authority has referred to Schedule A of the 'AGREEMENT FOR SUPPLY OF SOLAR POWER GENERATING SYSTEM' and has observed that the Supplier (appellant) is appointed not merely to supply equipment but there is design and engineering work. Schedule J says that 'Specifications/Design basis for various equipment shall be mutually agreed between Supplier and Buyer during the early engineering period'. Thus, the involvement of the appellant is from the engineering stage. The definition of 'Other Contractors' is also touched upon. This is defined as 'other contractors engaged by the Supplier to implement, operate and maintain the Plant....
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....ining whether or not the subject contracts are indivisible works contracts, is insignificant." It further referred to a specific clause in the agreement as below- "Appendix-H of the L & T Vemagiri supply agreement stipulates that 5% of the price shall be paid on successful test for the identified packages as per the pricing and technical specifications; 5% of the price on provisional acceptance; and 5% of the price on final acceptance. Provisional acceptance is defined under the supply agreement to mean the achievement of provisional acceptance as defined in the civil works and erection agreement, and in accordance with the terms thereof. It is evident, therefore, that 10% of the payment under the supply agreement is required to be made only after provisional and final acceptance as stipulated under the erection agreement'. The Court concluded- "The goods supplied to the owner, under the supply contracts, are tailor made goods, and cannot be bought off the shelf. Such goods cannot, ordinarily, be sold to another except for its use in turnkey projects of a similar nature. The petitioners have been entrusted with the work mainly for their expertise in erection and i....
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....equire to fulfill the intention of the buyer in giving the contract. The supply of goods and services are provided as a package and the different elements are integral to flow of supply i.e. one or more is removed, the nature of the supply would be affected. Thus, we hold that though there are two agreements made one for the supply of goods and the other for the supply of services, what can be easily gathered from the tenor of both the agreements is that the buyer has given a contract for setting up SPGS to the appellant and therefore it is a single indivisible contract which involves element of two supplies- one for the supply of goods and other for the supply of services. By making two separate agreements - one for the supply of goods and the other for the 'supply for services' what is purported to be done is an artificial division of contracts which though done, cannot take away the true and inherent nature of the contract. It is a single supply of a 'SOLAR POWER GENERATING SYSTEM' consisting of two or more taxable supplies. This is clearly a case of composite supply of goods and installation thereof. The entire transaction of providing the goods and the services are naturall....
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.... at the correct conclusions. WHETHER IMMOVEABLE PROPERTY 49. Now, though, we have come to the conclusion that the same is a composite supply, we have to decide the issue about what would be the principal supply and whether it would be a supply of services or supply of goods. The ARA has held that the impugned transaction for setting up and operation of a solar photovoltaic plant which is in the nature of a 'works contract' in terms of clause (119) of Section 2 of the GST Act, and hence, should be taxable at the rate of 18%. The moot question, therefore, is whether the agreement before us is a 'works contract' as defined in clause (119) of section 2 of the CGST Act or otherwise. The definition of works contract is reproduced below. (119) "works contract" means 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; Clause 6 of the Schedule II lists the two composite supplies which shall be t....
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.... been applied as relevant test in this country also. • If the fixing of the plants to a foundation is meant only to give stability to the plant and keep its operation vibration free then it cannot be called as 'Immoveable property'. • If the setting up of the plant itself is not intended to be permanent at a given place and if the plant can be moved and is indeed moved after the road construction or repair project for which it is set up is completed, then also it cannot be termed as 'Immoveable property'. 51. So, what to be seen above is that in deciding whether a property is movable property or otherwise, we have to see what is the mode of necessary annexation and the object of annexation. If object is so annexed that it cannot be removed without causing damage to the land then it gives a reasonable ground for holding that it was intended to be annexed in perpetuity. Also whether the intention of the parties while erecting the system was that the plant has to be moved from place to place in the near future would also make a difference. We have to see by relying upon the above principles i.e. 1) mode of object of annexation 2) mode of annexation whether....
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....ower transformers, inverters, SCADA, complete switchyard, inverter transformers, connectors, earthing lines etc. 53. There are generally two types of Solar Power System 1) Roof mounted 2) Ground mounted. The Solar Polar Generating System in the present case is a ground mounted or ground based Solar Power system. A simple ground mounted system (for a home), requires a customized positioning at the perfect angles for absorbing sunlight. In a ground mounted system, good planning is a big part of placing solar panel ground mounts as the installer has to choose a location that receives the ideal amount of daily sunlight and uses space effectively. Installing ground-mounted solar panels always starts with building a stable base. Traditional ground-mount systems, essentially all work the same-systems anchor to the ground and hold a large number of stacked panels, often two but sometimes three or four panels high. Two rails usually support each panel, whether oriented in landscape or portrait. The anchoring to the ground is the tough part of these installations, as there are many different types of foundations. If the soil is clear of debris, steel beams are driven into the ground and t....
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....and transmission line, the Earthing layout, the Electrical diagrams/documents and drawings , the construction drawings which include the solar panel foundation arrangement/layout and detail of roads and drains, Architectural details and finishing schedule, building layout and details of foundations, trenches, grade slab, plinth beam, equipment foundations, roof etc. and drawings of the module supporting structures. The above itself shows the huge work and detailing of the project. The payment milestones shown in Schedule IV amongst others shows 5% against drawing submissions, 15% on completion of civil works, 15% against transmission line. The Engineering and Construction Agreement ("Services Agreement") covers: (a) the erection, installation and commissioning of the SPGS; (b) the civil works services in terms of construction of the foundation, roads and drainage, sub-station etc. All of the above ( quoted from the details given by the appellant) goes to show that the erection of the solar power generating system is not as simple or movable as it is made out to be. It is an entire system comprising a variety of different structures which are installed after a lot of prior ....
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....ete platform, brought into existence not excisable goods but immovable property which could not be shifted without first dismantling it and then re-erecting it at another site. We have earlier noticed the processes involved and the manner in which the equipments were assembled and erected. We have also noticed the volume of the machines concerned and their weight. Taking all these facts into consideration and having regard to the nature of structure erected for basing these machines, we are satisfied that the judicial member of the CEGAT was right in reaching the conclusion that what ultimately emerged as a result of processes undertaken and erections done cannot be described as "goods" within the meaning of the Excise Act and exigible to excise duty." In the above case, the Supreme Court took note of the fact that the various components of the Mudguns and the Drilling machines are mounted piece by piece on a metal frame, and the components are lifted by a crane and landed on a cast house floor 25 feet high. The volume and weight of these machines are such that there is nothing like assembling them at ground level and then lifting them to a height of 25 feet for taking to the ca....
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....rly shows that the machineries which have been embedded in the earth to constitute a fertiliser plant in the instant case, are definitely embedded permanently with a view to utilise the same as a fertiliser plant. The description of the machines as seen in the Schedule attached to the deed of conveyance also shows without any doubt that they were set up permanently in the land in question with a view to operate a fertilizer plant and the same was not embedded to dismantle and remove the same for the purpose of sale as machinery at any point of time. The facts as could be found also show that the purpose for which these machines were embedded was to use the plant as a factory for the manufacture of fertiliser at various stages of its production. Hence, the contention that these machines should be treated as movables cannot be accepted." Thus, what can be seen from the above is that when machines are embedded with no visible intention to dismantle them and they are intended to be used for a fairly long period of time, they are 'immoveable property. 57. The appellant has produced a certificate from a Chartered Engineer stating that the 'Solar Power Plant is made of equipment whi....
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....bing the rate qua "goods", "services" or "both". In the present case, as per S. No. 234 of Notification 1/2017, the Government has chosen to tax solar products in a particular manner: Devices and parts Solar power generating system } all at 5% Photo voltaic cells Hence, the clear legislative intent is that at all levels, from part to system, GST will be payable at 5%. In fact, the effective rate for such contracts even prior to GST was approx. 3%, and an application of the "equivalence principle" also affirms that the intent of the Government was never to tax the entirety of the goods and services in relation to setting up an SPGS at a significantly higher rate of 18%. The said notification is reproduced below: Sl. No. Chapter/Heading/Sub-heading/Tariff item Description of goods 234. 84, 85 or 94 Following renewable energy devices & parts for their manufacture (a) Bio-gas plant (b) Solar power based devices (c) Solar power generating system (d) Wind mills, Wind Operated Electricity Generator (WOEG) (e) Waste to energy plants / devices (f) Solar lantern / solar lamp (g) Ocean waves/tidal waves energy devices/plants (h) Photo v....
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....ument/agreement which would show what solar parts are supplied by the sub-contractors. Also, it is not known as to whether a complete system is purported to be sold or the parts thereof. Therefore, in the absence of any documents we cannot give any decision in the said case Also, as an 'appellate authority' we can only decide issues already decided and appealed against. There being no decision given by the advance ruling authority, we cannot give any decision in appeal. 66. JUDGEMENTS QUOTED BY THE APPELLANT- Apart from the judgements already discussed above, we also discuss here the other judgements quoted by the appellant. • Rajasthan Construction- The judgement is given under the provisions of the Central Excise Law. Also, there was no case of any agreements made which had to be decided on the touchstone of law but a case of classification. • Phenix Construction Technology vs. CCE, Ahmedabad-II [2017-TlOL-3281-CESTAT-AHM] = 2017 (8) TMI 307 - CESTAT AHMEDABAD The question here for consideration was whether the structures and parts of structures are parts of solar power plant and eligible for the benefit of Notification. This issue is also differen....
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....IN CASE OF SEPARATE CONTRACTS FOR SUPPLY OF GOODS AND SERVICES FOR A SOLAR POWER PLANT, THERE WOULD BE SEPARATE TAXABILITY OF GOODS AS 'SOLAR POWER GENERATING SYSTEM' AT 5% AND SERVICES AT 18%? The agreements tendered in support of this question are for setting up and operation of a solar photovoltaic plant and are in the nature of a 'works contract' in terms of clause (119) of section (2) of the GST Act. Schedule II ( Activities to be treated as supply of goods or supply of services) treats 'works contract' u/s 2 (119) as supply of services .Depending upon the nature of supply, intra-state or inter-state the rate of tax would be governed by the entry no 3(ii) of the Notification No 8/2017-Integrated Tax (rate) under the Integrated Goods and Services Tax Act, 2017 (IGST Act) or the Notification no 11/2017 Central Tax/State Tax (Rate)under the CGST Act and MGST Acts. The rate of tax would be 18% under the IGST Act and 9% each under the CGST Act and the MGST Act, aggregating to 18% of CGST and MGST Act. 68. WHERE OTHER PARTS AND COMPONENTS ARE SUPPLIED BY THE CONTRACTOR (NOT PV MODULES), WHETHER THEY WOULD ALSO BE ELIGIBLE TO CONCESSIONAL RATE OF 5% AS PARTS OF SOLAR POWER GENE....