TaxTMI 
TaxTMI 
2018 (9) TMI 1339
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....3 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 in the State of Maharashtra during the period....
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....einafter 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 at the rate of 18% b. In the absence of any documents, the AAR was not able....
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....hich 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 help in end to end generation as well as transmission of electricity. 1.2.3. Furthermore, under erstwhile law also, solar power generating systems were not defined. However....
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....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 - CESTAT AHMEDABAD, the question under consideration was whether the structures and parts of structures cleared for initial setting up of solar power plant are eligible for the benefit of Not....
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....ply 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 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 ta....
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....he 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 the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. For example service of stay in a hotel is o....
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.... 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' of the supply and found that there was a single supply of accommodation and the adjuncts to that supply (including the use of the furniture and facilities within each room, cleaning and linen services, access to common areas and facilities such as pools and gymnasiums and various other hotel services such as porterage and concierge) were incidental and ancillary to the accommodation part of th....
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.... 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 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 supply items (ICD, Airport, Seaport) as set out in detail in Schedule E as per....
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....ts 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 contract should be taxable at the rate of 5%. As mentioned in the statement of facts above, it has been acknowledged by the AAR in its order itself that the Appellant is entering into wholesome contracts for supply of SPGS, and hence, the contract should be taxable as SPGS at the rate of 5%. 1.3.6. It is further submitted that Ministry of New and Renewable Energy (hereinafter referred to as 'MNRE') in various instances has also approved en....
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....ontract. 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 'composite supply' with supply of solar power generating systems as the principal supply, then such supplies may be eligible for 5% GST rate as a whole....' Accordingly, in the instant case, since the contract is for supply of SPGS, the same should qualify as a composite supply wherein the principal supply is of SPGS and hence, entire contract should be taxable at 5% 1.3.11. Per the definition of composite supply and scope of work as defined in t....
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.... 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 to the judgment of Delhi Tribunal in the case of Rajasthan Electronics & Instruments Ltd. vs. Commr. Of C. Ex., Jaipur = 2004 (7) TMI 259 - CESTAT, NEW DELHI, 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 pan....
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....ed 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 supply items (ICD, Airport, Seaport) as set out in detail in Schedule E as per the Specifications in accordance with the terms of this Agreement. The Equipment, Spare Parts and Materials shall be suitable and fit for its intended purpose as provided in this Agreement. All Equipments, Spare Parts and Materials supplied shall be new and without defects.' 'Separate prices are specified for different equipments which are supplied under the agreement for commercial convenience. However, as a genera....
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....hat 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 submits that firstly, under the contract for supply of SGPS, the service element is so minimal that it cannot make the contract a works contract. However, AAR in the Impugned Order has grossly misinterpreted the facts and Appellant's submissions in the instant case and has passed an order on a pre-meditated assumption that typically SPGS is an immovable property and hence, contracts for SPGS would qualify to be works contract. 2.4. The Appellant would, therefore, like to reiterate that the SPGS, as proposed to be sup....
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....ove 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 only to give stability to the plant and keep its operation vibration free. Further, it was held that the setting up of the plant itself is not intended to be permanent at a given place. The plant can be moved and is indeed moved after the road construction or repair project for which it is set up is completed. Hence, the said plants were held to be movable. Relevant extract of the judgement is reproduced as under for ease of reference: 'Applying the above tests to the case at hand, we have no difficulty in holding that the manu....
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....rinciple 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 of the engine itself, and hence, such an attachment does not make the engine part of the land and as immovable property. Relevant extracts of the judgment are reproduced below for ease of reference: 'We find ourselves in agreement with the second part of these observations, which is apposite to the instant case. In the case before us, the attachment of the oil engine to earth, though it is undoubtedly a fixture, is for the beneficial enjoyment of the engine itself and in order to use the engine, it has' to be attached to the earth and the attachment lasts only so l....
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.... 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 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. .........' A conjoint reading of the above along with the judicial precedents, clearly demonstrates that the solar power plant once installed is capable of being moved from one place to another without substantial damage, therefore the solar power plant cannot qualify as an immovable property, and the impugned AAR order should be set aside on thi....
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....on 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 case of T.T.G. Industries Vs. CCE, Raipur [(2004) 4 SCC 751] = 2004 (5) TMI 77 - SUPREME COURT OF INDIA, wherein hydraulic mudguns and tap hole drilling machines required for blast furnace were held to be immovable property on the basis of the finding that the said machine could not be shifted without first dismantling it and then re-erecting it at another site. It was also observed that even if the machines were attached to a concrete base just to prevent wobbling of the machine, it would be classified as immovable property. In this regard, it is submitted that the AAR has grossly erred in relying o....
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....ey 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 to be erected. The weight of the mudgun is approximately 19 tons and the weight of the drilling machine approximately 11 tons. The volume of the mudgun is 1.5 x 4.5 x 1 metre and that of the drilling machine 1 x 6.5 x 1 metre. Having regard to the volume and weight of these machines there is nothing like assembling them at ground level and then lifting them to a height of 25 feet for taking to the cast house floor and then to the platform over which it is mounted and erected. These machines cannot be lifted in an assembled condition.' From the above, it is apparently clear that the level of construction ....
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....t 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 with the intention of permanently affixing the plant to the earth. The AAR has distinguished the aforesaid judgment on the basis that the plant was indeed moved after the road construction or repair project for which it is set up is completed. In this regard, it is submitted that the fact that something is capable of being moved shows that it is not immovable in nature. The fact whether it is actually moved or not, does not change the nature of the property, and hence, the AAR has misinterpreted the judgment in the instant case. Reliance in this regard can also be placed on the judgement of the Hon'ble Supreme Cou....
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....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 for concessional rate of 5%. 3.2. A 'part' is essentially a section, which, when combined with other sections, make up a 'whole system/ product'. In the case of equipment, various parts would combine to make up the whole equipment, which has a specific function. 3.3. Compared to a 'part', an accessory is essentially a piece which enhances the functionality of equipment and adds to the function of the equipment. However, even without the accessory the equipment can function on its own. 3.4. In the present case, it is not the case that all other goods/ equipment are ancillary and the same are required essentially for functioning o....
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....rol 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 the whole Wind Operated Electricity Generator * In CCE vs. Megatech Control Pvt. Ltd. [2002 (145) ELT 379 (Tri-Chennai)] = 2002 (5) TMI 112 - CEGAT, CHENNAI, the Tribunal heid that control panels are part of wind operated electricity generators and are meant specifically for wind mill and will be eligible for benefit. * Vide Circular No. 1005/15/2015 - CX dated October 20, 2015, the CBEC had clarified that tower, nacelle, rotor, wind turbine controller, nacelle controller and control tables will be treated as parts/components of wind operated electricity generators and will be eligible for exemption. * In regard to the above, though there has not been any judgment with ....
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....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 of machine) of a kind described in any of the Headings of Chapters 84 and 85 (other than Nos. 84.65 and 85.28) under respective Headings, every machinery for making or finishing cellulosic pulp, paper or paper-board, requires to be classified under Heading 84.31. Then coming to `Granite Press Roll' the imported article under consideration, being a part of machine of goods `Machinery for making or finishing cellulosic pulp, paper or paper-board' which is suitable for use solely or principally as machinery for finishing paper, it requires to be classified with the machine described in the Heading 84.31, as required by rule (b) to Note 2 of Section XVI, inasmuch as, Granite Press Roll is described by CEGAT itself as part of ....
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....ent 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 that since electricity has been exempted from GST, GST payable on the input side would burden the developer and hence, would prove detrimental to the growth of solar power generating plants in the country. Accordingly, concessional rate of 5% should also be available to parts of solar power generating system supplied on standalone basis. 3.12. Basis the understanding, it can be deduced that the components which are essential for setting up of the solar power plant together will qualify as parts of solar power generating system (falling under Chapter 84,85 or 94) and hence, should be eligible for concessional rate of 5%. 4. Whether benefit would also be available to sub-contractor 4.1. In certain cases, the turnkey contractor engag....
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....wner 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 handling, installation and commissioning of equipments and material services. It further includes erection, testing and commissioning of solar power projects, erection testing and commissioning of solar modules, module mounting structures etc. Under GST, service has been defined as anything other than goods and the general rate of services is 18%. The Appellant in this regards submits that such contract is a separate contract for services itself and hence has to be taxed on independent basis. In our understanding, the same should be analysed independent of contract for goods, and only the contract for services should be taxed as pure service agreement and be categorized as works contract liable to tax at the rate of 18%. Hence, in view of the aforesaid submissions, the Appellant would like to reiterate that the A....
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....red 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 Services Tax Act, 2017 ("CGST Act"), viz. Section 9. 9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person. 7. As per the charging provision, there are five essential ingredients which require to be satisfied in order to give rise to a liability to pay GST: (a) Supply of goods or services or both; (b) At such rates... as may be notified by the Government; (c) On the value determined under....
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.... 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 tax liability in case of inter alia a "composite supply", as follows: 8. 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; and 12. Relevant to the present matter, the definitions of the terms "composite supply" principal supply", "goods", "services" and "works contract" under Section 2 of the CGST Act, are also set out below: (30) "composite supply" means 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. (90) "principal supply" means the supply of goods or services which constitutes the predominant element of a c....
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....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: Union of India v. Mahindra and Mahindra [1995 (76) E.L. T. 481 (S.C.)] = 1995 (3) TMI 88 - SUPREME COURT OF INDIA "The collaboration agreement entered into between the parties is clear and it is not open to the revenue to construe it differently by reading into it something which is not there." Mirah Exports Pvt. Ltd. vs. Collector of Customs [1998 (98) E.L.T. 3 (S.C)] = 1998 (2) TMI 124 - SUPREME COURT OF INDIA " "Ordinarily the Court should proceed on the basis that the apparent tenor of the agreements reflect the real state of affairs" and what is to be examined is "whether the revenue has succeeded in showing that the apparent is not the real and that the price shown in the invoices does not reflect the true sale price." [See : (Union of India v. Mahindra and Mahindra [1995 (76) E.L. T. 481 (S.C.)] = 1995 (3) TMI 88 - SUPREME COURT OF INDIA), at P. 487]." 15. In view of the aforesaid, in the present facts, the levy of GST is crystallised under Section 9 read with Section 7(1)(a). There is, therefore, n....
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....to "works contract"; and (ii) the rate prescription for "works contract" under Notification 11/2017. Both as per Schedule II and Notification 11/2017, the contract in question must first be a composite contract and then it is to be determined whether it is a "works contract" or not, Hence, the appropriate sequence would be: (f) Whether the contract is a composite contract or not? (g) If yes to (a), whether the contract is a "works contract" or not. (h) If yes to (b), then to the contract be taxed as a service. 19. If answer to (a) is "no", there is no question of treating the transactions as a "works contract" and consequently taxing as a service. In this regard, the observation in the Impugned Order (that 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"), is patently contradictory. 20. In the present facts, the agreements are separate supplies of goods and services under Section 7(1)(a), and cannot be said to be a composite supply (as there is no supply which consists of two or more elements of goods or services). There is no legal basis to go behind t....
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....natha Aiyar's Advance Law Lexicon (5th Edition) "System" means a set of inter-related or interacting elements 25. In terms of the aforesaid, given that S. No. 234 refers to the fully interconnected SPGS, the said entry refers to all of the parts/ components as well as the necessary services to achieve such interconnection. 26. Accordingly, the clear intention of the Legislature is that the "system" must be taxed at an aggregated level in whatever form it is, as a "system", where all the value elements which comprise the "system" must be taxed at 5%. It is well settled that in interpreting and applying a statute, no position can be adopted which would frustrate the intent of the Legislature or defeat the object and purpose for which the provision was enacted, and a purposive interpretation must be adopted (Coastal Paper Ltd. vs. CCE, Vishakapatnam [2015 (322) ELT 153 (SC)]; = 2015 (7) TMI 895 - SUPREME COURT, Commissioner of Trade Tax, UP vs. Varun Beverages Ltd. [2011 (267) ELT 147 (SC)]; = 2011 (4) TMI 592 - SUPREME COURT OF INDIA, South Eastern Coalfields Ltd. vs. CCE&C, M.P [2006 (200) ELT 357 (SC)]. = 2006 (8) TMI 3 - SUPREME COURT OF INDIA)]. 27. Even though Notification 1....
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....on of India [2003 (154) ELT 37 (Guj) =2002 (2) TMI 129 - HIGH COURT OF GUJARAT AT AHMEDABAD] maintained in Union of India vs. Inter Continental (India) [2008 (226) ELT 16 (SC)] = 2008 (4) TMI 23 - SUPREME COURT; Abraham J. Thakaran vs. CCE, Cochin [2007 (210) ELT 112 (Tri-Bang)] = 2006 (10) TMI 51 - CESTAT,BANGALORE upheld in CCE vs. Innovative Foods Ltd. [2015 (236) ELT 20 (SC)]) = 2015 (12) TMI 665 - SUPREME COURT. Accordingly, the view of the expert on the movability of the SPGS ought to have been accepted. (j) The Ministry of New and Renewable Energy (MNRE), which is the parent Ministry for solar projects, has also clarified, vide No. 283/11/2017-GRID SOLAR dated 03.04.2018 (refer Pg. 109 of the Appeal Memo), that the structurals in relation to SPGS are not in the nature of "immovable property". Being the governing Ministry qua solar projects, and having the relevant expertise on the subject matter, due credence ought to have been given to the said clarification, instead of adopting a divergent view de hors any technical understanding of the SPGS in the Impugned Order. (k) As per the settled law in terms of a long line of judgements of the Hon'ble Supreme Court, the relevant ....
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....smantling. The relevant judgements only contemplate that the item must be capable of being dismantled and reassembled at another location without being destroyed in the process. In this regard, the conclusion in the Impugned Order that the SPGS is "immovable property" as it could not be shifted without first dismantling it and the reerecting it at another site, is wholly erroneous, and contrary to the test established by the Hon'ble Apex Court. (n) It is further submitted that the test is not one of whether the items are, in fact, dismantled and moved by an assessee, but whether they are capable of being dismantled and moved from one to another (refer Quality Steel Tubes (P) Ltd. vs. CCE, UP. [1995 (75) ELT 17 (SC)] = 1994 (12) TMI 75 - SUPREME COURT OF INDIA; Triveni Engineering & Indus Ltd. vs. CCE [2000 (120) ELT 273 (SC)]) = 2000 (8) TMI 86 - SUPREME COURT OF INDIA. (o) Even under GST (for the purposes of disallowing input tax credit under Section 17(5) of the CGST Act), a distinction has been drawn between "immovable property" and "plant and machinery". The term "plant and machinery" is defined to mean "apparatus, equipment, and machinery fixed to earth by foundation or stru....
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....asis or by sub-contractors are liable to GST at 5% as: (ii) The entire solar power generating "system" is taxable at the rate of 5% as per S. No. 234. Accordingly, any and all goods required for the creation of the system would qualify for the 5% rate under this entry (refer submissions at paragraphs 23 to 28 hereinabove). (iii) In any event, as per a plethora of precedents and CBEC clarification (largely in the context of solar projects and windmill projects), it is settled law that parts/ components of a system would equally merit the rate prescription for the "system" : * Rajasthan Electronics & Instruments Ltd. vs. CCE, Jaipur [2005 (180) ELT 481 (Tri-Dei)] = 2004 (7) TMI 259 - CESTAT, NEW DELHI * BHEL vs. CCE, Hyderabad [2008 (223) E.L.T. 609 (Tri. - Bang.)] = 2007 (10) TMI 165 - CESTAT, BANGALORE * Phenix Construction Technology vs. CCE, Ahmedabad-II [2017-TlOL-3281-CESTAT-AHM] = 2017 (8) TMI 307 - CESTAT AHMEDABAD * Jindal strips Ltd. vs. CC, Bombay [2002-TIOL-347-CESTAT-DEL-LB] = 1997 (5) TMI 152 - CEGAT, NEW DELHI * Gemini Instratech Pvt. Ltd. vs. CCE, Nashik [2014 (300) EL T 446 (Tri-Mum)] = 2013 (7) TMI 464 - CESTAT MUMBAI * Elecon Engineering co. Ltd. vs. ....
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....rts/ components necessary to create the said interconnected "system" would qualify for the 5% rate. * Under Note 2(b), parts suitable for use solely or principally with the SPGS would be classified along with the SPGS, and would also be eligible for the 5% rate. * Most importantly, where a series of individual components are intended to contribute together to a clearly defined function (in this case, solar power generation), the appropriate classification is under the entry relevant to that function. On this basis as well, all parts/ components which go to create the interconnection SPGS as a "system" would attract the 5% rate of GST. In view of the foregoing, even a supply of standalone parts/ components or supply of such parts/ components by the sub-contractor would equally merit the 5% rate of GST. HEARING The appellants were heard on 02.07.2018 where the appellant reiterated the written submissions made in the appeal filed. The appellant also made additional written submissions on 02.07.2018 reiterating all the submissions made in the application and certain additional grounds also. Copy of the additional submission was enclosed to the appeal. Both the submissions of the....
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.... The ARA referred to Supreme Court and High Court judgments to understand the term 'movable property' and relying on the principles enunciating in the judgment. It came to the conclusion that the transaction results into transfer of immovable property. FINDINGS 37. WHETHER 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%? 38. It is seen that Agreement is proposed to be made in two parts. One is titled as 'AGREEMENT FOR SUPPLY OF SOLAR POWER GENERATING SYSTEM' in which it is stated that 'the buyer desires to set-up solar photovoltaic plants with total capacity of 60 MW (AC)/81 MW (DC) and the other is titled 'ENGINEERING AND CONSTRUCTION AGREEMENT' in which it is stated that 'the Owner desires to set up and operate solar photovoltaic plants with a total capacity of MA AC (81 MW DC). The agreement for SPGS (SOLAR POWER GENERATING SYSTEM) shows that the buyer desires to set up an operation of Solar Photovoltaic Plant with the total capacity of 60MW. The engineering and construction agreement shows that the buyer seeks to entrust the appell....
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....ement the supplier is required to perform all the actions including the 'design, engineering, manufacturing, inspection, testing of the equipment'. As per 3.1 of the services agreement, the appellant is required to perform the entire works including erection, testing and the commissioning of the equipment. The works have to be done as per the specification manual which is not given in the agreement. However, the schedule-III of the 'Services' agreement defines the scope of work which includes- a. Land development activity. b. Construction of necessary roads and drainage system, boundary wall fencing, Bore wells. c. All Civil and foundation works for Switchyard, solar plant and all other equipment. d. Site enabling facilities. e. Levelling and grading. It Iso includes erection, testing and commissioning of solar modules, power transformer, invertor etc. * As per Clause 13 of the Service agreement, the appellant has agreed that it shall be responsible for carrying out all the tasks and responsibilities associated with the successful completion and commissioning of the 'Plant' on or before the "Work Completion Deadline'. 'Plant' is defined as 'the 60 MW (AC) Solar PV Power Pro....
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....' shows that the document of title of the equipment imported and supplied is directly transferred to the Owner by way of High Seas Sale for commercial convenience. However it is further stated in the clause that," However as per this agreement, the risk and liabilities accruing in relation to all those equipment shall remain with the Supplier till the completion of the Project. After the completion of the project, the risk and liabilities are shifted to the lead Contractor. After the completion of the project, the risk and warranties are shifted to the Owner" This shows that the risk and warranties are not shifted immediately to the Owner as it happens in a case of a pure supply of goods. The risk only shifts after the completion of the project. This shows that both the agreements though made distinctly, are intertwined and interdependent. 43. Clause 11.2 of the 'AGREEMENT FOR SUPPLY OF SOLAR POWER GENERATING SYSTEM' says that the Supplier shall bear the risk of physical loss or destruction of or damage to the Equipment, Spare Parts and Material, regardless of whether the Buyer has title thereto until the date of Final Acceptance. If there is any loss or damage of the Equipment an....
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....urt judgement in the case of M/s. Larsen And Toubro Ltd (14 September, 2015 Nos. 22960 of 2007) = 2015 (12) TMI 470 - ANDHRA PRADESH HIGH COURT. In the case, all the petitioners had executed turnkey projects for different customers. They claimed that the goods supplied by them, for being used in the turnkey projects, were subsequent sales exempt from tax under Section 6(2) of the CST Act, import sales under Section 5(2) of the CST Act, and the respondents lacked jurisdiction to subject these transactions to tax under the AP VAT Act treating them as intra-state sales. The assessing authority also examined the question whether there can be a sale in transit, or a sale in the course of import, in a transaction of works contract. He held that, from the nature of the contracts awarded, it could be seen that the petitioner was required to supply the goods as per the supply contract; they were also required to execute the works themselves; the intention of both the contractor and the contractee was completion of the works involving supply of goods as well as labor and therefore the transaction is a 'works contract. The Court observed- ... "In turn-key projects, more particularly of the k....
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....and are inter-dependent" The above observations of the Hon'ble High court are clearly applicable in the present case. The functions relating to the supply of goods and the installation thereof are clearly inter-dependent and though distinct agreements are made they are linked to each other and are indivisible. 46. This brings us to the issue of whether the contract for the setting up of the solar power generation plant is a 'composite supply'. The term 'composite supply' is given under clause 30 of Section 2 of the CGST Act. "composite supply" means 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; Illustration.- Where 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; It is important to see the definition of 'principal supply' and goods along with the same. "principal supply" means the supply of goods or servic....
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....nt and transaction and that 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 by the appellant on the decisions in the case of Union of India v. Mahindra and Mahindra [1995 (76) E.L.T. 481 (S.C.)] = 1995 (3) TMI 88 - SUPREME COURT OF INDIA and Mirah Exports Pvt. Ltd. vs. Collector of Customs [1998 (98) E.L.T. 3 (S.C.)] = 1998 (2) TMI 124 - SUPREME COURT OF INDIA. In this respect we refer to the Supreme Court judgement in the case of Bhopal Sugar Industries Ltd vs Sales Tax Officer, Bhopal on 14 April, 1977 (Equivalent citations: 1977 AIR 1275, 1977 SCR (3) 578) =1977 (4) TMI 151 - SUPREME COURT OF INDIA. The Apex Court has observed the following- "it is well settled that while interpreting the terms of the agreement, the Court has to look to the substance rather than the form of it. The mere fact that the word 'agent' or 'agency' is used or the words 'buyer' and 'seller' are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the said status would be conferred. Thus, the mere forma/ ....
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....System' amounts to erection of immovable property? In order to answer this question, we have to go through the clauses given in the agreement brought before us. 50. It can be seen from the definition that works contract involves activities of 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. However, these activities should be in respect of immovable property. In order to decide whether the transaction is a works contract it is for us to decide whether it is in respect of immovable property. The term 'immovable property' has not been defined under the GST Act. The appellant has submitted certain judgments in his favour in defining the term and after going through same, we find that the following principles emerge:- * If a machine is attached for operational efficiency, it does not become immoveable property. * "The degree and nature of annexation is an important element for consideration; for where a chatt....
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.... by criteria given by the various judgements. 52. Let us first understand what is meant by a Solar Power Generating System, The main equipment which as a whole constitutes a solar power generating system are solar panel consisting of solar cells (known as solar PV module), strings (series of multiple PV modules), string inverters, inverter to convert from DC power to AC power, Switchgears, Transformers and transmission lines etc. The entire mechanism of a SPGS is that solar panels/PV modules are connected together to create a solar array. Multiple panels are connected together both in parallels and in series to achieve higher current and higher voltage. The electricity produced by solar array is direct current, and therefore, inverters are required to convert Direct Current into Alternating Current and connection to utility grid is made through High Voltage Transformer. The appellant has submitted in the write up that in setting up of a solar power generation plant, the following steps are involved: * Soil and Topo Survey * Plant coordinate fixing, Boundary fencing and Plant layout * T/L Survey, Piling, Building Construction * Structure erection, inverter erection, equip....
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....solar panels have something to sit on. This means looking into or a deep examination of certain soil types, strict building codes, and earthquake risk. In that case, a soil engineer would look at the soil to determine its type and make adjustments to the foundation size and requirements of the design. Once the foundation is ready, then one can start building pole mount systems and metal framing to hold the panels and other components. After building a frame and checking the foundation work, the panels are installed. The panels have to be carefully positioned. Finally, panels are wired to the inverter, trenches are dug and connections between the system and the property's electrical panel or solar home battery is buried. 54. What is described above is a solar power system for a home. What we have in the instance is a 'WHOLE SOLAR POWER GENERATION SYSTEM.' one look at the Agreements gives an idea of the scope of the work. The array of goods includes Solar PV Modules, lnverters and Inverter Transformer, Tracker Components, Module Mounting Structure, Switchyard Supply, Transmission Line Supply, AC/DC Cables, Chain Link Fencing ,Battery Charger, Power Transformer, LD Switchgear and co....
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....e place to the other. Thus, the project fulfills both the conditions of an immoveable property - The mode of annexation shows that the groundwork, being the necessary foundation, is an important part of the project. The object of annexation, as said earlier, cannot be to make it movable from one place to the other. It simply cannot be equated to the Asphalt mix (the issue in Solid &Concrete Engg case) which was intended to be moved from one place to another. In the present case, we have seen that the detailing of the system being what it is, it cannot be called a 'simple machine' by any stretch of imagination. The PV module may be an important part of the system but what is intended to be bought is not the PV module but an entire system. Thus, we affirm the conclusion drawn by the ARA that the Agreements made lead to the erection of a Solar Power generating System. 55. We shall refer to certain judgments in this regard. The Advance Ruling Authority has referred to the Supreme Court judgment in the case of M/s. T.T.G. Industries Ltd., vs Collector Of Central Excise,. on 7 May, 2004 Appeal (civil) 10911 of 1996. = 2004 (5) TMI 77 - SUPREME COURT OF INDIA. The contract here was for t....
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....td. 1996 (88) ELT 622 (SC) = 1996 (11) TMI 66 - SUPREME COURT OF INDIA. In the case of Quality Steel Tubes (cited supra), the court held that goods which are attached to -earth and thus become immovable did not satisfy the test of being goods within the meaning of the Act. It held that tube mill or welding head is immovable property. In the case of Mittal Engineering Works, the issue was whether mono vertical crystallisers is goods (in which case it would be excisable or immovable property). The mono vertical crystallisers is fixed on solid RCC Slab. It consists of bottom plates, tanks, coils, drive frames, supports etc. It is a tall structure rather like a tower with a platform. It was decided by the Court that the said product has to be assembled, erected and attached to the earth by a foundation and therefore not goods but immovable property. 56. We shall also refer to the Supreme Court decision in the case of Duncans Industries Ltd vs State Of U.P. & Ors on 3 December, 1999 = 1999 (12) TMI 857 - SUPREME COURT OF INDIA where the SC had to decide whether the 'plant and machinery' in the fertilizer is 'goods' or 'immoveable property. The Apex Court held that the same is immoveabl....
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....nt importance here is the 'object of annexation'. Is there an intent to move the plant from one place to other? Of course, not. There is no feasibility in moving the plant from one place to another. There can be no intention of both the parties to move the plant from one place to another. The fact that it can be moved is immaterial. 58. The appellant has also produced a letter from the 'Ministry of New and Renewable Energy' dt 3.4.2018. However, the same denotes the understanding of the Ministry regarding the GST treatment for solar sector and cannot be taken as legal advice/opinion. The letter itself clarifies in the end that the same is not a legal advice or an opinion. The issue of classification or determination of the agreements have to be done with respect to the laws and relevant provisions which are certainly not in the domain of Ministry of New and Renewable Energy. 59. The appellant has also produced order of the CBEC under Section 37B (Order No 58/1/2002 - CX dt 15.1.2002). The order gives directions as to what would be excisable goods and what would not (immoveable property). The clarification says in Para 5 (i) that 'Turnkey projects like Steel plants, Cement Plants,....
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....that the agreement leads to an erection of a 'solar power generating system' which is immoveable property. Therefore, merely because schedule entry is provided for the same does not mean that the product would be classified in the same. 60. 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 GENERATION SYSTEM? 61. The Advance Ruling Authority had not given any ruling on the above on the following grounds, In the absence of any document before us, we would not be able to deal with this question in the present proceedings.' 62. The Appellant has not produced any document or agreement before us incorporating such a situation. In the absence of any written agreement showing the terms and conditions, it would be both difficult as well as incorrect for us to determine the same. The situation now is the same as it was before the Advance ruling authority. There being no change in situation, there is nothing we can add. Also, as an 'appellate authority' we can decide issues already decided and appealed against. There being no decision given by the advance ruling authority,....
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....latform 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. In the Perumal Naicker case the issue was whether the engine and pump set were an immoveable property. We have discussed in detail with reference to judgements and the principles enunciated therein as to how the 'Solar Power System' would be an immoveable property. Also, the facts in these cases are different. There is no case of a foundation in the instant case nor is there is any case of merely an engine/pump installed. * Gemini Instratech Pvt. Ltd. Vs. Commissioner of Central Excise, Nashik [2014 (300) ELT 446 (Tri. - Mum) = 2013 (7) TMI 464 - CESTAT MUMBAI, Elecon Engineering Co. Ltd. Vs. Commissioner of Customs [1998 (103) ELT 395 (Tri)] = 1998 (3) TMI 359 - CEGAT, MUMBAI, In Pushpam Forging vs. CCE, Raigad [2006 (193) ELT 334 (Tri. - Mumbai)] = 2005 (7) TMI 242 - CESTAT, MUMBAI, CCE vs. Megatech Control Pvt. Ltd. [2002 (145) ELT 379 (Tri. Chennai) = 2002 (5) TMI 112 - CEGAT, CHENNAI, Ballarpur Industries (1995 (56) ECR 646) SC) = 1994 (12) TMI 156 - SUPREME COURT OF INDIA, Sealol Hindustan Ltd (1988 (17) ECR 186 (Bombay) = 1988 (3) TM....