TaxTMI 
TaxTMI 
2018 (9) TMI 1341
X X X X Extracts X X X X
X X X X Extracts X X X X
....- AUTHORITY ON ADVANCE RULINGS, KARNATAKA pronounced by the Karnataka Authority for Advance Ruling. Brief facts of the case: 1. The Appellant is registered under GST with GSTIN No.29AACCE0525D1Z4 and is engaged in the business of supply and end to end setting up Solar Power Generating Systems. The appellant is a contractor and enters into Contracts with various Developers who desire to set up and operate Solar Photovoltaic Plants for supply of power generated. In certain cases, the appellant is also the Project Developer Wherein it is engaged in operation of renewable energy power plant projects. 2. As per the contract entered into with the Project Developer, the Appellant is required to do end to end setting up of a Solar power plant which includes supply of various goods (such as modules, structures, inverter transformer etc.) as well as complete design, engineering and transportation, unloading, storage and site handling, installation and commissioning of all equipments and material, complete project management as well as civil works/ construction related services for setting up of a functional Solar Power Plant. 3. The contract entered into by the Appellant includes end to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... hence, the supply of goods should form the principal supply and the entire contract should be taxed as supply of goods itself. They also submitted that they would be supplying the PV module which is the major equipment and installation of the same. 7. They also drew reference to the erstwhile Service Tax regime wherein the concept of naturally bundled services is identical to the concept of composite supply under GST. They referred to the Education Guide issued by the CBEC in 2012 wherein the Concept of naturally bundled service was explained and submitted that in their case, the customer perceives the entire Contract as a supply of Solar Power Generating System as the intent of both the parties is supply of goods / system which would help in generation of electricity. They relied on number of judgments in support of their contention that even in cases where the main Components of solar power generating systems i.e, Solar Photovoltaic Module(hereinafter referred as 'PV Module') has been supplied, the same has been held to be a SPGS. The Appellant had also urged that the benefit of such concessional rates should be available to sub-contractors as well, as long as it can be establi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the made by sub-contractor is an individual supply and thereby the appropriate rate of GST has to be applied depending on the specific nature of supply; 9. Being aggrieved by the above mentioned Ruling of the Authority (hereinafter referred to as 'Impugned Order'), an appeal was preferred before the Appellate Authority for Advance Ruling on 08-06-2018 on the following grounds: i. The proposed transaction is for composite supply of solar power generating system as a whole and hence the rate of GST should be at GST. The appellant submits that the term 'Solar power generating system' has not been defined under GST. The term solar power system has been defined under Solar Power -Grid Connected Ground Mounted and Solar Rooftop and Metering Regulations - 2014 issued by the State of Goa to mean "a grid connected solar generating station including the evacuation system upto the Grid interconnection point'. Under the erstwhile law also solar power generating systems Were not defined. However under the erstwhile law, various exemptions were extended to non-conventional energy devices which included solar power generating systems. They submitted that where the contract is awarded as a whole....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ontract should be taxable at 5% GST. iii. The Appellant submitted that in the impugned order, the AAR has held that merely because the PV module is supplied on HSS basis, the contract cannot qualify as composite supply of SPGS. They submitted that procurement of goods on High Sea Sales('HSS') basis does not change the nature of the contract. The intention of procuring the PV modules on HSS basis is for commercial convenience and in order to avail benefit of concessional customs duty as benefit of concessional rate of customs duty is only available to the owner. However, the risk and liabilities pertaining to all the equipment provided and to the development and design; procurement, supply, development, construction, testing and commissioning of the plant shall be borne by the Appellant till the completion of the plant. Hence it cannot be said that the PV modules are being procured by the Project owner. iv. The appellant submitted that in certain case, they engage various sub-contractors who further supply the goods to the Appellant or engage in provision of certain portions of the contract. Notification No 01/2017 Integrated Tax (Rate) which provides for concessional rate on sol....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Bench. 11. The Appellant vide letter dated 31.08.2018 filed their additional submissions to the instant ease wherein they submitted the sequence of transactions involved in the ultimate setting up of the solar power generation system which involves: a. The intending customer-project owner, enters into power purchase agreement with the authorities such as Govt. Corporate Entities etc, b. To comply with the commitment for power supply under the agreement, the project owner enters into contract with the contractor by entering into EPC contract with the Appellant. c. Thereupon, the Appellant places purchase orders on various vendors for supply of goods in order to execute the EPC contract entered into with the project owner. d. Moreover, the Appellant also places purchase order with Foreign Vendors for supply on HSS basis to the project owner against HSS contract which is a sub set Off main EPC Contract entered into as referred to above. e. In pursuance of the purchase orders from the Appellant, foreign vendors supply the goods to the Appellant f. Thereafter, the Appellant sells those goods on HSS basis to the project owner against HSS contract which is a sub set of main EPC con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re of procurement of goods (even by Way of HSS) does not determine who would be the owner of such goods, and a person can be an importer even without being the owner of the goods. In view of the above they submitted that it cannot be said that the PV modules under the draft contract are being procured by the Project owner. 14. They also submitted that as per S.No.234 of Notification No-1/2017, the Government has chosen to tax solar devices and parts and solar power generating system and Photovoltaic cells at Hence, the clear legislative intent and its interpretation by Government authorities including Ministry of Natural Renewable Energy 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%. Furthers 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 whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll as the supply of services; that the major equipment as per-the contract is the Photovoltaic module which forms about 60-70% of the contract; that the said Photovoltaic module is purchased overseas and transferred on High Sea Sale basis to the owner of the project (the other contracting party) who then imports the same by filing the Bill of Entry and availing of applicable Customs duty exemptions; that the Said PV module is later made available to the Appellant without a consideration at the project Site; that the procurement and supply Of the remaining parts and components which are essential to complete the Solar Power plant and the services of design, erection, installation and commissioning of the Solar Power Plant are supplied by the Appellant. 20. In the background of these facts which are accepted being the facts in the situation, the short point for determination is whether the transactions undertaken in terms of the said draft contract can qualify as a 'composite supply' and if so, whether the supply of PV module which is the major equipment in terms of value and functionality will in this matter be regarded as the principal supply determining the rate of tax for the en....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h supply does not constitute a composite supply; Illustration: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately. 22. In the instant case there is no dispute that the contract in question involves a supply of both goods and services. However in order for the supply to be termed as a 'composite supply', what is required is that the supply of the goods and the services should at least be bundled, more specifically be 'naturally bundled' and supplied in conjugation with each other. The term 'naturally bundled' has not been defined in the GST Act. We note that the concept of composite supply under the GST law is similar to the concept of naturally bundled services that prevailed under the service tax regime, and the same was understood to refer to those transactions involving an element of provision of service and an element of transfer of title in goods in which various elements are so inextricably linked that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng parts and components and services. 24. The first part of the supply is done by purchasing from a foreign supplier the PV module and transferring the title of the said PV module on High Sea Sales basis to the owner of the project. The Project owner clears the PV module through the Customs and makes available the same to the contractor (Appellant) without consideration to the project site. The Appellant have argued that the above modus is merely undertaken for commercial reasons since it is the project owner who is eligible for custom duty exemptions and therefore. the PV module although has been identified and arranged for purchase by the Appellant, the same has been actually procured and imported by the other contracting party. We find that the reason for this modus, though compelling is not the relevant to the issue at hand. What is relevant is that the Appellant having resorted to such a structuring, has the effect of making the supplies effected in this instance to have been effected in at least three Clear and distinct stage. * One is the transfer of ownership of the PV module from the Appellant (the original purchaser) to the Project owner on High Sea Sale basis. * Sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n individual existence before the delivery as the sole property of the party who is to deliver Wand for that reason, this then is a sale. If 'A' may transfer property for a price in a thing in which 'B' had no previous property then the contract is a contract for sale. On the other hand where the main Object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour- The intention in the two different transactions is different- on the matter of PV module sold on high seas, it is sale; and thereafter Other transactions in goods and services are to follow. 27. Therefore, in view of the above, we find that the supply of PV module is a distinct transaction by itself and Cannot be said to be naturally bundled with the supply of the remaining parts required for setting up the Solar Power Plant. The contract itself makes it abundantly clear that the term "equipments" does not cover "free issue equipment". Therefore, the Contract itself recognises the supply by the owner as a distinct transaction which is separate from the supply of the other equipments and components by the contractor. To this extent the AAR was righ....