TaxTMI 
TaxTMI 
2019 (3) TMI 920
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....also referred to as the "Appellant") against the Advance Ruling No. RAJ/AAR/2018-19/08 Dt. 1.8.2018 = 2018 (9) TMI 693 - AUTHORITY FOR ADVANCE RULING, RAJASTHAN. 3. Brief Facts of the case 3.1. Appellant undertakes itself in executing 'Engineering Procurement, and Commissioning' - EPC contracts for Solar Power Generating Systems commonly known as 'Solar Power Plants' 3.2. Typically a contract is entered into by the Appellant 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. Accordingly, the contract entered into by the Appellant includes end to end activities supply of various goods and services and hence is for the supply of Solar Power Generating System. 3.3. The intent of the contract is that the entire contract would be undertaken by the Appellant for supply and setting up of the S....
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....Notification no. 11/2017 Central Tax (Rate) dated 28 June, 2017 and attracts 18% rate of tax under IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%. 4. GROUNDS OF APPEAL: 4.1 SUPPLY OF GOODS As per terms of the contract and definition of Composite and Mixed supply, the given work requires classification as composite supply only. Since the contract is in relation to Solar Plant (supply and installation) they are bundled in ordinary course of business. The term "goods" has been defined under section 2(52) as "goods" means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. The term "services" has been defined under section 2(102) "services" means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. Further, section 7(1)(d) of the CGST Ac....
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....ion, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning is for immovable property only, then it will classify as works contract only. Hence it means that aforesaid activities if they are undertaken for a movable property then it will not be works contract service. That in the typical Erection and Supply of Solar Power Generating System, which is also proposed to be undertaken here, the process which is followed by the appellant is as under : • The Appellant submits the implementation schedule which is reviewed and approved by the purchaser. • The Solar panels and other related items are procured by the Appellant and delivered to the site. • Post receiving the access to the project site, the appellant starts the assembling of items and also creating of foundations for erection of the Solar Panels. After this, other related equipment like inverters, wiring and other connections are completed. • The Project Management is also part and parcel of the contract like Engineering services, Erection of the structure, Installation, Performance Tests and Defect rectification. ....
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....ellate Authority. The appellant also submitted a copy of composite EPC contract by and between Kushtagi Solar Power Private Limited (as owner) and RFE Solar Private Limited (as contractor) during the personal hearing. 6. DISCUSSION & FINDINGS : We have heard the appellant and have gone through the entire case records and written and oral submissions made by him. The issues to be decided are : (i) Whether contract for supply of/construction of a Solar Power Plant, wherein both goods and services are supplied, can be construed to be a composite supply in terms of Section 2(30) of the Central Goods and Services Tax Act, 2017 as claimed by the appellant or the same is Works Contract Services as per the Ruling made by the AAR. (ii) Whether 'Solar Power Generating System' is a movable or immovable property (iii) If the transaction is treated as a 'composite supply', whether the Principal Supply in such case can be said to be 'solar power generating system' which is taxable at 5% GST? 6.2. From the said copy of the composite EPC contract, it is seen that there is a single contract for supply of '15 MWAC /21 MWDC Solar Power Plant' in the State of Karnataka and Kushtagi S....
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....is a principal supply. 6.8. The contract fulfils the condition of composite supply. There is a supply of goods and services. They are naturally bundled in the sense that the goods and services may be required to fulfil 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, from a reading of the entire contract as well as from the definition of composite supply what can be easily gathered is, that the buyer has given a contract for setting up Solar Power Generating System to the Appellant and therefore it is single composite supply of goods and services and installation thereof. 6.9. In order to understand the scope of a 'composite supply' and also to know what may be the criteria to judge a supply as a 'composite supply', the CBIC has published an e- flier on the subject. As per the e-filer, 'Composite supply' entails the concept of 'naturally bundled supply', and whether services are bundled in the ordinary course of business would depend upon the normal or frequent practice followed in....
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....e what would be the principal supply, whether it is a supply of service or supply of goods. The AAR 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 contract before us is a 'works contract' as defined in clause (119) of section 2 of the CGST Act. 6.12. 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; 6.13. Clause 6 of the Schedule II lists the two composite supplies which shall be treated as supply of services. Clause 6(a) of Schedule II of the CGST Act states that Works Contract as defined in Clause (119) of Section 2 of the CGST Act shall be treated as 'supply of ser....
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....ant 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. 6.19. As per the said contract, for setting up of a Solar Power Generation System, the following steps are involved : • Soil Survey • Plant coordinate fixing, Boundary fencing and Plant layout T/L Survey, Piling, Building Construction • Structure erection, inverter erection, equipment foundation • Charging transmission, DC system erection, modu....
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....the roof from scratch, so the 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. 6.22. 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 contract, 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, Powe....
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.... detailed designing, ground work and soil survey. As said earlier, the amount of drawings done indicates the magnitude of the work done. Solar systems tend to be tailored specifically to fit the dimensions and orientation of the needs of the project. It is not easy to move them from one place to the other. Rather moving them from one place to other would be imprudent. Moving them to a new location would mean retrofitting the system on to a property they simply weren't designed for, meaning that they would be much less efficient. It would not be in the interest of the buyer to move it from one place to the other. Thus, the project fulfils 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) 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 ima....
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....ver which it is mounted and erected. It observed that the machines cannot be lifted in an assembled condition and after taking note of these facts, it concluded that the same is immoveable property. The Court further held that it cannot be disputed that such Drilling Machine and Mudguns are not equipment which are usually shifted one place to another nor it is practicable to shift them frequently. The court also referred to its own judgments in the case of Quality Steel Tubes (P) Ltd. 75 ELT 17 (SC) = 1994 (12) TMI 75 - SUPREME COURT OF INDIA and Mittal Engineering Works (P) Ltd. 1996 (88) ELT 622 (SC) = 1996 (11) TMI 66 - SUPREME COURT OF INDIA. 6.25. Reference is also made to another 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 immovable property and observed : "The question whether a machinery which is embedded in the earth is movable property or an immovable property, depends upon the facts and circumstances of each case.....
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.... one place to another. The fact that it can be moved is immaterial. 6.28. 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. 6.29. 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 are not (immoveable property).The clarification says in Para 5 (i) that 'Turnkey projects like Steel plants, Cement Plants, Power plants etc involving supply of large number of components, machinery, equipment, pipes and tubes etc for their assembly/installation/erection/integration/inter-connectivity on foundation/civil structure etc at site will not be considered as excisable goods for imposition of central excise duty - the components, however, would be dut....