Goods and Services Tax

In Re: M/s. Solairedirect India LLP (Solai Redirect India LLP)

2018 (10) TMI 1046 – AUTHORITY FOR ADVANCE RULING, RAJASTHAN – 2018 (18) G. S. T. L. 314 (A. A. R. – GST) – Classification of Supply – rate of tax – EPC contract for set up of solar power generating system – composite supply of solar power generating system – eligibility of solar modules to be classified as principal supply – Turnkey EPC Contract in which the Applicant is required to undertake all activities, civil or otherwise – Other EPC Contract in which the Applicant is required undertakes all activities of turnkey projects except civil work – Supply Contract – Balance of Plant Supply Contract.

Whether EPC contract for set up of solar power generating system be considered as a composite supply with PV modules being the principal supply and be taxed at a rate of 5% (i.e. tax rate applicable on the P. V. modules)?

Held that:- The Hon. Supreme Court in the case of TTG. INDUSTRIES LTD. VERSUS COLLECTOR OF CENTRAL EXCISE, RAIPUR [2004 (5) TMI 77 – SUPREME COURT OF INDIA], w

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ered into on the premise that the plant would continue to be situated at the place of construction. Such plant would therefore have an inherent element of permanency.

The output of the project i.e. Electricity, would be available to an identifiable segment of consumer. Thus this output supply would involve an element of permanency for which it would not be possible and prudent to shift base from time to time or locate the plant elsewhere at frequent intervals.

The Solar Power Plant cannot be shifted to any other place without dismantling the same. Further it is a tailor made system as per technical specification which cannot be sold as it is to the other person.

Solar Power Plant includes civil work such as development of site, structure foundation, building cable trenches, civil work relating to invertors and control buildings, store rooms, canopies and such other civil structure and related activities as set out in Scope of work and the Technical Specifications. Civ

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pal supply does not arise and so GST tax rate of Solar power Generating System under notification No 01/2017-CT (Rate) dated 28.06.2017, at S. No. 234, under HSN Classification 84, 85 and 94 is not applicable.

Ruling:- The scope of work in respect of “Turnkey Composite EPC Contract” includes designing, planning civil works, procurement of good, erection, testing and commissioning. Accordingly, “Turnkey EPC Contract” is not covered under Entry 234 of Schedule I of the Notification no. 1/2017 – Integrated Tax (Rate), Entry 234 of Schedule I of the Notification no. 1/2017 – Central Tax (Rate) both dated 28 June, 2017 and Entry 234 of Schedule I of the Notification no 1/2017 – State Tax (Rate) dated 29 June, 2017.

The contract for Erection, Procurement and Commissioning of Solar Power Plant falls under the ambit “Works Contract Services” (SAC 9954) of Notification no. 11/2017 Central Tax (Rate) dated 28 June, 2017 and attracts 18% rate of tax under IGST Act, or 9% each under th

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THE APPLICANT: 1.1 Solairedirect India LLP undertakes Engineering, Procurement and Construction ( EPC )activities for Group companies as well as third parties for setup of solar power generating system where contract for commissioning of solar power generating system involves simultaneous supply of goods and services. 1.2 The solar power generating system installed by the Applicant under the EPC contract consists of various components like solar photovoltaic panels, solar inverters, transformers, module mounting structure, cables, connectors and other accessories where solar panels which account for approximately 70% to 75% of the total cost. 1.3 In a typical contract, the customers of the applicant acquire the land for the set-up of the solar power generating system and access is granted to the Applicant for executing the project on turnkey basis. 1.4 The steps involved in execution of a contract by the Applicant are as below: 1.4.1 Planning for the project The Applicant submits the

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1.4.5 Project management services While executing a contract, the Applicant is also expected to undertake the Project Management services, which typically includes: Engineering services of layout and foundation Erection of the structure Installation services of all components Pre-commissioning Commissioning Performance tests Defect rectification 1.4.6 Generation of electricity and connection with the grid The last step in the contract execution is the commencement of production of electricity and successful connection of the power generating system with the grid for transfer of electricity. 1.5 The essence of the contracts is generation of electricity using solar power. The essential deliverable therefore, under the contracts in question is a working solar power generating system, duly connected with the grid for transmission of electricity and the electricity being generated seamlessly as per the technical specifications (like voltage, etc) of the Applicant s customer. 1.6 Applicant

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set up of solar power generating system be considered as a composite supply with PV modules being the principal supply and be taxed at a rate of 5% (i.e. tax rate applicable on the P. V. modules)? 3. APPLICANTS INTERPRETATION OF LAW IN RESPECT OF THE OUESTION RAISED 3.1 The Applicant has made a detailed submission to demonstrate eligibility of solar modules to be classified as principal supply in the composite supply of solar power generating system and requests a ruling to be pronounced. The applicant has stated that the EPC Contract for the supply of solar power generating system should be considered as composite supply with the principal supply being the solar panels and accordingly, the tax rate of solar panels (5% under the heading 8541) should be applicable on the entire contract value. According to him in the instant case, the individual components (like solar panels, inverters, cables, etc.) are not being sold individually. The intention of the parties is to enter into a contra

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upply is defined under Section 2 (90) of CGST Act as the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary. In the instant case, the individual components (like solar panels, inverters, cables, etc.) are not being sold individually. The intention of the parties is to enter into a contract for set up of a power generating system and not for the purchase of the individual components as such. Also, the individual components would not be of use as such unless they are assembled at the site (which would involve element of service) to work as a unit resulting in set up of the power generating system. This implies that the individual components or the services are supplied in conjunction with each other as these are not being sold as such but as a complete unit. The Applicant submitted that the contract undertaken is for supply of goods to customer and setting up power generating system wherein the installation/ assembly

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ased 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 The Applicant stated that Entry 234 given above is applicable to solar power generation system which includes all the components of a solar power generation system i.e. solar panels/modules, solar inverter, transformer, module mounting structure and the cables, connectors and other accessories. Accordingly, it could be construed that all such components would fall within the purview of entry 234 and hence would be liable to 5% IGST. 3.3 The Applicant has further submitted that if the contract is not to be considered as composite supply, it should be considered as two separate supplies of goods and services with goods being taxed at the rate of 5% and services being taxed at the rate of

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anently fastened to anything attached to the earth. As per Section 3 of the Transfer of Property Act, 1882, the expression immovable property which means a) Rooted in the earth, as in the case of trees and shrubs; b) Embedded in the earth, as in the case of walls and buildings; c) Attached to what is so embedded for the permanent beneficial enjoyment of that to which it is attached. 3.5 For determination of whether solar generating system is movable or immovable property the Applicant has placed reliance on the following judicial precedents : Commissioner of Sale Tax Vs Bombay Sound Service (and others) = 1998 (9) TMI 636 – BOMBAY HIGH COURT. Sri Velayuthaswamy Spinning Mills (P) Ltd Vs The Inspector General of Registration =2013 (3) TMI 681 – MADRAS HIGH COURT. Commissioner of Central Excise, Ahmedabad Vs Solid & Correct Engineering Works =2010 (4) TMI 15 – SUPREME COURT. Selvel Advertising Private Limited Vs Commercial Tax Officer, Alipore Charge = 1992 (5) TMI 182 – WEST BENGAL

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damage to the equipment. Based upon the above analysis, the Applicant submits that the solar power generating system is not an immovable property. Therefore, the EPC contract under consideration cannot be said to be works contract as defined under the CGST Act since the same is not in relation to immovable property. 3. Personal Hearing (PH) 4.1 In the matter personal hearing was given to the applicant, Mr. Sumit Rathi (CFO) and Mr. Sagar Shah (GSTP) of applicant appeared for personal hearing on 15.09.2018. During the PH they submitted additional statement in connection with their Application. During hearing applicant put forth two more queries and sought clarification on them. He wanted to know that in case the above contract is not considered as composite supply, can it be split into two i.e. one of supply of goods and another of service and taxed accordingly. Secondly he wanted to know which goods would fall under entry no. 234 of the rate notification as solar generating system. Th

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rwise, designing, procurement and supply of all equipment/ components for the power plant their Assembly, erection, and commissioning and Operations and Maintenance of the plant . ii) Other EPC Contract in which the Applicant is required undertakes all activities of turnkey projects except civil work. iii) In Supply Contract, the Applicant is required to supply the power plant on complete knocked down condition in piecemeal at project site. Customer engages a third party contractor or the Applicant for assembly, erection, and commissioning of the plant under a separate contract. iv) In Balance of Plant Supply Contract, the Applicant is required to supply goods and services stated above, except solar panels. Solar panels procured by the customer are made available by the customer to the Applicant for assembly and erection. As per submissions made in Advance Ruling Application the applicant undertakes Engineering, Procurement and Construction ( EPC ) activities for Group companies as wel

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ponent needed for installation of the plant. iii. Under take Civil works at the site such as development of site, structure foundation, install structure for transmission, build cable trenches, complete civil work relating to invertors and control buildings, store rooms, canopies and such other civil structure and related activities as needed. iv. Erection, commissioning and installation of the solar panels as per technical specification. v. Project management services such as Engineering services of layout and foundation, Erection of the structure, Installation services of all components, Pre-commissioning, Commissioning, Performance tests, Defect rectification. vi. Generation of electricity and connection with the grid i.e. related interconnection facilities and other related infrastructure for evacuation of power (Evacuation Infrastructure). vii. Apart from installation the contractor has to successfully test run the plant over certain period of time to check and ensure the optimum

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t contractor has to undertake works of installation, testing and commissioning of Solar Power Plant as per specific demands of owner. So it is not something sold out of shelf. g) Under these kinds of contracts there is a single lump sum price for the entire contract. h) The applicant has laid claim under notification No 01/2017-CT (Rate) dated 28.06.2017, at S.NO. 234, under HSN Classification 84, 85 and 94 and has argued that under EPC contact he is supplying Solar Power Generating System which is the principal supply in the composite supply where installation services are supplied in conjunction. With the principal supply being the solar panels and accordingly, the tax rate of solar panels (5% under the heading 8541) should be applicable on the entire contract value. i) As can be seen, the above entry is under the notification describing the Tax rate on Goods . The entry reads as renewable energy devices & parts for their manufacture . If the transaction is only of supply of good

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GST, as per definition of works contract service if construction, fabrication, completion, erection, 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 a works contract service. k) Relying on judgements and citations submitted in Advance Ruling Application the applicant contends that as the solar plant, once installed is capable of being removed and transferred from one place to another without substantial damage hence same should qualify as movable property. Hence in view of above precedence and facts of the case, the given supply should be treated as supply of Solar Power Plant Only. I) As per the terms and conditions usually laid in EPC Contract the contractor i.e. the applicant has to undertake activities from engineering, design, to pr

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s with bolts and nuts although easily removable are not movable property when they have been set up with definite object of running an oil mill and not with intention of being removed after a temporary use. 2. In decision of M/s. T.T.G. Industries Ltd., vs Collector of Central Excise, 2004 (167) ELT 501 (SC) on 7 May, 2004 = 2004 (5) TMI 77 – SUPREME COURT OF INDIA. The facts of the case are as follows: The facts of the case are not in dispute. The appellant-company pursuant to the acceptance of its tender, entered into an agreement with M/s. SAIL, Bhilai Steel Plant for design, supply, supervision of erection and commissioning of four sets of Hydraulic Mudguns and Tap Hole Drilling Machines required for blast furnace Nos. 4 and 6 of the Bhilai Steel Plant. For this purpose, it imported several components and also manufactured some of the components at their factory in Marai Malai Nagar, Chennai. These components were transported to the site at Bhilai where the manufacture and commissi

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ace. The blast furnace in which the inputs are loaded is a massive vessel of 1719 m cubic metre capacity and the size of its outer diameter is 10.6 metres, and the height 31.25 metres. Hot air at 1200 degrees centigrade is fed into the blast furnace at various levels to melt the raw materials. With a view to protect the shell against heat, the blast furnace is lined with refractory brick of one metre thickness. Thus, the drilling machine has to drill a hole through one metre thickness of the refractory brick lining. The drilling machine as well as the mudgun are erected on a concrete platform described as the cast house floor which is in the nature of a concrete platform around the furnace. The cast house floor is at a height of 25 feet above the ground level. On this platform concrete foundation 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 b

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o 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. The judicial member noticing these facts observed that it is a physical and engineering impossibility to assemble mudguns or the drill tap hole machines elsewhere in a fully assembled condition and thereafter erect or install the same at a height of 25 feet on the cast floor of the blast furnace. She found that even the Adjudicating Authority conceded the fact that the equipments have to be assembled/erected on the base frame projection of the furnace. She

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88 (9) TMI 51 – SUPREME COURT OF INDIA. She found support for her conclusion in the decision of this Court in Municipal Corporation of Greater Bombay & Ors. v. The Indian Oil Corporation Ltd. (1991) Supp. (2) SCC 18 = 1990 (11) TMI 407 – SUPREME COURT; and held that the twin tests laid down by this Court to determine whether assembly/erection would result in immovable property or not were fully satisfied in the facts of this case. She concluded :- "The test laid down by the Supreme Court is that if the chattel is movable to another place as such for use, it is movable but if it has to be dismantled and reassembled or re-erected at another place for such use, such chattel would be immovable. In the present appeal, even according to the finding of the Collector, mudguns and drill tap hole machines have to be dismantled and disassembled from the cast floor before being erected or assembled elsewhere. We have also arrived at the same conclusion independently, in para 10 above. Acc

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e the facts were that the respondent had taken on lease land over which it had put up, apart from other structures and buildings, six oil tanks for storage of petrol and petroleum products. Each tank rested on a foundation of sand having a height of 2 feet 6 inches with four inches thick asphalt layers to retain the sand. The steel plates were spread on the asphalt layer and the tank was put on the steel plates which acted as bottom of the tanks which rested freely on the asphalt layer. There were no bolts and nuts for holding the tanks on to the foundation. The tanks remained in position by its own weight, each tank being about 30 feet in height 50 feet in diameter weighing about 40 tons. The tanks were connected with pump house with pipes for pumping petroleum products into the tank and sending them back to the pump house. The question arose in the context of ascertaining the rateable value of the structures under the Bombay Municipal Corporation Act. The High Court held that the tan

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vable property. It cannot be moved from the place where it is erected as it is, and if it becomes necessary to move it, it has first to be dismantled and then re-erected at another place. This factual position was also accepted by the Adjudicating Authority. The technical member, however, held that the aforesaid decision was of no help to the appellant inasmuch as a leading international manufacturing firm had offered such machines for export to different parts of the world. He further observed that though on account of their size and weight, it may be necessary to shift or transport them in parts for assembly and erection at the site in the steel plant, they must nevertheless be deemed as individual machines having specialized functions. We are not impressed by this reasoning, because it ignores the evidence brought on record as to the nature of processes employed in the erection of the machine, the manner in which it is installed and rendered functional, and other relevant facts whic

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he Court observed that the twin tests of exgibility of an article to duty under the Excise Act are that it must be a goods mentioned either in the Schedule or under Item 68 and must be marketable. The word "goods" applied to those which can be brought to market for being bought and sold and therefore, it implied that it applied to such goods as are movable. It noticed the decisions of this Court laying down the marketability tests. Thereafter this Court observed :- "The basic test therefore, of levying duty under the Act is two fold. One, that any article, must be a goods and second, that it should be marketable or capable of being brought to market. Goods which are attached to the earth and thus become immoveable do not satisfy the test of being goods within the meaning of the Act nor it can be said to be capable of being brought to the market for being bought and sold. Therefore, both the tests, as explained by this Court, were not satisfied in the case of appellant as

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e, rather like a tower with a platform at its summit. This Court noticed that marketability was a decisive test for dutiability. It meant that the goods were saleable or suitable for sale, that is to say, they should be capable of being sold to consumers in the market, as it is, without anything more. The Court then referred to the decision in Quality Steel Tubes (supra) and distinguished the judgment in Narne Tulaman (supra) holding that the contention that the weigh bridges were not goods within the meaning of the Act was neither raised nor decided in that case. After considering the material placed on the record it was held that the mono vertical crystalliser has to be assembled, erected and attached to the earth by a foundation at the site of the sugar factory. It is not capable of being sold as it is, without anything more. This Court, therefore, concluded that mono vertical crystallisers are not "goods" within the meaning of the Act and, therefore, not exigible to excis

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quot;There can be no doubt that if an article is an immovable property, it cannot be termed as "excisable goods" for purposes of the Act. From a combined reading of the definition of 'immovable property' in Section 3 of the Transfer of Property Act, Section 3(25) of the General Clauses Act, it is evident that in an immovable property there is neither mobility nor marketability as understood in the Excise Law. Whether an article is permanently fastened to anything attached to the earth require determination of both the intentions as well as the factum of fastening to anything attached to the earth. And this has to be ascertained from the facts and circumstances of each case." It was also held that the decision of this Court in Sirpur Paper Mills Ltd. v. Collector of Central Excise, Hyderabad – 1998 (97) E.L.T. 3 (S.C.) = 1997 (12) TMI 109 – SUPREME COURT OF INDIA. must be viewed in the light of the findings recorded by the CEGAT therein, that the whole purpose beh

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oticed 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. We find considerable similarity of facts of the case in hand and the facts in Mittal Engineering and Quality Steel Tubes (supra) and the principles underlying those decisions must apply to the facts of the case in hand. It cannot be disputed that such drilling machines and mudguns are not equipments which are usually shifted from one place to another, nor it is practicable to shift them frequently. Counsel for the appellant submitted before us that once they are erected and assembled they continue to operate from where they are

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property as something attached to the earth. m) Applicant has further submitted that if the contract is not to be considered as composite supply, it should be considered as two separate contracts of supplies of goods and services with goods being taxed at the rate of 5% and services being taxed at the rate of 18% i.e. division of contract in two, one for supply of material and other for designing, installation, commissioning and maintenance of plant. Based on submission made by applicants, instant case is a single composite turnkey EPC contract of design, engineer, procure, transport, deliver, develop, erect, install, test and commission of project, as there is a single lump sum price for the entire contract. Hence the said EPC contract cannot be split in two separate contracts one of supply of goods and another that of services and taxed accordingly. n) Explanations covered under point i) and m) of 5. Findings, Analysis and Conclusion satisfactorily addresses additional queries raise

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ant includes civil work such as development of site, structure foundation, building cable trenches, civil work relating to invertors and control buildings, store rooms, canopies and such other civil structure and related activities as set out in Scope of work and the Technical Specifications. Civil structure cannot be dismantled and moved. 5) Based on submission made by applicants, instant case is a single composite turnkey EPC contract of design, engineer, procure, transport, deliver, develop, erect, install, test and commission of project. Contracts of these kind are entered on premise to procure a functional Solar Power Plant as per specification of the owner for which there is a single lump sum price for the entire contract. Hence for convenience of contractor the said EPC contract cannot be split in two separate contracts one for supply of goods and another for supply of services and taxed accordingly. 6) An Overview of all makes us observe that the impugned transaction for EPC Co

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