RFE SOLAR: EPC CONTRACT FOR SOLAR PLANT HELD AS COMPOSITE SUPPLY, NOT WORKS CONTRACT
RAJASTHAN APPELLATE AUTHORITY FOR ADVANCE RULING
GOODS AND SERVICES TAX
Before the Bench of:
1. Ms. ARCHANA P TIWARI, Member (Central Tax)
2. Mr. ALOK GUPTA, Member (State Tax)
Case Title :-RFE Solar Private Limited
(GST AAAR RAJASTHAN)
Appeal No.RAJ/AAAR/APP/04/2018-19
Advance Ruling No. RAJ/ AAR/ 201819/08 Dt.1.7.2018/1.8.2018
Date of Judgement/Order- 29th November 2018
BRIEF OF FACTS
Para Number 3.1- Appellant undertakes itself in executing Engineering Procurement, and Commissioning EPC contracts for Solar Power Generating Systems commonly known as Solar Power Plants’.
Para Number 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 Advas supply of various goods and services and hence is for the supply of Solar Power Generating System.
Para Number 3.5- The Appellant filed an application for Advance Ruling seeking clarification basis draft contracts of the Appellant, in view of the provisions of ‘composite supply’ and the rate of tax provided for ‘Solar Power Generating System’ (hereinafter referred as ‘SPGS’) under GST, the Appellant sought clarification in respect of the following :
(I) Whether contract for Erection, Procurement and Commissioning of Solar Power Plant shall be classifiable as Supply of Goods or Supply of Services under the provisions of the Central Goods and Services Tax Act, 2017 and Rajasthan State Goods and Service Tax Act,2017.
(Il) If it is supply of Goods, then what will be its HSN classification and rate of tax in terms of the Notification No. 1/2017 — Central Tax (Rate) Dt. 28.6.2017.
(Ill) If it is supply of Services, then what will be its HSN classification and rate of tax in terms of the Notification No.11/2017 — Central Tax (Rate) Dt. 28.6.2017.
DISCUSSION & FINDINGS
Para Number 6.10- From the application of the above indicators we hold that the contract for providing the design, procurement, supply, development, testing and commissioning of the Plant which includes the supply of both goods and services is a composite supply as per the definition in the Act. There are two taxable supplies- one of goods and the other of services and they both are naturally bundled and it is natural and also a practice to expect that the contractor who will supply the goods will also supply the services alongwith it. In the business of contracts for the Solar Power Generating System, it is a practice to provide a Plant as a whole along with the supply of services. We differ with the order of the Advance Ruling Authority in this respect.
Para Number 6.23- All of the above go to show that the erection of the Solar Power Generating System is not as simple or movable as it is made out to be. It is an entire system comprising a variety of different structures which are installed after a lot of prior work which involves 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 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 AAR that the contract entered into, lead to the erection of a Solar Power Generating System.
Para Number 6.27- The Appellant has claimed that the ‘Solar Power Plant’ is made of equipment which are largely moveable in nature, if required, the equipment can be moved without any substantial damage to them , from one land parcel to another. This may happen in cases where there is a requirement to shift the whole Solar Power Plant from one area to another area or is being sold to a party who intends to install/set it up in another area, the equipment installed can be dismantled and reassembled at the new land parcel with material. It may be true that the Solar power plant can be moved from one place to other but for the enjoyment of the equipment or for the smooth generation of electricity the panel is required to be affixed to the earth. 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.
Para Number 6.32- With reference to the question of GST rate of 5% on Principal supply of ‘Solar Power Generating System’, we have already treated the transaction as a ‘ Composite supply’ and a ‘ Works contract’ falling u/s. 2(119) of the CGST Act, 2017 . Para 6 of SCHEDULE 11 [ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES] treats ‘ Works contracts’ u/s 2(119) as supply of ‘services’. In view thereof, there arises no occasion to go into the issue of’ Principal supply’.
RULING
- The said Turnkey EPC contract is a ‘composite supply’ under section 2(30) of the CGST Act, 2017.The said composite supply falls within the definition of Works contract under section 2(119) of the CGST Act, 2017(SAC9954) and attracts rate of tax (either 9% each under CGST Act and RGST Act or 18% under IGST Act)
- In view of holding the transaction as a ‘Works contract’ and Para 6 of SCHEDULE II of CGST Act treating ‘Works contracts as supply of ‘services’, there arises no occasion to go into the issue of Principal supply”.
