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2018 (9) TMI 1341 - AAAR - GSTSupply of turnkey Engineering, Procurement & Construction (EPC) Contract for construction of a solar power plant - Composite supply - natural bundling of services - rate of GST - Benefit of Concessional rate of duty - Nature of supplies made by sub-contractors. Whether supply of turnkey Engineering, Procurement & Construction (EPC) Contract for 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 CGST Act, 2017? If yes, whether the principal supply in such case can be said to be of “Solar Power Generating System”, which is taxable at 5% GST? Whether, benefit or concessional rate of 5% on Solar Power Generation System and parts thereof would also be available to sub-contractors? Held that:- 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 - 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 they essentially form one composite transaction. 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 - the concept of natural bundling does not apply to the instant envisaged supply of the PV module in terms of the draft contract in question. Once the contract in question is that of a multistage supply as already discussed, having been already vivisected into the supply of the PV module by the owner as free issue to the Appellant, what remains to be executed by the Appellant is undertaking the supply of the remaining equipments and components and parts of the Solar Power Plant and supplying the services of design, erection, installation and commissioning of the Solar Power Plant - the supply of this remaining portion of the contract in question (involving the supply of the balance components and parts as well as the service portion) can still be termed as a ‘composite supply’ in terms of Section 2(30) of the CGST Act, 2017 since the supply of these components and parts as well as the services of erection, installation and commissioning appear to be naturally bundled. If the dominant nature of the remaining portion of the contract in question which is executed by the Appellant is principally a supply of services of design, erection, installation and commissioning, then the tax rate will the rate as applicable to the services if they form the principal supply of the remaining portion of the contract. Benefit of concessional rate of 5% GST on the supply of solar power generating systems and its parts to sub-contractors - Held that:- The supplies made by the sub-contractor to the Appellant are independent supplies. If the supply by the sub-contractor to the Appellant is of goods which can be termed as ‘parts’ of the Solar Power Generating System, then the rate applicable will be 5% in terms of Sl. No. 234 of Notification No. 01/2017 Integrated Tax (Rate) dated 28.06.2017. However, if the supply by the sub-contractor to the Appellant is a composite supply, then the rate applicable to the dominant nature of the supply will prevail. Ruling:- The supply of the PV module which is the major component of the Solar Power Plant is not naturally bundled with the supply of the remaining components & parts of the Solar Power Plant and the supply of the services of Erection, Installation and Commissioning of the Solar Power Plant. The supply of PV module is a distinct transaction from the supplies in contract in question as it is the owner whose responsibility it is to procure and supply the PV module. This PV module is to be supplied as free issue material over and above the plant being supplied by the contractor. The owner is responsible for transportation of the PV module from the point of origin till plant site and he bears the other risks and rewards of ownership. The PV module which is procured by the Project owner on High Sea Sale basis and imported by availing Customs duty exemptions and later supplied to the Appellant as a free issue for use in the setting up of the Solar Power Plant. The supply of the remaining portion of the contract in question by the Appellant Which involves the supply of the balance components and parts of the Solar Power Plant and the supply of services of Erection, Installation and Commissioning of the Solar Power Plant is viewed as a ‘composite supply’ as the supply of goods and services are naturally bundled. The tax liability on this portion of the contract in question (other than PV module) which is termed as a ‘composite supply’ will be determined in terms of Section 8 of the CGST Act, 2017 wherein the rate applicable to the dominant nature of the supply will prevail.
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