Sale of windmill, Goods and Services Tax - GST

[Padmanathan Kollengode]

Is sale of windmill liable to GST?

No doubt windmill is an immovable property but...

Context:-

1. Goods means "every kind of movable property.."

2. services means "anything other than goods,.."

3. Immovable property General Clauses Act - "shall include land,...." (thus, it is clear that land is only one specie where as immovable property is genus)

4. Schedule III entry 5 - "sale of land, subject to... sale of building".

Whether immovable properties other than land and building are taxable as "service"?

Posts / Replies

[Alkesh Jani]

Shri & Respected Experts,

Can windmill be classified as plant and machinery?

Context :-

plant and machinery means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes—

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.

As the same is classifiable under Chapter heading 84 or 85 can it be considered as "goods"?

Thanks

[Padmanathan Kollengode]

Sri Alkesh Ji,

Madras HC division bench in The Inspector General of Registration vs Sri Velayuthaswamy Spinning Mills (P) Ltd. W.A Nos.1310 to 1313 of 2013, has held windmill sold along with land is immovable property.

There is an AAR holding that windmill is movable but that was consider Madras HC single bench decision which has been overruled.

Now, if windmill is plant and machinery, can it still be an immovable property? In that case can it be called goods? If not will it get covered under Sch III?

[Alkesh Jani]

Shri Padmanathan Kollengode ji,

As per the decision quoted by you, it clearly spells that “windmill sold along with land is immovable property”. Along with land, it is immovable property.

Wind Mill (stand-alone) can be dismantled same as plant and machinery; therefore, it can be termed as goods. As same can be treated as goods, the Sch-III is not applicable.

Further, it can be classified under HSN Code 85023100 (Customs Tariff Act). Moreover, the end use is also to be ascertain, as it can be use for power generation or for water pumping or any other use, such as thresher etc.

I have not came across any recent decision of any legal forum under GST. Therefore, it would be wise to opt for Advance Ruling.

Thanks

[Padmanathan Kollengode]

Alkesh Ji,

Thank you for the reply. In my case, windmill is sold along with land ie its not dismantled. Also, It is used for power generation.

[KASTURI SETHI]

Windmill is a movable property inasmuch as it can be dismantled, reassembled and can be fastened to another place. It is wind operated electricity generator. It is goods. If windmill is sold along with land, it will be a composite supply and main supply is windmill as goods.

[Alkesh Jani]

Shri

considering it as composite supply,

If windmill is sold along with land, principle supply is "wind mill" and land is supplied in conjunction, thus taxable.

If land is sold along with "wind mill", principle supply is land and "wind mill" is supplied in conjunction, thus, non-taxable.

If this supply is treated as "Mixed Supply" than it will be taxable.

Thanks

[KASTURI SETHI]

Sh.Alkesh Jani ji,

I agree with you. Thus it depends on the terms and conditions of sale deed.

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

Whether the windmill is a principal supply or secondary supply , the word 'windmill' cannot be bifurcated.

Do you agree ?

[Alkesh Jani]

Shri Kasturiji Sir,

Yes, I agree in the given facts.

With Regards

[Amit Agrawal]

'Sale of land' is not a supply of goods / services (Reference: Serial no. 5 of Schedule - II).

So, in case of sale of wind-will along-with land, such transaction cannot fall either under composite supply or mixed supply (as there is no two supplies of goods / services involved).

Generally specking, wind-mill is a movable property as they it can be dismantled, reassembled and can be fastened to another place and thereby, falls under the term 'goods'. Consequently, sale of wind-mill should be supply of goods and GST as applicable is payable thereon.

In case of combined sale of wind-mill along-with land (i.e. against single / one consideration), there is risk of Dept. treating entire contract as 'service' levying gst @ 18% on entire consideration due to reasons listed by the Querist himself.

In this regard, definition of goods u/s 2 (52) worth noting: “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;

Lastly, in such type of transactions (i.e. sale of wind-mill along-with land for single consideration), it is difficult to substantiate that 'sale of land' is primary intention between parties (as these lands are generally non-agricultural and located in far-flung areas from human habitate)

Hence, it is advisable to be very careful while selling any wind-mill along-with land for a single consideration. Moreover, artificial bifurcation of consideration between sale of land and sale of wind-mill (as goods) may not necessarily solve the problem considering highlighted portion of definition of 'goods' above.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Shilpi Jain]

Also consider if this sale is a sale of business as a going concern or a part thereof, which has an exemption.

[Amit Agrawal]

Ms. Shilpi Mam's suggestion is worth exploring as well as should be kept in mind while structuring such transactions!

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

Sh.Amit Agrawal Ji,

Sir, I agree with you and also agree with Madam Shilpi Jain.

What I intend to highlight that the query has been raised by Sh.Padmanathan Kollengode Ji who is himself an expert. I mean to say that Sh.Padmanathan Kollengode is already well aware of the aspect pointed out by Madam Shilpi Jain. This is my humble thought.

It also looks nice to me if any expert throws light on an innovative path. I am sure and hopeful all have followed my outpourings in right earnest.

[Padmanathan Kollengode]

Dear Experts - Learned Alkesh ji, Kasturi Sir, Shilpi ma'am and Amit ji,

Apologies for the late reply as I has bit held up with some commitments. Thank you for all the valuable suggestions and opinions on this issue.

Kasturi Sir, I am trying to solicit all the possible stands that one can take on the issue so holistic advice can be given to the client. Also the experts in this forum also helps us to understand challenges associated with each stand which we purport to take, so that the transaction can be structured accordingly. This is a wonderful forum indeed.

I am only a student of law sharing my views for benefit of others in this platform (by no means, I am an expert). Thank you once again.

[Padmanathan Kollengode]

Also treating the same as "supply of business as going concern" may have different implication under the Income Tax Law as it may be treated as "Slump Sale" under capital gains.
Moreover, no separate books have been maintained for the windmill operation, therefore, how to prove that the same is exempted as "supply of business as going concern" also have to be looked into.

That is why, I was why exploring all the possibilities.