TMI Blog2018 (9) TMI 1183X X X X Extracts X X X X X X X X Extracts X X X X ..... he intention of the buyer in giving the contract. The supply of goods and services are provide 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 Supply to the appellant and therefore it is single composite supply of goods and services and installation thereof. 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 the area of business. It also says that in order to qualify for a composite supply one of the characteristic would be that none of the individual constituents are able to provide the essential character of the service . Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks contract u/s.2(119) of the CGST Act, 2017. We have treated the transaction as a Composite supply and a works contract falling u/s. 2(119) of the CGST Act, 2017 and Para 6 of SCHEDULE II [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 principle supply . - MAH/AAAR/03/2018-19 - MAH/AAAR/SS-RJ/08/2018-19 - Dated:- 5-9-2018 - SMT. SUNGITA SHARMA, AND SHRI RAJIV JALOTA, MEMBER PROCEEDINGS (under Section 101 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the MGST Act. The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as the CG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up of transmission lines for transmission of the electricity generated up to the storage or the GRID. E. There may be a single lump sum price for the entire contract for supply of both goods and services and payment terms may be defined depending on agreed milestones. F. The Appellant filed an Application dated 24 November, 2017 for Advance Ruling for 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: a. 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. b. 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. c. Whether benefit or concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors. G. The Authority for Adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be eligible for concessional rate of tax 1.2. Wide ambit of term solar power generating system ( SPGS ) 1.2.1. The Appellant submits that the term solar power generating system has not been defined under GST. Generally, solar power generating systems are the systems which absorb sunlight and convert it into electricity which can be put to further use. 1.2.2. Further, the term solar power system has been defined under Solar Power -Grid Connected Ground Mounted and Solar Rooftop and metering Regulation -2014 issued by State of Goa. Solar power system as per the regulation means a grid connected solar generating station including the evacuation system up to the Grid inter-connection point . Typically the term system has a wide ambit. As per the Oxford Dictionary, the definition of the term system is a complex whole, a set of things working together as a mechanism or interconnecting network . Similarly, the system is defined in Chambers 20th Century Dictionary as anything formed of parts placed together or adjusted into a regular and connected whole . Hence, system typically includes various components/ parts which are manufactured/ assembled toge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der is set aside and the appeals are allowed. Further, in the judgement of Bangalore Tribunal in the case of B.H.E.L. vs. Commissioner of Central Excise, Hyderabad = it was held that: In the present case, the appellants have claimed exemption in respect of inverter charger card as solar power generating system. The appellants actually manufactured SPV lantern. The above lantern required electricity for its It is possible to convert solar energy to electricity with the help of inverter charger manufactured by the appellants. The Dy. General Manager has certified that the inverter merger constitutes solar power generating system as it performs the function of generating the required high frequency AC power from in-light with, the help of SPV module and supplying it to the compact fluorescent lamp of a solar lantern. In view of the above, expert opinion, we hold that e impugned item can be considered as solar power generating system and is entitled for the benefit of the exemption Notification. Therefore, we allow the appeal with consequential relief. Per the above, the Appellant submits that in the instant case where the contract is awarded as a whole for supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be highlighted as under: a. 2 or more taxable supplies of goods or services or both b. The taxable supplies should be naturally bundled c. The taxable supplies should be supplied in conjunction with each other d. One taxable supply should be a principal supply In such case, the supply which is the principal supply is treated as the main supply and the entire transaction is taxed as per the principal supply. Concept under erstwhile Service tax Laws: 1.3.2. The Appellant submits that the concept of composite supply under GST is identical to the concept of naturally bundled services prevailing in the erstwhile Service Tax regime. Under Section 66F (3) of the Finance Act, 1994 ( the Finance Act ) two rules have been prescribed for determining the taxability of such services. The rules prescribed are explained as under: 1. If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character 2. If various elements of a bundled service are not naturally bundled in the ordinary course of business, it shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. For example service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business. Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are: There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use The elements are normally advertised as a package The different elements are not available separately. The different elements are integral to one overall supply - if one or more is removed, the nature of the supply would be affected. Per the above, the following conclusions can be drawn: In case more than two supplies are supplied together wherein one of the suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... juncts to that supply (including the use of the furniture and facilities within each room, cleaning and linen services, access to common areas and facilities such as pools and gymnasiums and various other hotel services such as porterage and concierge) were incidental and ancillary to the accommodation part of the supply. Per the above, composite supply is taxed as supply of the dominant activity to which others are merely ancillary. In the present case also, the dominant supply is those of goods (which constitutes solar power generating system ) and services is merely incidental to provision of such goods. European Union Per the European Union Directive, a composite supply is a transaction where supplies with different VAT treatments are sold together as one. The supplies with a composite supply may consist of parts that, if assessed separately, have different tax rates. Some have standard rates, reduced rates or are exempt from VAT. The European Court of Justice ( ECJ ) has delivered several judgements on the aspect of composite supply under European Union Value Added Tax laws ( EU-VAT ). In the case of Card Protection Plan Ltd. Vs. C E Commrs [1994] BV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 5%. It is further submitted that Ministry of New and Renewable Energy (hereinafter referred to as MNRE ) in various instances has also approved entire BOQ consisting of various parts e.g. cables, module mounting structures, spares, transmission lines etc. as essential to solar power generating system and hence the concessions applicable have been extended to all goods to be used in solar power plant. Drawing a corollary, concessional rate of 5% should be applicable on all the goods approved under BOQ by MNRE as well. Further, as highlighted above, services being incidental to such supply should also get covered as composite supply and taxable at rate applicable to principal supply of solar power generating system . This is further substantiated by the fact that the main intent of the contract is provision of the SPGS as a whole which consists of various components such as PV modules, structures, inverter transformers, cables, SCADA, transmission lines, etc. The contract also includes services like civil installation and commissioning as well as construction which are incidental to provision of such goods and form an ancillary part of the contract. Drawing reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solar power generating system. Schedule I of the Draft Contract reads as under: The Contractor would be responsible for Supply of Equipment and undertake all necessary activities ancillary to such supplies (such as erection, civil work etc) to ensure complete supply of Solar Power Plant.... In view of the aforesaid clauses, it is submitted that the said contract is entered into for supply of solar power generating system which involves supply of equipment and undertaking certain services. Separate prices are specified for different equipment which are supplied under the agreement for commercial convenience such as movement of goods, claiming of payment or availing trade credit etc., however as a general trade practice all the equipment which are being supplied under the agreement are supplied together for setting up/supply of solar power generating system. 1.3.5. Additionally, the Appellant would like to submit that the MNRE has recently issued a clarification vide Circular issued under F.No. 283/11/2017 - GRID SOLAR dated 3 rd April, 2018 (hereinafter referred to as the MNRE Circular ) to specified industry players wherein it has been categorically stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such contract . Further, in terms of Serial Number 6 of Schedule II to the CGST Act, works contract is treated as a supply of service and the general rate of tax applicable on works contract is 18%. Therefore, in order to determine whether the supply made by the Appellant is of works contract, it is imperative to understand: (i) the essence of the contract and the intention of the parties involved in the contract to determine whether the parties intend to undertake works contract or supply of solar power plant and (ii) whether the activities are undertaken on an immovable property for the contract to qualify as works contract. Essence of the contract and intention of the parties involved in the contract is clearly to supply SPGS 2.2. The Appellant submits that the intention of the parties entering into the contract is to supply SPGS wherein the. Appellant undertakes end to end responsibility of supply of equipment for solar power plant including designing, engineering, supply, installation, testing and commissioning of the solar power plant. The relevant clauses of the Draft Contract which indicate the intention of the parties entering into the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or better/ improved efficiency of the said object, and not for the benefit of land, such object will not be considered as immovable property. Further, it has been held that if fixing of a plant to a foundation is only for providing stability to the plant and where there is no intention to make such plant permanent, the foundation provided would not change the nature of the plant and make it an immovable property. In a judgment of the Hon ble Supreme Court in the matter of Sirpur Paper Mills Ltd. v. Collector of Central Excise, Hyderabad (1998 1 SCC 400), = 1997 (12) TMI 109 - SUPREME COURT OF INDIA in case of a paper making machine, it was held that merely because the machinery was attached to the earth for operational efficiency, it does not automatically become an immovable property. If the appellant wanted to sell such goods, it could always remove it from the base and sell it. Relevant extract from the judgment is reproduced below for ease of reference: The Tribunal held that the machine was attached to earth for operational efficiency. The whole purpose behind attaching the machine to a concrete base was to prevent wobbling of the machine and to secure maximum op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not intended to be permanent at a given place. The plant can be moved and is indeed moved after the road construction or repair project for which it is set up is completed. In furtherance to the aforesaid judgment, the Madras High Court in the case of Board of Revenue, Chepauk, Madras v. K. Venkataswami Naidu (AIR 1955 Mad 620, 1955 CriU 1369) = 1955 (3) TMI 46 - MADRAS HIGH COURT , held that if something is temporarily embedded in the earth, it cannot be termed as immovable property. The relevant extract of the judgement is reproduced as under: 2. The answer to the question depends upon whether the equipment of the touring cinema would fall within the category of immoveable property. We have no hesitation in holding that it does not. In the question referred to us, the properties are described as collapsible and capable of being removed. In the very nature of things, properties of that nature cannot be immoveable property. The expression permanently fastened occurring in the question is a little misleading. Actually some of the machinery or the poles of the tent may be imbedded in the earth, but they are imbedded only temporarily and not permanently, If t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d transferred from one place to another. Hence, the fact that the plant is installed but not permanently affixed to the land means that the same is not an immovable property. Further, the AAR nowhere distinguishes the above referred case of Sri Velayuthaswamy Spinning Mills v. The Inspector General of Registration and the Sub Registrar (2013 (2) CTC 551) = 2013 (3) TMI 681 - MADRAS HIGH COURT , wherein it was held that windmills qualify as movable property. The AAR in the Impugned Order held that if a thing is embedded in the earth or attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached, then it is part of the immovable property. If the attachment is made for the beneficial enjoyment of the chattel itself, then it remains a chattel, even though fixed for the time being so that it may be enjoyed. Since the windmills are mounted on a civil structure to ensure that they operate efficiently doesn t make windmills an immovable property. The AAR has failed to appreciate and has in fact overlooked the aforementioned judicial precedents and has given a finding that the Draft Contract would qualify to be an immovable property, is per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to as the Circular ), issued the following clarifications with respect to plant and machinery assembled at site: (v) If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as moveable and will, therefore, not be excisable goods. (vi) If any goods installed at site (example paper making machine) are capable of being sold or shifted as such after removal from the base and without dismantling into its components/parts, the goods would be considered to be movable and thus excisable. The mere fact that the goods, though being capable of being sold or shifted without dismantling, are actually dismantled into their components/parts for ease of transportation etc., they will not cease to be dutiable merely because they are transported in dismantled condition. . ..... A conjoint reading of the above along with the judicial precedents, clearly demonstrates that the solar power plant once installed is capable of being moved from one place to another without substantial damage, therefore the solar power plant cannot qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission Company Limited]. This means that the project would be established under government rules and regulations. It is most unlikely that a project would be moved from place to place once it has been put into place after obtaining the essential permits and licenses. 6. The upshot of being a renewable energy project to generate electricity for consumers would be connected to the grid. And we find the definitions in the agreement clauses thus Grid means grid substation to which plant is to be connected for commercial operations; Grid Substation shall mean 110/33kV government substation situated at and in the state of Karnataka, India Thus, it can be seen that the plant would be connected to the grid substation for the purposes of the commercial operations. After having established and commissioned such a project which is connected to a grid substation, who would be taking the project to a different location. It would be farfetched an argument that the project could be shifted to a different location just to prove that the project is movable. 7. The owner has also to obtain approvals and permits (asper applicable law) required for commissioning and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E [1991 (53) ELT 461] = 1990 (12) TMI 209 - CEGAT, NEW DELHI wherein it was held that if by nature of things, property is movable, and it is necessary to imbed or fix the property to the earth for beneficial enjoyment of the property, it does not become immovable property. Relevant extract of the judgement are reproduced below for ease of reference: 50. From the above it fellows, by nature, if the property is movable and for its beneficial use or enjoyment it is necessary to fix it on earth though permanently i.e. when it is in use, it is not immovable property. In the instant case the components/parts both essential and non-essential are fixed to earth for its beneficial enjoyment and by fixing it to the earth it does not become part of the earth, and therefore, it is not immovable property. It is also not disputed that X-ray equipment can be dismantled and shifted. From the records we find that the dismantling charges were also collected from one of the customers. 51. Therefore, we are of the view that X-ray equipment is not immovable property. In view of the aforesaid, it is clear that even if it is necessary to fix something on earth permanently till it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tense is reproduced below: 9. In their reply to the show cause, the respondents explained the processes involved, the manner in which the equipments were assembled and erected as also their specifications in terms of volume and weight. It was explained that the function of the drilling machine is to drill hole in the blast furnace to enable the molten steel to flow out of the blast furnace for collection in ladles for further processing. After the molten material is taken out of the blast furnace, the hole in the wall of the furnace has to be closed by spraying special clay. This function is performed by the mudgun which is brought to its position and locked against the wall for exerting a force of 240-300 tons to fill up the hole in the furnace. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the setting up of solar power plant does not require this degree of construction work. In the case of solar power plant, commissioning is done only for setting up various equipments which constitute a solar power generating system so that they become a system and function together. The construction work/civil work comprises only around 6% of the total contract value and hence it cannot be said to be substantial construction so as to classify the same as immovable property. In fact, it is submitted that in case of the Appellant, the civil work is only done in order to assemble all the parts of the SPGS together for better functioning of the plant. The level and intensity of construction work described in the aforesaid judgment cannot be equated with the present set of facts by any stretch of imagination. The AAR has again assumed that the term commissioning brings out the enormity of the scale of operations, however, as per the facts of the present case, the level and scale of commissioning work done by the Appellant is minimal only so that the SPGS can function together and there is no intention to make the SPGS permanent. 2.11. The AAR has also relied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which it is set up is completed. In this regard, it is submitted that the fact that something is capable of being moved shows that it is not immovable in nature. The fact whether it is actually moved or not, does not change the nature of the property, and hence, the AAR has misinterpreted the judgment in the instant case. Reliance in this regard can also be placed on the judgement of the Hon ble Supreme Court in the matter of Sirpur Paper Mills Ltd (supra) wherein in case of a paper making machine, it was held that merely because the machinery was attached to the earth for operational efficiency, it does not automatically become an immovable property. If the appellant wanted to sell such goods, it could always remove it from the base and sell it. Hence, in this case as well, there was no movement indeed, however, the machine was capable of being moved which was enough for the machine to not be an immovable property. The AAR has failed to appreciate the judicial pronouncements relied upon by the Appellant and, hence, the Impugned order should be set aside. 2.14. Further, the Appellant would like to submit that the government orders/permits/approvals etc., as mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on the Central Electricity Regulatory Commission ( CERC ) Order dated 23 March, 2016 involving determination of Benchmark Capital Cost Norm for Solar PV Power Project for FY 16-17. In the said case also, the CERC, of the total cost of the project including land cost, PV Modules cost is considered as 62%. 3.4. Reliance in can also be placed on Chartered Engineer s Certificate which provides that the most critical component is PV modules both in terms of the value and functionality that such modules perform. 3.5. Further, the Appellant would like to make reference to Schedule I of the Draft Contract which provides as below: The contractor would be responsible for Supply of Equipment and undertake al/ necessary activities ancillary to such supplies (such as erection, civil work etc.) to ensure complete supply of solar power plant. Both parties agree that of the total supplies, the most critical part of the Plant are the supply of the mounted PV module which constitutes 60%-70% of the total contract value. Further, it is also agreed that the Contractor is responsible for the whole of the contract that is for setting up/supply of the Plant. For the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gages various sub-contractors (manufacturers/ supplies/ sub-contractors) who further supply the goods to such contractor or engage in provisioning of certain portion of the contract. 4.2. Further, there may be cases wherein the Developer divides the contract between two separate Contracts of construction of solar power generation system. 4.3. Notification no. 1/2017-lntegrated Tax (Rate), which provides concessional rate on solar power generating system does not specify the persons who would be eligible for concessional rate of 5% i.e. developer, contractor or manufacturer/ supplier/ sun-contractor. 4.4. Since the concessional rate of 5% is provided to renewable energy products and parts thereof, the same should be applicable to all suppliers providing such products as long as it can be established (through certification or otherwise) that these are to be used in solar power generation system. This would also be in line with practice under erstwhile excise law wherein benefit was extended to sub-contractors also through MNRE certification. In view of the aforesaid, it is humbly submitted that the Impugned Order passed by the Advance Ruling Authority is based on er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant prayed that -- a. Set aside/modify the impugned advance ruling passed by the Authority for Advance Ruling as prayed above; b. Pass any such further or other order(s) as may be deemed fit and proper in facts and circumstances of the case. Additional SUBMISSIONS: ISSUE No. (i): Relevant provisions: 5. At the outset, reference requires to be made to the charging provision under the Central Goods and Services Tax Act, 2017 ( CGST Ac t ), viz. Section 9. 9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person. 6. As per the charging provision, there are five essential ingredients which require to be satisfied in order to give rise to a liability to pay GST: (a) Supply of goods or serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /p/ants (h) Photo voltaic cells, whether or not assembled in modules or made up into panels Services: Sl.No. Chapter, Section or Heading Description of Service Rate (per cent.) Condition 3 Heading 9954 (Construction services) (ii) of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017. 9 - (xii) Construction services other than (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x)and (xi) above. 9 - 10. Section 8 of the CGST Act then prescribes the tax liability in case of inter alia a composite supply , as follows: 8. The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:- a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and 11. Relevant to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generating system all at } 5% Photo voltaic cells 13. Hence, the clear legislative intent is that at all levels, from part to system, GST will be payable at 5%. In fact, the effective rate for such contracts even prior to GST was approx. 3%, and an application of the equivalence principle also affirms that the intent of the Government was never to tax the entirety of the goods and services in relation to setting up an SPGS at a significantly higher rate of 18%. 14. Furthermore, S.No. 234 covers a solar power generating system , when it is well known that: A system would cover supply of goods and services necessary to create it; A system could be movable or immovable. 15. In this regard, the word system (which is undefined under GST) is to be understood as follows: Ordnance Factory vs. CCE, Nagpur [2013 (295) ELT 600 (Tri-Mum)] = 2011 (12) TMI 401 - CESTAT, MUMBAI As per the Oxford Dictionary (Tenth Edition), the definition of the term system is a complex whole, a set of things working together as a mechanism or interconnecting network . Similarly, the system is defined in Chambers 20th Century Dictionary as anything formed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 5% being a source of renewable energy. Accordingly, no such interpretation can be adopted which would defeat this intention and place all SPGS contracts under the 18% rate bracket. However, the view taken in the Impugned Order will ensure that the intent of the Government to tax the solar power generating system at 5% is bypassed, and that the said system suffers tax at 18%, contrary to the clearly stated and manifested intention of the Government. Fundamental interpretational error in the Impugned Order: 21. In the present case, the Impugned Order has held that: Such type of contracts are commonly understood to be works contracts involving supplies of goods as well as services. Hence, the first issue to be looked as is the aspect of works contract or composite supply. (refer Pg. 64 of the Appeal Memo). In such contracts, the liability of the contractor does not end with the procurement of materials but extends till the successful testing and commissioning of the system (refer Pg. 68 of the Appeal Memo). The requirement that a works contracts must be for immovable property is met, as: (a) the size of the project gives it an element of permanency; (b) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SPGS is highly moveable as it is capable of being dismantled and re-assembled at another location (refer Pg. 139 of the Appeal Memo). The said expert evidence has not been controverted in any manner, the expert has not been cross-examined and no contrary evidence has been brought on record as well. It is well settled that expert evidence can only be countered with expert evidence and a judicial/ quasi-judicial authority cannot substitute his own views for that of the expert ( Inter Continental (India) vs. Union of India [2003 (154) ELT 37 (Guj) =2002 (2) TMI 129 - HIGH COURT OF GUJARAT AT AHMEDABAD ] maintained in Union of India vs. Inter Continental (India) [2008 (226) ELT 16 (SC)] = 2008 (4) TMI 23 - SUPREME COURT ; Abraham J. Thakaran vs. CCE, Cochin [2007 (210) ELT 112 (Tri-Bang)] = 2006 (10) TMI 51 - CESTAT,BANGALORE upheld in CCE vs. Innovative Foods Ltd. [2015 (236) ELT 20 (SC)]) = 2015 (12) TMI 665 - SUPREME COURT . Accordingly, the view of the expert on the movability of the SPGS ought to have been accepted. (j) The Ministry of New and Renewable Energy (MNRE), which is the parent Ministry for solar projects, has also clarified, vide No. 283/11/2017-GRID S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusion was reached that hydraulic mudguns were immovable based on the specific processes involved and the manner in which the equipments were assembled and erected. In fact, the decision in Solid and Correct (supra), while laying down the definitive tests on this movability/ immovability, has also distinguished the decision in TTG Industries (supra) at paragraph 32 on this factual basis. (m) In this regard, it is also submitted that the various precedents have not laid down a requirement that the item must be capable of being moved as such to another location without dismantling. The relevant judgements only contemplate that the item must be capable of being dismantled and reassembled at another location without being destroyed in the process. In this regard, the conclusion in the Impugned Order that the SPGS is immovable property as it could not be shifted without first dismantling it and the reerecting it at another site, is wholly erroneous, and contrary to the test established by the Hon ble Apex Court. (n) It is further submitted that the test is not one of whether the items are, in fact, dismantled and moved by an assessee, but whether they are capable of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o agreements are taken together, as service is not the principal supply, it cannot be treated as a works contract . 28. Rather, the principal supply, in terms of both customer perception and as a value proposition, is clearly the supply of the goods (particularly, the PV module). On this basis, the entire supply would merit taxation at the rate of 5% under S. No. 234 of Notification 1/2017. ISSUE Nos. (ii) (iii): 29. All parts/ components supplied on a standalone basis or by sub-contractors are liable to GST at 5% as: (ii) The entire solar power generating system is taxable at the rate of 5% as per S. No. 234. Accordingly, any and all goods required for the creation of the system would qualify for the 5% rate under this entry (refer submissions at paragraphs 23 to 28 hereinabove). (iii) In any event, as per a plethora of precedents and CBEC clarification (largely in the context of solar projects and windmill projects), it is settled law that parts/ components of a system would equally merit the rate prescription for the system : Rajasthan Electronics Instruments Ltd. vs. CCE, Jaipur [2005 (180) ELT 481 (Tri-Dei)] = 2004 (7) TMI 259 - CESTAT, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function. In terms of the aforesaid Chapter Notes, it is submitted that: Under Note 2(a), parts which are goods covered under any heading are to be classified thereunder. As the SPGS (i.e. as a system) is covered under S. No. 234, all parts/ components necessary to create the said interconnected system would qualify for the 5% rate. Under Note 2(b), parts suitable for use solely or principally with the SPGS would be classified along with the SPGS, and would also be eligible for the 5% rate. Most importantly, where a series of individual components are intended to contribute together to a clearly defined function (in this case, solar power generation), the appropriate classification is under the entry relevant to that function. On this basis as well, all parts/ components which go to create the interconnection SPGS as a system would attract the 5% rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es (such as erection, civil work etc.) to ensure complete supply of Solar Power Plant. 34. As per Clause 4.2, which defines the Obligations of the Contractor , the contractor is required to do the following,- i) Design and engineering of the plant as per Schedule-2 (Technical specification). ii) Procure the equipment as per the Schedule-4 (Execution schedule). iii) Construction of civil structure or building. iv) Insurance required during the transportation of equipment, supplies by the contractor and insurance required for its representative, engineers and labors until commissioning. v) Supply of such items and materials which are needed for installation, commissioning and normal operation of the plant..... .. vii) The Contractor is also responsible for providing or causing the provision of skill personnel, skill and unskilled labor....., technician, material equipment required for execution and completion of the scope of the contract and all equipment, machinery, items, materials as required for the safe development and Commissioning of the works. 35. Clause 6.1 of the contract says the following:- 6.1. Contract Price and Advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion that the principal supply in such case is the provision of goods and hence the entire contract should be taxable @ 5%. The term composite supply is given under clause (30 )of Section 2 of the CGST Act. composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; Illustration . - Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply; It is important to see the definition of principal supply and goods along with the same. principal supply means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary; A reading of the definition of composite supply shows that there should be- a. Two or more taxable supplies; b. Of goods or services or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of incidental or ancillary services which help in better enjoyment of a main service. The other instructive indicators can be the following:- a) There is a single price or the customers pays the same amount. b) No matter how much of the package the actually received. c) The elements are normally advertised as a package. d) The different elements are not available separately. 41. 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. 42. WHETHER IMMOVEABLE PROPERTY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The appellant has submitted certain judgements in his favour and after going through them, we find that the following principles emerge:- If a machine is attached for operational efficiency, it does not become immoveable property. The degree and nature of annexation is an important element for consideration; for where a chattel is so annexed that it cannot be removed without great damage to the land, it affords a strong ground for thinking that it was intended to be annexed in perpetuity to the land. The English law attaches greater importance to the object of annexation which is determined by the circumstances of each case. One of the important considerations is founded on the interest in the land wherein the person who causes the annexation possesses articles that may be removed without structural damage and even articles merely resting on their own weight are fixtures only if they are attached with the intention of permanently improving the premises. The Indian law has developed on similar lines and the mode of annexation and object of annexation have been applied as relevant test in this country also. If the fixing of the plants to a foundation is meant only to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grid is made through High Voltage Transformer. The appellant has submitted in the write up that in setting up of a solar power generation plant, the following steps are involved: Soil and Topo 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, module mounting DC cabling Commissioning of the solar power plant. As part of the services contract, various services are provided including the following: Construction of complete buildings including control rooms and inverter rooms, roads and drainage system, boundary walls/ fencing, bore wells All civil and foundation works for switchyard, solar plant and all other equipment Site enabling facilities Leveling and grading Erection, commissioning and testing for solar modules, mounting structures, power transformers, inverters, SCADA, complete switchyard, inverter transformers, connectors, earthing lines etc. 42.5 There are generally two types of Solar Power Systems 1) Roof mounted 22) Ground mounted. The Solar Polar Generating Sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e instance is a WHOLE SOLAR POWER GENERATION SYSTEM. one look at the Agreements gives an idea of the scope of the work. The array of goods includes Solar PV Modules, inverters and Inverter Transformer, Tracker Components, Module Mounting Structure, Switchyard Supply, Transmission Line Supply, AC/DC Cables ,Chain Link Fencing ,Battery Charger, Power Transformer, LD Switchgear and complete switchyard, Inverter transformers and auxiliary transformers, Battery and battery charger, SCADA system, Module cleaning system, Illumination and ventilation system, Earthing system ,Site enabling facilities and Mandatory spares. The initial steps includes the drawings and detailing of the system. The activities given in Schedule-I (Scope of work) shows that the Obligation of the Contractor amongst other things includes Plant information and Plant Information in turn includes works relating to Plant land which in turn includes identification of land, legal due diligence, registration of land, fencing of land, storage yard for storing the materials etc. and module mounting structure. The works relating to Module Mounting Structure includes soil testing, contour survey, levelling of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble from the Plant to the Grid Substation . Clause 15.5 refers to the details regarding the commissioning of the project. The requirement for achievement of Commissioning includes the following:- a) Successful installation, testing and commissioning including generation of electrical energy. b) The Plant is mechanically and electrically completed meeting the functional, technical and safety requirement. c) The data acquisition system has been commissioned. d) The Plant has been continuously running for minimum period of 3 days. Clause 20 which refers to liabilities provided that all the risk and liabilities shall be borne by the Contractor till the completion of the Plant. It is only of the completion of the Plant that the risk and liabilities are shifted to the owner. All of the above (quoted from the details given by the appellant) goes 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be shifted without first dismantling it and then re-erecting it at another site. We have earlier noticed the processes involved and the manner in which the equipments were assembled and erected. We have also noticed 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. In the above case, the Supreme Court took note of the fact that the various components of the Mudguns and the Drilling machines are mounted piece by piece on a metal frame, and the components are lifted by a crane and landed on a cast house floor 25 feet high. The volume and weight of these machines are such that there is nothing like assembling them at ground level and then lifting them to a height of 25 feet for taking to the case house floor and the to the platform over which it is mounted and erected. It obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earth to constitute a fertiliser plant in the instant case, are definitely embedded permanently with a view to utilise the same as a fertiliser plant. The description of the machines as seen in the Schedule attached to the deed of conveyance also shows without any doubt that they were set up permanently in the land in question with a view to operate a fertilizer plant and the same was not embedded to dismantle and remove the same for the purpose of sale as machinery at any point of time. The facts as could be found also show that the purpose for which these machines were embedded was to use the plant as a factory for the manufacture of fertiliser at various stages of its production. Hence, the contention that these machines should be treated as movables cannot be accepted. Thus what can be seen from the above is that when machines are embedded with no visible intention to dismantle them and they are intended to be used for a fairly long period of time, they are immoveable property. 42.9 The Authority for Advance Ruling has also referred to certain clauses and argument in support of the finding that the contract leads to erection of immovable property. We agree with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced 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 would be dutiable in normal course. The clarification therefore holds the erection of plants as immoveable property and not goods. 43.3 The appellant has submitted that under Section 9(1), the Government is enabled to issue notifications prescribing the rate qua goods services or both . In the present case, as per S. No. 234 of Notification 1/2017, the Government has chosen to tax solar products in a particular manner: Devices and parts Solar power generating system } all at 5% Photo voltaic cells Hence, the clear legislative intent is that at all levels, from part to syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew thereof, there arises no occasion to go into the issue of principle supply . Question 3 Whether benefit of concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors? The ARA has held that no details were brought before them and therefore in the absence of documents they have expressed their inability to deal with the question. As no fresh documents were produced before us and also there being no original ruling of the ARA, we hold that we will not deal with the question in the present proceedings. 44. JUDGEMENTS QUOTED BY THE APPELLANT Apart from the judgements already discussed in the FINDINGS part of this order, we also discuss here the other judgements quoted by the appellant. Rajasthan Construction- The judgement is given under the provisions of the Central Excise Law. Also, there was no case of any agreements made which had to be decided on the touchstone of law but a case of classification. Phenix Construction Technology vs. CCE, Ahmedabad-II [2017-TlOL-3281-CESTAT-AHM] = 2017 (8) TMI 307 - CESTAT AHMEDABAD The question here for consideration was whether the structur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder as follows: O R D E R Q.1 Whether supply of turnkey Engineering, Procurement and 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 Central Goods and Services Tax Act, 2017? A. 1. The Appellant poses before us to decide if the Engineering, Procurement and Construction contract falls within the definition of composite supply as found in the GST Act. The question is answered in the positive as supply of the said turnkey EPC contract is a composite supply u/s.2(30) of the CGST Act, 2017. The said composite supply falls within the definition of works contract u/s.2(119) of the CGST Act, 2017. Q.2. If yes, whether the Principal Supply in such case can be said to be solar power generating system which is taxable at 5% GST? Ans. We have treated the transaction as a Composite supply and a works contract falling u/s. 2(119) of the CGST Act, 2017 and Para 6 of SCHEDULE II [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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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