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2018 (9) TMI 1339

f separate contracts for supply of goods and services for a solar power plant, there would be separate taxability of goods as ‘solar power generating system’ at 5% and services at 18%? - Held that:- While the contracts are ostensibly two separate contracts, one for supply of material and other for rendering works and services, they are in fact one single indivisible contract. The goods supplied to the owner by the appellant are specifically brought for the purpose of the erection of the system. The appellant is entrusted with the work mainly for their expertise in erection and installation of the plant in the execution of turnkey project. The function relating to the supply of material and the rendering of services of erection and installation are integrally connected and interdependent. The terms of supply clearly show that the implementation schedule is not only for supply but also for erection, testing and commissioning of the plant. Schedule A of the supply agreement part II makes it clear that the complete supplies required for the construction of the 60MW (AC/81 MW DC) Solar PV project shall be in the scope of the supply. - The supply of the goods and the supply of works .....

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e mode of annexation shows that the groundwork, being the necessary foundation, is an important part of the project. - 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 - the conclusion drawn by the ARA that the Agreements made lead to the erection of a Solar Power generating System, is affirmed. - 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%. - Whether parts supplied on standalone basis (when supplied without PV modules) would also be eligible to concessional rate of 5% as parts of solar power generation system? - Held that:- The Advance Ruling Authority had not given any ruling on th .....

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NG - MAHARASHTRA The impugned order was passed on 3 March, 2018. In terms of Section 100 of the MGST Act, 2017, the time period of filing the appeal is 30 days from the date of communication of the advance ruling. The time period of 30 days can be further extended up to period of 30 days in terms of provision to Section 100(2) of the CGST Act. However, it is stated by the appellant that they could not file the appeal before the Appellate Authority for Advance ruling, since it was not constituted in the State of Maharashtra at the prevalent time. Since the Appellate Authority was not formed, the appellant filed letters dated 2 April, 2018 and 26 April 2018 before the Commissioner of Central Tax and the Chief Commissioner of Central Tax, Mumbai Zone and Commissioner of State Tax, Maharashtra State for understanding the way forward so that the appellant s right to file an appeal is not adversely affected. CONDONATION OF DELAY The first issue relates to the issue of condonation of delay in filing the appeal as the Appellate Authority for advance Ruling was not formed in the State of Maharashtra during the period of limitation. The appellant has therefore prayed that in view of the abov .....

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according to the agreement is to purchase the solar power generating system with various components and not only the components. b. The agreement has been entered into not merely for supply of equipment but also for design and engineering work before supply of equipment. c. Supplier is involved in the project from the engineering and design stage. d. The contract will be complete only after the system has been put in place and payment is linked to the successful completion of the project. e. Hence, the agreement is for supply of SPGS as a whole because the responsibility of the supplier also includes execution and implementation of the project. Basis the above observations, the Advance Ruling Authority passed the following order: a. The agreement tendered in support of the transaction reveal that the impugned transaction is for setting up and operation of a solar photovoltaic plant which is in the nature of a works contract in terms of clause (119) of Section 2 of the GST Act, and hence, should be taxable at the rate of 18% b. In the absence of any documents, the AAR was not able to deal with the question regarding applicability of concessional rate of tax on parts of solar power .....

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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 together for performing a function. In the present case, the term system should include all goods provided under the contract which help in end to end generation as well as transmission of electricity. 1.2.3. Furthermore, under erstwhile law also, solar power generating systems were not defined. However, under erstwhile excise law, various exemptions were extended to non-conventional energy devices which included solar power generating systems List 8 of N .....

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d 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. Furthermore, in M/s. Phoenix Construction Technology vs. Commissioner of Central Excise and Service Tax, Ahmedabad-II [2017-TlOL-3281-CESTAT-AHM] = 2017 (8) TMI 307 - CESTAT AHMEDABAD, the question under consideration was whether the structures and parts of structures cleared for initial setting up of solar power plant are eligible for the benefit of Notification 15/2010-CE. The point of dispute in the said case law was that whether the aforesaid goods would qualify as components of the solar power plant. Hon ble CEST .....

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rance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply. Further, Section 8 of the CGST Act provides that a composite supply comprising two or more supplies, one of which is a principal supply will be treated as supply of such principal supply. The relevant para of Section 8 of the CGST Act provides as follows: 8. Tax liability on composite and mixed supplies. - 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 Per the above, the essential conditions for a supply to qualify as composite supply can 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. Conce .....

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ed from several indicators some of which are listed below - The perception of the consumer or the service receiver. If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package then such a package could be treated as naturally bundled in the ordinary course of business Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. 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 natu .....

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t the sale of the completed vehicle is a single supply. Like a motor vehicle, spectacles are customarily bought as a completed article and in such circumstances are treated as such by the purchaser. The fact that either the frame or the lenses may be purchased separately is not to the point. Similarly the fact that one component, the lenses, is GST-free or that one component is subject to a discount does not alter the characterization. In the case of Saga Holidays, Stone J focused on the social and economic reality of the supply and found that there was a single supply of accommodation and the adjuncts 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 together constitute as solar power generating system) and hence should be taxable as sup .....

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uired to set up SPGS is a composite supply 1.3.4. In the instant case the intention of the parties is to supply solar power generating system. A perusal of the draft agreement also proves that the intent of the parties is to supply SPGS wherein goods are supplied through onshore and offshore modes for the purpose of setting up SPGS. The relevant extract of the agreement is reproduced below: The Supplier shall perform or cause to be performed all actions as may be required in connection with the supply of the solar power generating system including the design, engineering, manufacturing, inspection, shop testing, packing, fabricating, procuring and delivering all the Equipment, Spare Parts and Materials which are integral part of the Plant, at the Plant Site(for onshore supplies)/destination port in India for off shore supply items (ICD, Airport, Seaport) as set out in detail in Schedule E as per the Specifications in accordance with the terms of this Agreement. The Equipment, Spare Parts and Materials shall be suitable and fit for its intended purpose as provided in this Agreement. All Equipments, Spare Parts and Materials supplied shall be new and without defects. Separate prices .....

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for setting up of the SPGS. It is imperative to note that such activities are integral to provision of SPGS and does not form substantial part of the contract. The contract should be understood as that of supply of SPGS which consists of various components such as PV modules, structures, transmission lines etc. Even if the contract is said to be a composite contract, the principal supply in that case would still be that of SPGS, and hence, the entire contract should be taxable at the rate of 5%. As mentioned in the statement of facts above, it has been acknowledged by the AAR in its order itself that the Appellant is entering into wholesome contracts for supply of SPGS, and hence, the contract should be taxable as SPGS at the rate of 5%. 1.3.6. 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% .....

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ow: Structurals, as such, do not qualify as immovable property and, hence, are outside the domain of works contract service . Whether the EPC contracts qualify as composite supply (u/s 2(30) of the CGST Act) as supply of goods or services or both, naturally bundledor supplied in conjunction with each other in the ordinary course of business will depend on the facts of the case. If such (EPC contracts) supplies could be treated as composite supply with supply of solar power generating systems as the principal supply, then such supplies may be eligible for 5% GST rate as a whole.... Accordingly, in the instant case, since the contract is for supply of SPGS, the same should qualify as a composite supply wherein the principal supply is of SPGS and hence, entire contract should be taxable at 5% 1.3.11. Per the definition of composite supply and scope of work as defined in the agreement, the Appellant submits that the appellant has entered into an agreement for supply of SPGS and the entire agreement should qualify as a composite supply agreement wherein the principal supply is that of SPGS. Thus, the supply should be taxable at the rate of 5%. 1.3.12. It is interesting to note that the .....

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RC, of the total cost of the project including land cost, PV Modules cost is considered as 62%. 1.4.4. Reliance in this regard can also be placed on the Chartered Engineer s Certificate (hereinafter referred to as CEC ) which provides that the most critical component is PV modules both in terms of the value and functionality that such modules perform. 1.4.5. Reference in this regard is made to the judgment of Delhi Tribunal in the case of Rajasthan Electronics & Instruments Ltd. vs. Commr. Of C. Ex., Jaipur = 2004 (7) TMI 259 - CESTAT, NEW DELHI, wherein a Solar Photovoltaic Module was held to be a Solar Power Generating System. Relevant extract of the judgement is reproduced below for ease of reference: 7. The adjudicating authority admitted the fact that Solar Photovoltaic Module is a Solar Power Generating System. We find that other parts are only panel housing consisting of controllers and switches. Hence the whole system is a Solar Power Generating System and is entitled for the benefit of notification. Therefore, the denial of benefit of notification by the adjudicating authority is not sustainable. The impugned order is set aside and the appeals are allowed . 1.4.6. Basi .....

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ed in connection with the supply of the solar power generating system including the design, engineering, manufacturing, inspection, shop testing, packing, fabricating, procuring and delivering all the Equipment, Spare Parts and Materials which are integral part of the Plant, at the Plant Site(for onshore supplies)/destination port in India for off shore supply items (ICD, Airport, Seaport) as set out in detail in Schedule E as per the Specifications in accordance with the terms of this Agreement. The Equipment, Spare Parts and Materials shall be suitable and fit for its intended purpose as provided in this Agreement. All Equipments, Spare Parts and Materials supplied shall be new and without defects. Separate prices are specified for different equipments which are supplied under the agreement for commercial convenience. However, as a general trade practice all the equipments which are being supplied under the agreement are supplied together for setting up a solar power generating system. Further, relevant paragraph of Schedule A of the draft contract for supply of equipment is reproduced below for ease of reference: 1.1. The broad scope of Supplies covered under this Agreement is d .....

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he contractor for providing SPGS under the contract, and hence, such activities are not substantial enough to make the contract as a works contract taxable at the rate of 18%. The Solar power generating s stem is movable in nature and hence is not an immovable property to qualify as works contract 2.3. The Appellant submits that firstly, under the contract for supply of SGPS, the service element is so minimal that it cannot make the contract a works contract. However, AAR in the Impugned Order has grossly misinterpreted the facts and Appellant s submissions in the instant case and has passed an order on a pre-meditated assumption that typically SPGS is an immovable property and hence, contracts for SPGS would qualify to be works contract. 2.4. The Appellant would, therefore, like to reiterate that the SPGS, as proposed to be supplied by the Appellant is not an immovable property, and hence, cannot qualify to be works contract. However, interestingly, the AAR has held that merely because the impugned agreement involves activities like engineering, design, procurement and commissioning of the SPGS, it is a works contract. The AAR has not elaborated as to why SPGS is an immovable prop .....

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gment, the Hon ble Supreme Court, in the matter Commissioner of Central Excise v. Solid and Correct Engg Works & Ors. (2010 (175) ECR 8 (SC)) = 2010 (4) TMI 15 - SUPREME COURT, held that Asphalt Drum/Hot Mix Plants were not immovable property as the fixing of the plants to a foundation was meant only to give stability to the plant and keep its operation vibration free. Further, it was held that the setting up of the plant itself 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. Hence, the said plants were held to be movable. Relevant extract of the judgement is reproduced as under for ease of reference: Applying the above tests to the case at hand, we have no difficulty in holding that the manufacture of the plants in question do not constitute annexation hence cannot be termed as immovable property for the following reasons: (i) The plants in question are not per se immovable property. (ii) Such plants cannot be said to be attached to the earth within the meaning of that expression as defined in Section 3 of the Transfer of Property Act. (iii) The fixin .....

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Mad 346) = 1967 (9) TMI 147 - MADRAS HIGH COURT, wherein the Madras High Court, while deciding whether the engine and pump set were an immovable property, held that the attachment of the oil engine to earth is for the beneficial enjoyment of the engine itself, and hence, such an attachment does not make the engine part of the land and as immovable property. Relevant extracts of the judgment are reproduced below for ease of reference: We find ourselves in agreement with the second part of these observations, which is apposite to the instant case. In the case before us, the attachment of the oil engine to earth, though it is undoubtedly a fixture, is for the beneficial enjoyment of the engine itself and in order to use the engine, it has to be attached to the earth and the attachment lasts only so long as the engine is used. When it is not used, it can be detached and shifted to some other place. The attachment, in such a case, does not make the engine part of the land and as immovable property. In view of the aforesaid judgments, it is submitted that even assuming without admitting that the contractor is responsible for setting up the solar power plant, the same is commissioned and .....

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old 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 qualify as an immovable property, and the impugned AAR order should be set aside on this ground alone. 2.9. It is further submitted, that the AAR has not taken the aforesaid facts and judicial precedents into consideration before passing its order and has grossly erred in holding the contract for supply of equipments for solar power generating system as works contract based on the following observations, amongst others: a. The intention of the buyer under the contract is to pu .....

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performs certain services to make the same available to the buyer. 2.10. It is further submitted that the AAR has wrongly relied on the judgement of the Hon ble Supreme Court in the case of T.T.G. Industries Vs. CCE, Raipur [(2004) 4 SCC 751] = 2004 (5) TMI 77 - SUPREME COURT OF INDIA, wherein hydraulic mudguns and tap hole drilling machines required for blast furnace were held to be immovable property on the basis of the finding that the said machine could not be shifted without first dismantling it and then re-erecting it at another site. It was also observed that even if the machines were attached to a concrete base just to prevent wobbling of the machine, it would be classified as immovable property. In this regard, it is submitted that the AAR has grossly erred in relying on the decision of TTG Industries as the facts of the case are not applicable to our case. The level of construction work in case of TTG is intense. The relevant extracts of the judgement which shows that the level of construction is intense 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 .....

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nace and are brought to site and physically lifted by a crane and landed on the cast house floor 25 feet high near the concrete platform where drilling machine and mudgun has to 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. From the above, it is apparently clear that the level of construction work involved in the installation of hydraulic mudguns and tap hole drilling machines is enormous and hence the machines were rightly held to be immovable property. However, the Appellant would like to draw the attention to the fact that the setting up of solar power plant does not require this degree of construction work and a perusal of the draft contract would suffice to prove that the activities undertaken u .....

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intention of permanently affixing it to the ground. In the instant case also, the solar power plant is fixed at the site only for operational efficiency and not with the intention of permanently affixing the plant to the earth. The AAR has distinguished the aforesaid judgment on the basis that the plant was indeed moved after the road construction or repair project 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 vs. CCE, Hyderabad [1998 (1) SCC 400] = 1997 (12) TMI 109 - SUPREME COURT OF INDIA, 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 .....

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rate of 5% as the entry covers Renewable energy devices and parts for their manufacture , which means parts of SPGS would also qualify for concessional rate of 5%. 3.2. A part is essentially a section, which, when combined with other sections, make up a whole system/ product . In the case of equipment, various parts would combine to make up the whole equipment, which has a specific function. 3.3. Compared to a part , an accessory is essentially a piece which enhances the functionality of equipment and adds to the function of the equipment. However, even without the accessory the equipment can function on its own. 3.4. In the present case, it is not the case that all other goods/ equipment are ancillary and the same are required essentially for functioning of the solar power plant and hence, should form part of the solar power generating system. 3.5. Per the above, our understanding is that supply of other parts (apart from solar power generating system) should also constitute as supply of parts of solar power generating system which should attract concessional rate of 5% (provided they fall within Chapter 84, 85 or 94). Hence, benefit should be available even if standalone parts ar .....

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o be a part of WOEG, flanges of the tower will be a part of the whole Wind Operated Electricity Generator In CCE vs. Megatech Control Pvt. Ltd. [2002 (145) ELT 379 (Tri-Chennai)] = 2002 (5) TMI 112 - CEGAT, CHENNAI, the Tribunal heid that control panels are part of wind operated electricity generators and are meant specifically for wind mill and will be eligible for benefit. Vide Circular No. 1005/15/2015 - CX dated October 20, 2015, the CBEC had clarified that tower, nacelle, rotor, wind turbine controller, nacelle controller and control tables will be treated as parts/components of wind operated electricity generators and will be eligible for exemption. In regard to the above, though there has not been any judgment with respect to components of solar power plants, on similar lines of the precedents discussed above for wind power, the components of solar power generating system should also be covered under concessional rate of 5% under GST. 3.8. the Appellant further submits that in terms of Note 2 of Section XVI of the Customs Tariff (hereinafter referred to as Note 2 ), parts which are suitable for use solely with a particular machine, will be classified with the machine of that .....

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of a kind described in any of the Headings of Chapters 84 and 85 (other than Nos. 84.65 and 85.28) under respective Headings, every machinery for making or finishing cellulosic pulp, paper or paper-board, requires to be classified under Heading 84.31. Then coming to Granite Press Roll the imported article under consideration, being a part of machine of goods Machinery for making or finishing cellulosic pulp, paper or paper-board which is suitable for use solely or principally as machinery for finishing paper, it requires to be classified with the machine described in the Heading 84.31, as required by rule (b) to Note 2 of Section XVI, inasmuch as, Granite Press Roll is described by CEGAT itself as part of machine of paper making machinery. Therefore, Granite Press Roll , the imported article, in our view, warrants its classification under Chapter Heading 84.31, as held by the Collector (Appeals). Thus, when classification of imported article - the Granite Press Roll - ought to have been made under Tariff Item No. 84.31 of Chapter 84, as is held by us, CEGAT has gone wholly wrong in classifying that article under Import Tariff Item No. 68.01/16(1) of the 1st Schedule to the Customs .....

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rom GST, GST payable on the input side would burden the developer and hence, would prove detrimental to the growth of solar power generating plants in the country. Accordingly, concessional rate of 5% should also be available to parts of solar power generating system supplied on standalone basis. 3.12. Basis the understanding, it can be deduced that the components which are essential for setting up of the solar power plant together will qualify as parts of solar power generating system (falling under Chapter 84,85 or 94) and hence, should be eligible for concessional rate of 5%. 4. Whether benefit would also be available to sub-contractor 4.1. In certain cases, the turnkey contractor engages various sub-contractors (manufacturers/ supplies/ sub-contractors) who further supply the goods to such contractor or engage in provisioning of certain portion of the turnkey 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 .....

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rection testing and commissioning of solar modules, module mounting structures etc. Under GST, service has been defined as anything other than goods and the general rate of services is 18%. The Appellant in this regards submits that such contract is a separate contract for services itself and hence has to be taxed on independent basis. In our understanding, the same should be analysed independent of contract for goods, and only the contract for services should be taxed as pure service agreement and be categorized as works contract liable to tax at the rate of 18%. Hence, in view of the aforesaid submissions, the Appellant would like to reiterate that the AAR, in its order, has agreed to the point of the Appellant and has acknowledged that the contract in question are for supply of SPGS as a whole. However, the AAR has incorrectly assumed that the contracts which are in relation to supply of SPGS are generally in the nature of immovable property, and hence are works contract. In this relation, the Appellant would like to submit that as per the detailed submissions made by the Appellant above, the contract is for supply of SPGS which is movable in nature and hence, cannot qualify as .....

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-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. 7. 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 services or both; (b) At such rates... as may be notified by the Government; (c) On the value determined under section 15; (d) And collected in such manner as may be prescribed; (e) And shall be paid by the taxable person. 8. The scope of supply is set out at Section 7 of the CGST Act, which reads as under: 7. (1) For the purposes of this Act, the expression supply includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; … (d) the activities to be treated as supply .....

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supply principal supply , goods , services and works contract under Section 2 of the CGST Act, are also set out below: (30) 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. (90) 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. (52) 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. (102) services means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is cha .....

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agreements reflect the real state of affairs and what is to be examined is whether the revenue has succeeded in showing that the apparent is not the real and that the price shown in the invoices does not reflect the true sale price. [See : (Union of India v. Mahindra and Mahindra [1995 (76) E.L. T. 481 (S.C.)] = 1995 (3) TMI 88 - SUPREME COURT OF INDIA), at P. 487]. 15. In view of the aforesaid, in the present facts, the levy of GST is crystallised under Section 9 read with Section 7(1)(a). There is, therefore, no question of taking recourse either to Schedule Il or to Section 8 of the CGST Act in order to determine taxability. The Supply Agreement is consequently taxable at 5% and the Services Agreement at 18%. 16. Without prejudice to the foregoing, to the extent that Section 8 dealing with composite supply is applicable, there can at best be said to be two separate composite supplies, viz.: A composite supply of goods and services under the Supply Agreement, with the principal supply clearly being the supply of goods, i.e. the PV module and other parts/ components to set up the SPGS. The said Agreement would therefore be taxed at 5%, per the rate for SPGS under Notification 1/20 .....

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has been determined that the transaction is a works contract there is no need to enter into any discussion as to the transactions involving a composite supply ), is patently contradictory. 20. In the present facts, the agreements are separate supplies of goods and services under Section 7(1)(a), and cannot be said to be a composite supply (as there is no supply which consists of two or more elements of goods or services). There is no legal basis to go behind the agreements and treat them as one, especially since the pattern of separate agreement for goods and services has subsisted since 2007. The said contract structure is therefore a reflection of the true commercial intent of parties, and is in no manner a creation/ device timed with the introduction of GST. As per the settled law, there is no question of seeking to override the structure of the contracts and intent of parties, and the agreements must be read as they have been executed by the parties (viz. as separate agreements for separate supplies with distinct consideration). In this background, there can be no question of treating the supplies as a works contract View taken in the Impugned Order frustrates the intent of the .....

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erpretation must be adopted (Coastal Paper Ltd. vs. CCE, Vishakapatnam [2015 (322) ELT 153 (SC)]; = 2015 (7) TMI 895 - SUPREME COURT, Commissioner of Trade Tax, UP vs. Varun Beverages Ltd. [2011 (267) ELT 147 (SC)]; = 2011 (4) TMI 592 - SUPREME COURT OF INDIA, South Eastern Coalfields Ltd. vs. CCE&C, M.P [2006 (200) ELT 357 (SC)]. = 2006 (8) TMI 3 - SUPREME COURT OF INDIA)]. 27. Even though Notification 1/2017 is qua goods , relevant to the entry for system , and likewise for other specified items at S. No. 234 (such as plants, wind mills etc.), the term goods in the context of its use under this entry of the Notification will have to be interpreted consistent with the coverage specified by the notification. Therefore, qua a supply of a system , whether under one contract or more, irrespective of the form in which the system is, the levy of GST must be at 5%. 28. The interpretation adopted by the Impugned Order, that all contracts for supply and services qua SPGS must be treated as a works contract and taxed at 18% on the full value, will render the taxing entry of SPGS wholly otiose/ nugatory. As per the settled law, any such interpretation is always to be avoided (Oswal Agro .....

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. Being the governing Ministry qua solar projects, and having the relevant expertise on the subject matter, due credence ought to have been given to the said clarification, instead of adopting a divergent view de hors any technical understanding of the SPGS in the Impugned Order. (k) As per the settled law in terms of a long line of judgements of the Hon ble Supreme Court, the relevant test for determining whether a given item is movable or immovable is whether the affixation of the same is for the purposes of the beneficial enjoyment of the movable item (i.e. to ensure full functionality of the movable item by providing structural support, ensuring it is wobble-free etc.) or for the beneficial enjoyment of the immovable property (i.e. construction of a building/ structure to enjoy and utilize the land). In particular, it has been held that where the item can be dismantled and erected at another location without destroying or damaging the item, the said item would be movable and not immovable. Reliance in this regard is placed on the following: Sirpur Paper Mills vs. CCE, Hyderabad [1998 (1) SCC 400] = 1997 (12) TMI 109 - SUPREME COURT OF INDIA CCE vs. Solid and Correct Engg. Work .....

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3 (SC)]) = 2000 (8) TMI 86 - SUPREME COURT OF INDIA. (o) Even under GST (for the purposes of disallowing input tax credit under Section 17(5) of the CGST Act), a distinction has been drawn between immovable property and plant and machinery . The term plant and machinery is defined to mean apparatus, equipment, and machinery fixed to earth by foundation or structural support... and includes such foundation and structural supports . In this regard, it is also to be noted that for GST purposes, a telecommunication tower has specifically been treated as being in the nature of immovable property , and not as plant and machinery . It is, therefore, submitted that the decision in Bharti Airtel Ltd. vs. CCE [2014 SCC Online Bom 907] = 2014 (9) TMI 38 - BOMBAY HIGH COURT is distinguishable on this basis under GST, in as much as the statute itself views telecommunication towers as being in a distinct category from plants (such as a solar power plant). 31. In view of the aforesaid, the SPGS is not in the nature of immovable property , and, therefore, cannot qualify as a works contract . Consequently, the agreements cannot be taxed as a service at 18%. Without prejudice, even if the agreements .....

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[2017-TlOL-3281-CESTAT-AHM] = 2017 (8) TMI 307 - CESTAT AHMEDABAD Jindal strips Ltd. vs. CC, Bombay [2002-TIOL-347-CESTAT-DEL-LB] = 1997 (5) TMI 152 - CEGAT, NEW DELHI Gemini Instratech Pvt. Ltd. vs. CCE, Nashik [2014 (300) EL T 446 (Tri-Mum)] = 2013 (7) TMI 464 - CESTAT MUMBAI Elecon Engineering co. Ltd. vs. CC [1998 (103) ELT 395 (Tri)] = 1998 (3) TMI 359 - CEGAT, MUMBAI Pushpam Forging vs. CCE, Raigad [2006 (193) ELT 334 (Tri-Mum)] = 2005 (7) TMI 242 - CESTAT, MUMBAI CCE vs. Megatech Control Pvt. Ltd. [2002 (145) ELT 379 (Tri-Chennai)] = 2002 (5) TMI 112 - CEGAT, CHENNAI Circular No. 1005/15/2015-CX dated 20.10.2015 (iv) Notification 1/2017 states that The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this notification . In relation to the classification of the SPGS under S.No. 234, it would be relevant to refer to the Section Notes to Section XVI of the Customs Tariff, as reproduced below: 2. Subject to Note 1 to this Section, Note 1 to Chapter 84 and to Note 1 to Chapter 85, p .....

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e in the appeal filed. The appellant also made additional written submissions on 02.07.2018 reiterating all the submissions made in the application and certain additional grounds also. Copy of the additional submission was enclosed to the appeal. Both the submissions of the appellant are kept on record. ORDER PASSED BY THE ADVANCE RULING AUTHORITY: 36. It was held by the ARA that the agreements revealed that the impugned transaction of setting up an operation of Solar Photovoltaic Plant is in the nature of Works Contract in terms of clause (119) of Section 2 of the GST Act read with Schedule (ii) (activity to treat as supply of goods or supply of services) treating Works Contract u/s.2(119) as supply of services. It was observed in the ARA that the though the appellant tendered two agreements - one for the supply of goods to be used in Solar Power Plant and other for the supply of services they are separate agreements, the buyer has expressed a clear intention to purchase the solar power generating system with the various components and the impugned contract is for supply of solar power generating system as a whole. After going through the various clauses of the Agreements, the ARA .....

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ement for SPGS (SOLAR POWER GENERATING SYSTEM) shows that the buyer desires to set up an operation of Solar Photovoltaic Plant with the total capacity of 60MW. The engineering and construction agreement shows that the buyer seeks to entrust the appellant for erection, testing and commissioning of certain equipment and certain services and material for the plant. From the above, it can be seen that the two agreements are proposed to be made for the supply of goods and the rendition of services for the purposes of setting up a SOLAR POWER GENERATING SYSTEM . The agreement for the supply of SPGS covers, amongst other, the supply of Solar Photovoltaic module which is a main component of the system. It also includes the supply of various other parts such as invertor, battery, power transformer and certain services such as survey, design, transportation of the module and parts. The engineering and construction agreement covers the erection, installation, commissioning, civil work etc. Thus, it can be seen from the above that the two agreements are purported to be made and in both the agreements, one of them is for the supply of goods and the other is for supply of services. It is submitt .....

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e for carrying out all the tasks and responsibilities associated with the successful completion and commissioning of the Plant on or before the Work Completion Deadline . Plant is defined as the 60 MW (AC) Solar PV Power Project . As per Clause 13.2 of the Service agreement, upon completion of the plant and only when the plant is fully and properly interconnected and synchronized, can the appellant issue a notice of completion and call upon the buyer to check the plant. It is only upon the joint examination of the plant that the Owner (buyer) can deliver to the appellant a Work Completion Certificate . As per Clause 13.6 of the service agreement, it is agreed that the liability of the appellant shall not terminate upon the commencement of the commercial operations and it shall continue to be liable to rectify if any defect in the plant and be liable and responsible for the works done till the expiry of the defects. Schedule B of the Supply Agreement, which contains the Terms of Payment specifically makes it clear that 5% of the payment will be made only on the successful plant completion. 40. The aforesaid clauses show that while the contracts are ostensibly two separate contracts, .....

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tion of or damage to the Equipment, Spare Parts and Material, regardless of whether the Buyer has title thereto until the date of Final Acceptance. If there is any loss or damage of the Equipment and Material till the date of Final Acceptance all amounts recoverable under the insurance shall be paid over to the buyer. The Final Acceptance is defined in the Agreement as the date of commencement of commercial operations of the Plant, provided that if at any point with respect to the supply items are pending as on the date of commencement of commercial operations, the Final Acceptance shall be the date on which all pending supplies are completed in accordance with the terms of this Agreement, which date shall be intimated in writing by the Buyer to the Supplier. Thus, it is clear from the above clause that the insurance is incumbent upon the date of commencement of commercial operations and not on delivery of goods. This also proves that the said Agreement is not an agreement of pure supply of goods as it is sought to be portrayed. It is not that the appellant is appointed by the buyer only for buying equipment but he is given the contract for setting up the plant. The letter sent by .....

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n of the works involving supply of goods as well as labor and therefore the transaction is a works contract. The Court observed- ... In turn-key projects, more particularly of the kind involved in this batch of Writ Petitions, the same person has been entrusted with the responsibility of procuring material, and of erection and installation of equipment. While in-built safeguards are provided in all the contracts to ensure quality of the material, and effective performance of the erection contract, the supply contracts, in substance, do not absolve the petitioners-contractors of their obligations of erection and installation of equipment after the goods are sold by them to the owner. The petitioners-contractors obligations, under both the supply and erection contracts, cease only after the turn-key project becomes operational, and after final payment is made both for supply of material and for erection installation of equipment. While a dual role is not impermissible in execution of turnkey projects, its relevance, in determining whether or not the subject contracts are indivisible works contracts, is insignificant. It further referred to a specific clause in the agreement as below- .....

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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 both; c. Or in combination thereof; d. Which are naturally bundled and supplied in conjunction with each other; e. In the ordinary course of business. f. One of which is a principal supply. 47. The Contracts are two - one for the supply of goods and the other for the supply of services. The contract or the agreement fulfills the conditions of the composite supply . There is supply of goods and services. They are naturally bundled in the sense that both the goods and services may require to fulfill the intention of the buyer in giving the contract. The supply of goods and services are provided 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, we h .....

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the irresistible inference that the parties did in fact intend that the said status would be conferred. Thus, the mere forma/ description of a person as an agent or buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent. It is clear from the observations made by this Court that the true relationship of the parties in Such a case has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the said relationship. Thus, what the Supreme Court says above is that the form of the agreement is not important. it is rather the substance which has to be seen. The parties may use any words they like to suit their intention and it is therefore imperative that the agreement may not be taken as it is but its nature/substance has to be seen to arrive at the correct conclusions. WHETHER IMMOVEABLE PROPERTY 49. Now, though, we have come to the conclusion that the same is a composite supply, we have to decide the issue about what would be the principal supply and whether it would be a supply of services or supply of goods. The ARA has held that the .....

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he 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 give stability to the plant and keep its operation vibration free then it cannot be called as Immoveable property . If the setting up of the plant itself is not intended to be permanent at a given place and if the plant can be moved and is indeed m .....

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ing 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. 53. There are generally two types of Solar Power System 1) Roof mounted 2) Ground mounted. The Solar Polar Generating System in the present case is a ground mounted or ground based Solar Power system. A simple ground mounted system (for a home), requires a customized positioning at the perfect angles for absorbing sunlight. In a ground mounted system, good planning is a big part of placing solar panel ground mounts as the installer has to choose a location th .....

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er, 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 include the drawings and detailing of the system. As per Annexure A of the Services agreement, the list of drawings includes drawings of the site map which shows the solar equipment/switchyard/site office/access, the Solar Plant Layout showing the module and string layout/inverters/major cables/switchyard equipment evacuation point and transmission line, the Earthing layout, the Electrical diagrams/documents and drawings , the construction drawings which include the solar panel foundation arrangement/layout and detail of roads and drains, Architectural details and finishing schedule, building layout and details of foundations, trenches, grade slab, plinth beam, equipment foundations, roof etc. and drawings of the module supporting structures. The above itself shows the huge work and detailing of the project. The payment milestones shown in Schedule IV amongst others shows 5% against drawing submissions, 15% .....

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ontract here was for the design, supply, supervision of erection and commissioning of four sets of Hydraulic Mudguns and Tap Hole Drilling Machines required for blast furnace and the issue was whether the same is immoveable property. The Apex Court observed- .. Keeping in view the principles laid down in the judgments noticed above, and having regard to the facts of this case, we have no doubt in our mind that the mudguns and the drilling machines erected at site by the appellant on a specially made concrete platform at a level of 25 feet above the ground on a base plate secured to the concrete platform, brought into existence not excisable goods but immovable property which 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 .....

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is immoveable property and observed the following- The question whether a machinery which is embedded in the earth is movable property or an immovable property, depends upon the facts and circumstances of each case. Primarily, the court will have to take into consideration the intention of the parties when it decided to embed the machinery whether such embedment was intended to be temporary or permanent. A careful perusal of the agreement of sale and the conveyance deed along with the attendant circumstances and taking into consideration the nature of machineries involved clearly shows that the machineries which have been embedded in 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 w .....

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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. 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 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 s .....

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WHETHER BENEFIT OF CONCESSIONAL RATE OF 5% OF SOLAR POWER GENERATION SYSTEM AND PARTS THEREOF WOULD ALSO BE AVAILABLE TO SUB CONTRACTORS? 64. The Advance Ruling Authority had not given any ruling on the above on the following grounds, In the absence of any document before us, we would not be able to deal with this question in the present proceedings. 65. This is also a situation where the facts and circumstances are not clearly delineated. We do not have any document/agreement which would show what solar parts are supplied by the sub-contractors. Also, it is not known as to whether a complete system is purported to be sold or the parts thereof. Therefore, in the absence of any documents we cannot give any decision in the said case Also, as an appellate authority we can only decide issues already decided and appealed against. There being no decision given by the advance ruling authority, we cannot give any decision in appeal. 66. JUDGEMENTS QUOTED BY THE APPELLANT- Apart from the judgements already discussed above, 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, th .....

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t to the 2nd question posed by the appellant. As we have not given any decision in the said case in the absence of arguments, we do not feel the need to discuss the cases. Accordingly, we pass the following order: ORDER In view of the above discussions and findings and in terms of Section 101(1) of the CGST Act 2017 and MGST Act 2017, we hold that- 67. WHETHER IN CASE OF SEPARATE CONTRACTS FOR SUPPLY OF GOODS AND SERVICES FOR A SOLAR POWER PLANT, THERE WOULD BE SEPARATE TAXABILITY OF GOODS AS SOLAR POWER GENERATING SYSTEM AT 5% AND SERVICES AT 18%? The agreements tendered in support of this question are for setting up and operation of a solar photovoltaic plant and are in the nature of a works contract in terms of clause (119) of section (2) of the GST Act. Schedule II ( Activities to be treated as supply of goods or supply of services) treats works contract u/s 2 (119) as supply of services .Depending upon the nature of supply, intra-state or inter-state the rate of tax would be governed by the entry no 3(ii) of the Notification No 8/2017-Integrated Tax (rate) under the Integrated Goods and Services Tax Act, 2017 (IGST Act) or the Notification no 11/2017 Central Tax/State Tax (Rat .....

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