TMI Blog2018 (9) TMI 1341X X X X Extracts X X X X X X X X Extracts X X X X ..... upply of the goods and the services should at least be bundled, more specifically be ‘naturally bundled’ and supplied in conjugation with each other. The term ‘naturally bundled’ has not been defined in the GST Act - the concept of composite supply under the GST law is similar to the concept of naturally bundled services that prevailed under the service tax regime, and the same was understood to refer to those transactions involving an element of provision of service and an element of transfer of title in goods in which various elements are so inextricably linked that they essentially form one composite transaction. The supply of PV module is a distinct transaction by itself and Cannot be said to be naturally bundled with the supply of the remaining parts required for setting up the Solar Power Plant. The contract itself makes it abundantly clear that the term “equipments” does not cover “free issue equipment”. Therefore, the Contract itself recognises the supply by the owner as a distinct transaction which is separate from the supply of the other equipments and components by the contractor - the concept of natural bundling does not apply to the instant envisaged supply of the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue material over and above the plant being supplied by the contractor. The owner is responsible for transportation of the PV module from the point of origin till plant site and he bears the other risks and rewards of ownership. The PV module which is procured by the Project owner on High Sea Sale basis and imported by availing Customs duty exemptions and later supplied to the Appellant as a free issue for use in the setting up of the Solar Power Plant. The supply of the remaining portion of the contract in question by the Appellant Which involves the supply of the balance components and parts of the Solar Power Plant and the supply of services of Erection, Installation and Commissioning of the Solar Power Plant is viewed as a ‘composite supply’ as the supply of goods and services are naturally bundled. The tax liability on this portion of the contract in question (other than PV module) which is termed as a ‘composite supply’ will be determined in terms of Section 8 of the CGST Act, 2017 wherein the rate applicable to the dominant nature of the supply will prevail. - KAR/AAAR/02/2018-19 - - - Dated:- 5-9-2018 - SHRI. A.K. JYOTISHI, AND SHRI. M.S. SRIKAR, MEMBER Repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led an application on 24.11.2017 before the Karnataka Authority for Advance Ruling under Section 97 of CGST/KGST read with Rule 104 of CGST/ KGST Rules, 2017 in form GST ARA-01 , seeking a ruling on the following questions: a. Whether supply of turnkey Engineering, Procurement Construction (EPC) Contract for construction of a solar power plant wherein both goods and services are supplied can be construed to be a composite supply in terms of Section 2(30) of the CGST Act, 2017 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% on Solar Power Generation System and parts thereof would also be available to sub-contractors. 5. The application Was heard on 9th January 2018 and 9gh February 2018, wherein the appellant made elaborate submissions to clarify that the main intent of the contract was to develop and supply SPGS which consists of various components such as modules, structures, inverter transformer, cables, SCADA, transmission lines etc; that the services like civil construction are merely ancillary to provision of such goods. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the following observations on a detailed examination of the draft contract: As per clause D Of the contract, the equipment (PV module) is imported and directly transferred to the owner by way of High Sea Sale. The owner files the Bill of Entry with the Customs for clearance of the PV module. This indicates that the owner has procured the goods and made them available to the contractor. Further, as per clause 1.1.45 of the contract, Free Issue Equipment is defined as Photovoltaic Modules to be supplied by the owner to the contractor as free issue equipment at the plant site for the installation and commissioning of the solar power plant. Hence the major component (PV Module) said to be constituting 70% of the whole project cannot be construed to be supplied by the applicant consequent upon High Sea Sale of the said product and hence it cannot be construed to be a principal supply of the project. On the issue whether the terms of supply as envisaged in the draft contract qualifies it to be a composite Supply, the Authority held that for a supply to be a composite supply different goods and / or services supplied should be naturally bundled; that the draft contract clearly d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is as per the principal supply Which in the instant case is Solar Power Generating System. The Appellant submitted that the main intent of the contract is provision of Solar Power Generating System as a whole which consists of various components such as PV module, structures, inverter transformers, cables, SCADA, transmission lines, etc. The contract also included 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, Reference is made to Schedule I of the draft contract which defines the scope of work to be executed by the Appellant. The said Schedule provides that the Appellant 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. Separate process 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. The appellant submitted that the MNRE has issued a clarification vide Circular F.No. 283/11/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and parts thereof, the same should be applicable to all suppliers providing such products as long as it can be established that these are to be used in solar power generation system. v. In view of the above, the Appellant pleaded that the impugned Order is incorrect and based on misinterpretation of the facts and the draft contract should be treated as a composite Supply of goods and services and the PV module being the major and principal supply of the contract, the whole supply should be taxed at 5% GST Personal Hearing: 10. The Appellant Was called for a personal hearing on 28.0812018 and was represented by Shri Mallaha Rao, Advocate. During the hearing the Advocate highlighted that the main intention of the parties to the contract was the Supply and setting up Of the Solar Power Generating Plant. He argued that the issue Whether the contract was to be considered as a composite supply was misunderstood by the AAR merely on the grounds that the main equipment of the contract i.e. PV Module was imported and transferred on High Sea Sales basis to the owner who then supplied the PV module to the Appellant at the site. While admitting to the factual position of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of and pursuance to payment terms under EPC contract They submitted that despite being the ultimate buyer/owner of the goods under HSS, the goods never came into possession of the project owner, as the goods are cleared, transported and incorporated in solar power generation systems by the Appellant only; that the risk and rewards have not been transferred by the Appellant to the project owner; that the Appellant has taken insurance for risk during transit, risk during construction nor provided guarantees and performance warranties for entire value of the solar plant including PV module; that the Bill of Entry of Customs (BOE) also has the name of the Appellant as original importer which also provides a linkage of the transaction between foreign vendor, the appellant and the project owner. 13. Therefore they submitted that the intent of the Appellant is to set up a completely functional solar power generating system which would include procuring all the goods and related services in that regard in Order to complete the project. Further they submitted that even though certain goods are being supplied On High Sea Sale basis, the Same does not change the nature of the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/sub-contractor, 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, Discussion Findings: 16. We have gone through the records of the case and taken into consideration the findings of the AAR in the impugned order and the submissions made by the Appellant in their grounds of appeal as well at the time of personal hearing and in the written additional submissions. 17. The Appellant vide their written submissions dated 31.08.2018 has sought for another opportunity to be heard in order to produce additional documents. However, we are not inclined to grant another personal hearing as the issue has been argued at length during the hearing on 28 th August and also detailed written submissions have been made on 08.06.2018 and 31.08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipient 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. Whereas, Section 8 of the CGST Act states that the tax liability on a composite supply shall be determined in the following manner, namely:- a composite supply comprising two or more supplies, one of which is principal supply, shall be treated as a supply of such principal supply. Illustration .- Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is u composite supply and supply of goods is a principal supply; In addition we also note that Section 2 (31) of the CGST Act 2017 has defined consideration , goods and mixed supply , as follows: (31) consideration in relation to the supply of goods or services or both includes- (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or Services or both, whether by the recipient or by any other perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the scope of the contract is that the contractor shall supply all the equipment as per the terms Of the Contract in accordance with the Execution Schedule. The terms Equipment has been defined in Para 1.1.39 to mean and include all the equipment and major equipments along with its associated accessories, conductors, electrical cables, instruments, apparatus and other items /equipment required to be supplied by the Contractor for completing and integrating the SPP, as per the Technical Specification, excluding Free Issue Equipment (Emphasis supplied). In terms of Para 1.1.45 Free Issue Equipment means Photovoltaic Modules to be supplied by the owner to the contractor, as a free issue equipment at the Plant Site for the installation and commissioning of the SPP. The obligations of the owner in terms of Para 4 of the contract include providing for insurance required for Free Issue Equipment, third party/public liability insurance and insurance required for its representative, engineers and labours until completion of its obligations under this contract- In terms of Para 9 of the contract, the owner agrees to provide Free Issue Material as agreed between the parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he supply of the remaining part of the goods and services by the Appellant. 25. The effect of the first transaction under the contract is to transfer the chattel as chattel to the other contracting party and thus effectively separate it from the subsequent supplies. This transaction is outside the scope of GST as it takes place on High Sea Sales basis. However, we note that it is a supply as understood in ordinary parlance, wherein the meaning of the expression supply is clearly understood to be make (something needed or wanted) available to someone; provide . 26. The Second transaction Which happens thereafter, is the free supply of the PV module by the Project owner to the Appellant for Setting up the Solar Power plant. This supply without consideration is not within the fold of the definition of supply as stated in Section 7 of the CGST Act. Other than the exceptions spelt out in Schedule I, any supply without a consideration is not a supply and hence does not attract GST. What crystallizes from the above is that, the Supply of the PV module which is the major component of the Contract is not coupled at all with the supply of the other parts of the Solar Power Pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visaged supply of the PV module in terms of the draft contract in question. 28. Once the contract in question is that of a multistage supply as already discussed, having been already vivisected into the supply of the PV module by the owner as free issue to the Appellant, what remains to be executed by the Appellant is undertaking the supply of the remaining equipments and components and parts of the Solar Power Plant and supplying the services of design, erection, installation and commissioning of the Solar Power Plant. We are of the opinion that the supply of this remaining portion of the contract in question (involving the supply of the balance components and parts as well as the service portion) can still be termed as a composite supply in terms of Section 2(30) of the CGST Act, 2017 since the supply of these components and parts as well as the services of erection, installation and commissioning appear to be naturally bundled. Having said this, the tax liability on the latter portion of the contract in question which is to be supplied by the Appellant and which We are agreeable to be termed as a composite supply will be determined on the basis of the dominant nature of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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