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TMI Blog2018 (10) TMI 1046X X X X Extracts X X X X X X X X Extracts X X X X ..... nce ruling. 1. SUBMISSION OF THE APPLICANT: 1.1 Solairedirect India LLP undertakes Engineering, Procurement and Construction ('EPC')activities for Group companies as well as third parties for setup of solar power generating system where contract for commissioning of solar power generating system involves simultaneous supply of goods and services. 1.2 The solar power generating system installed by the Applicant under the EPC contract consists of various components like solar photovoltaic panels, solar inverters, transformers, module mounting structure, cables, connectors and other accessories where solar panels which account for approximately 70% to 75% of the total cost. 1.3 In a typical contract, the customers of the applicant acquire the land for the set-up of the solar power generating system and access is granted to the Applicant for executing the project on turnkey basis. 1.4 The steps involved in execution of a contract by the Applicant are as below: 1.4.1 Planning for the project The Applicant submits the Implementation schedule which is approved by the purchaser. The Applicant remains responsible for ensuring compliance with the documentation, related drawings, data ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant wishes to understand whether the solar panels could be said to be the principal supply and the supply of solar power generating system along with all components could be said to composite supply and could get classified under Schedule I of the above referred notification. 2. OUESTIONS ON WHICH THE ADVANCE RULING IS SOUGHT Applicant has sought ruling to be pronounced under section 97(2) (a) of the CGST Act 2017, on the following questions: Whether EPC contract for set up of solar power generating system be considered as a composite supply with PV modules being the principal supply and be taxed at a rate of 5% (i.e. tax rate applicable on the P. V. modules)? 3. APPLICANTS INTERPRETATION OF LAW IN RESPECT OF THE OUESTION RAISED 3.1 The Applicant has made a detailed submission to demonstrate eligibility of solar modules to be classified as principal supply in the composite supply of solar power generating system and requests a ruling to be pronounced. The applicant has stated that the EPC Contract for the supply of solar power generating system should be considered as composite supply with the principal supply being the solar panels and accordingly, the tax rate of solar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turally bundled in the ordinary course of business with the primary intention being to get a complete and operational solar power generating system. The Applicant in support of his submission has also stated certain overseas GST and VAT jurisdictions like United Kingdom ('UK'), European Union ('EU') and Australia. 3.2 The Applicant submitted that the supply of solar panels is the principal supply in the composite supply of solar power generating system hence the tax rate applicable on the solar panels is 5% under the heading 8541 should be applicable to the entire contract value and has relied on the following Entry: Entry number 234 of Schedule I of IGST Rate Notification reads as under: Sr.No. Chapter/Heading/ Sub-heading/ Tariff item Description of Goods 84, 85 or 94 Following renewable energy devices & parts for their manufacture (a) Bio-gas plant (b) Solar power based devices (c) Solar power generating system (d) Wind mills, Wind Operated Electricity Generator (WOEG) (e) Waste to energy plants / devices (f) Solar lantern/solar lamp (g) Ocean waves/tidal waves energy devices/plants (h) Photo voltaic cells, whether or not assembled in modules or m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wamy Spinning Mills (P) Ltd Vs The Inspector General of Registration =2013 (3) TMI 681 - MADRAS HIGH COURT. * Commissioner of Central Excise, Ahmedabad Vs Solid & Correct Engineering Works =2010 (4) TMI 15 - SUPREME COURT. * Selvel Advertising Private Limited Vs Commercial Tax Officer, Alipore Charge = 1992 (5) TMI 182 - WEST BENGAL TAXATION TRIBUNAL. * Jaiprakash Industries Limited Vs Commissioner of Commercial Taxes, Uttarakhand = 2010 (7) TMI 884 - UTTARAKHAND HIGH COURT. * Sirpur Paper Mills Ltd. Vs Collector of Central Excise, Hyderabad =1997 (12) TMI 109 - SUPREME COURT OF INDIA. * Essar Telecom Infrastructure Pvt. Ltd. Vs Union of India etc = 2011 (4) TMI 234 - KARNATAKA HIGH COURT. In the light of the above discussion, the Applicant submitted that that the solar power generating system 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. Further it is attached to the land for its effective functioning and not for the beneficial use and setting up of the solar power generating system itself is not intended to be permanent at a given place. The equipment used in setting up of a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed undertakes all activities of turnkey projects except civil work. iii) In Supply Contract, the Applicant is required to supply the power plant on complete knocked down condition in piecemeal at project site. Customer engages a third party contractor or the Applicant for assembly, erection, and commissioning of the plant under a separate contract. iv) In Balance of Plant Supply Contract, the Applicant is required to supply goods and services stated above, except solar panels. Solar panels procured by the customer are made available by the customer to the Applicant for assembly and erection. As per submissions made in Advance Ruling Application the applicant undertakes Engineering, Procurement and Construction ('EPC') activities for Group companies as well as third parties for setup of solar power generating system where contract for commissioning of solar power generating system involves simultaneous supply of goods and services. a) Applicant has not submitted copy of any specific EPC contract along with the Advance Ruling Application on which he would like to seek the Ruling. As per submission made by applicant in Advance Ruling Application and based on discussions during PH, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks (temporary or permanent), and of all equipments, machinery, materials, shall be with contractor until occurrence of the Final Acceptance. f) In terms and condition of "Composite EPC Contract" contractor has to undertake works of installation, testing and commissioning of Solar Power Plant as per specific demands of owner. So it is not something sold out of shelf. g) Under these kinds of contracts there is a single lump sum price for the entire contract. h) The applicant has laid claim under notification No 01/2017-CT (Rate) dated 28.06.2017, at S.NO. 234, under HSN Classification 84, 85 and 94 and has argued that under EPC contact he is supplying Solar Power Generating System which is the principal supply in the composite supply where installation services are supplied in conjunction. With the principal supply being the solar panels and accordingly, the tax rate of solar panels (5% under the heading 8541) should be applicable on the entire contract value. i) As can be seen, the above entry is under the notification describing the Tax rate on 'Goods'. The entry reads as "renewable energy devices & parts for their manufacture". If the transaction is only of supply of goods the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r it is a 'work contract' in terms of GST Act also, so, we come to the crux of the issue, which is as to whether the transaction results into any immovable property. The term 'immovable property' has not been defined under the GST Act. However, there are a plethora of judgments of the Hon. Supreme Court and the Hon. High Courts which have helped understand the term 'immovable property'. 1. In decision of Allahabad High Court in Official Liquidator v. Sri Krishna Deo and Ors. [AIR 1959 All. 247] = 1958 (5) TMI 35 - HIGH COURT OF ALLAHABAD, wherein, the Court held that a machinery fixed to their bases with bolts and nuts although easily removable are not movable property when they have been set up with definite object of running an oil mill and not with intention of being removed after a temporary use. 2. In decision of M/s. T.T.G. Industries Ltd., vs Collector of Central Excise, 2004 (167) ELT 501 (SC) on 7 May, 2004 = 2004 (5) TMI 77 - SUPREME COURT OF INDIA. The facts of the case are as follows: The facts of the case are not in dispute. The appellant-company pursuant to the acceptance of its tender, entered into an agreement with M/s. SAIL, Bhilai Steel Plant for design, supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure the base plate on the said concrete platform by means of foundation bolts. The base plate is 80 mm mild sheet of about 5 feet diameter. It is welded to the columns which are similar to huge pillars. This fabrication activity takes place in the cast house floor at 25 feet above ground level. After welding the columns, the base plate has to be secured to the concrete platform. This is achieved by getting up a trolley way with high beams in an inclined posture so that base plate could be moved to the concrete platform and secured. The same trolley helps in the movement of various components to their determined position. The various components of the mudgun and drilling machine are mounted piece by piece on a metal frame, which is welded to the base plate. The components are stored in a store-house away from the blast furnace 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be dismantled and reassembled or re-erected at another place for such use, such chattel would be immovable. In the present appeal, even according to the finding of the Collector, mudguns and drill tap hole machines have to be dismantled and disassembled from the cast floor before being erected or assembled elsewhere. We have also arrived at the same conclusion independently, in para 10 above. Accordingly applying the test laid down by the Supreme Court we hold that the erection and installation of mudguns and drill tap hole machines result in immovable property. In the light of the ratio of the above case law, we hold that the mudguns and tap hole drilling machines do not admit of the definition of goods and, therefore, excise duty is not leviable thereon". The core question that still survives for consideration is whether the processes undertaken by the appellant at Bhilai for the erection of mudguns and drilling machines resulted in the emergence of goods leviable to excise duty or whether it resulted in erection of immovable property and not "goods". The appellant has placed considerable reliance on the principles enunciated and the test laid down by this Court in Munic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted by the Adjudicating Authority. The technical member, however, held that the aforesaid decision was of no help to the appellant inasmuch as a leading international manufacturing firm had offered such machines for export to different parts of the world. He further observed that though on account of their size and weight, it may be necessary to shift or transport them in parts for assembly and erection at the site in the steel plant, they must nevertheless be deemed as individual machines having specialized functions. We are not impressed by this reasoning, because it ignores the evidence brought on record as to the nature of processes employed in the erection of the machine, the manner in which it is installed and rendered functional, and other relevant facts which may lead one to conclude that what emerged as a result was not merely a machine but something which is in the nature of being immovable, and if required to be moved, cannot be moved without first dismantling it, and then re-erecting it at some other place. Some of the other decisions which we shall hereafter notice clarify the position further. In Quality Steel Tubes (P) Ltd. v. Collector of Central Excise, UP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the mono vertical crystalliser was assembled and erected at site. The process involved welding and gas cutting. The mono vertical crystalliser is a tall structure, rather like a tower with a platform at its summit. This Court noticed that marketability was a decisive test for dutiability. It meant that the goods were saleable or suitable for sale, that is to say, they should be capable of being sold to consumers in the market, as it is, without anything more. The Court then referred to the decision in Quality Steel Tubes (supra) and distinguished the judgment in Narne Tulaman (supra) holding that the contention that the weigh bridges were not goods within the meaning of the Act was neither raised nor decided in that case. After considering the material placed on the record it was held that the mono vertical crystalliser has to be assembled, erected and attached to the earth by a foundation at the site of the sugar factory. It is not capable of being sold as it is, without anything more. This Court, therefore, concluded that mono vertical crystallisers are not "goods" within the meaning of the Act and, therefore, not exigible to excise duty. In Triveni Engineering & Indus. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. We find considerable similarity of facts of the case in hand and the facts in Mittal Engineering and Quality Steel Tubes (supra) and the principles underlying those decisions must apply to the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of law it is observed: - 1) That the Solar Power Plant is a big project and has a permanent location as it is meant for onward sale of power to the consumer. Contract between an EPC contractor and the counter-party is entered into on the premise that the plant would continue to be situated at the place of construction. Such plant would therefore have an inherent element of permanency. 2) The output of the project i.e. Electricity, would be available to an identifiable segment of consumer. Thus this output supply would involve an element of permanency for which it would not be possible and prudent to shift base from time to time or locate the plant elsewhere at frequent intervals. 3) The Solar Power Plant cannot be shifted to any other place without dismantling the same. Further it is a tailor made system as per technical specification which cannot be sold as it is to the other person. 4) Solar Power Plant includes civil work such as development of site, structure foundation, building cable trenches, civil work relating to invertors and control buildings, store rooms, canopies and such other civil structure and related activities as set out in Scope of work and the Techn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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