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TMI Blog2020 (3) TMI 1041X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract) to the Thane Municipal Corporation (TMC), Thane for a period of 7 years. The ESCO contract is on shared saving model and is to reduce the overall consumption of electricity in street lighting. 3. The Applicant has to operate and maintain 12,000 street lighting fixtures & respective feeder panels i.e. installation of LED fixtures, smart electric panels for automation, metering & comprehensive maintenance. The role of the applicant is as under: a) Removal of the existing street lights and handing over the same to TMC. b) Installation of LED street lights on existing street light poles c) Installation of new smart feeder electrical panels compatible with LED fixtures at its own cost. d) Operation & maintenance of the said LED street lights during the tenure of the contract. 4. The street light poles and the old street lights will continue to remain under the ownership of TMC. The applicant does not have any control over the electrical poles & can't object to or damage any other installations on the poles during the supply. Further the applicant is required to maintain minimum standard of operation, which requires for maintenance of minimum LUX level on road. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct period. d) The transaction is not a composite supply at all. e) Even if the transaction amounts to composite supply, it would not be works contract and the principal supply would be energy performance service. f) Consideration / remuneration is computed purely on the basis of energy savings and performance, on monthly basis. g) The applicant is liable for penalty in case lights are not functioning, LUX level is not maintained, minimum guaranteed savings not met. h) The activity of street lighting is a function of municipality / corporation, but is outsourced to the applicant, which falls under Article 243W of the Constitution of India. i) The goods (LED lights etc.,) are not considered as saleable inventory in the books of accounts of the applicant, but are capitalised as fixed assets. 6.2 The applicant, with regard to rate of GST applicable, contends that their activity, being a pure service other than works contract, squarely gets covered under entry no.3 of Notification 12/2017-Central Tax (Rate) dated 28.06.2017, as amended and hence is entitled to the benefit of exemption. The applicant further contends that they fulfil all the required conditions to cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport is submitted to TMC & third party energy auditor and the same is verified & approved. In view of the above, the applicant contends that the due date of payment is not the end of the month, but is only after the energy savings report is submitted & verified by TMC/energy auditor. The payments are released only after completion of 30 days from the date of submission of energy audit report. Therefore the time of supply is 30 working days from the date of submission of approved savings report. 6.5 The applicant with regard to time of supply, in case their activity is treated as supply of goods, contends that the tax invoice, in terms of Section 31, need to be issued before or at the time of removal of goods, if the movement of goods is involved. If there is no movement of goods the tax invoice need to be issued at the time at which the goods are made available to the recipient. Further as per Section 12, the time of supply would be earliest of the following: * Date of issue of invoice or last date of its issuance in terms of Section 31 * Date of receipt of payment with respect to supply Further Section 15 provides that the transaction value of supply is the price paid or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of 7 years. 8.4 The applicant's responsibilities, pursuant to the aforesaid contract, include installation, operations & maintenance of the street lights; on & off of the street lights; repair & replacement of the street lights at their own cost; ensuring of the street lights operating at the required LUX levels, as prescribed. Non functioning of any street light & non maintenance / operational of the street lights for the minimum up-time would be subjected to penalty. 8.5 The applicant has to remove the existing lights which are under the ownership of TMC & hand over the same to TMC and also install the new street lights. The new street lights would be under the ownership of the applicant, during the tenure of the contract. 8.6 The applicant receives consideration in terms of 'Energy Savings Fee', which is equal to 90% of the actual saved multiplied by standard electricity tariff. The increase of the said fee is based on the escalation of 4% over the fixed energy tariff. If the realized energy savings are less than 60%, then penalty is levied on the applicant. 8.7 The applicant, in view of the above, contends that the dominant intention of the contract is to render a PURE se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt from the aforesaid nature of work that the contract involves design, supply & installation of LED Street Lights and thereafter operation & Maintenance of the same. The entire contract depends on supply of LED Street Lights without which the other aspects of the contract can't be fulfilled / attended to. In this regard we draw attention to the terms of the contract. 9.2 The following facts emerge, on detailed scrutiny of the terms of the contract, made between the applicant and the TMC. (i) "Operation & Maintenance (O&M)" means all the activities required for operation and maintenance of the street lighting system handed over to the contractor (Applicant herein) within the Project Area including, but not limited to smart feeder panels, cables / conductors, connectors, fuses, poles, pole earthing, junction box, fixtures, wires etc., (Clause 1.1 of the contract) (ii) The contractor undertakes the implementation of energy conservation measures, installation of smart feeder panels for automation & metering and operation & comprehensive maintenance of 12,000 street lighting fixtures and respective switching points identified through the Third Party Energy Audit within the project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall pay the contractor a fee for the energy savings (the "Energy Savings Fee") in Indian Rupees, as consideration for the energy savings achieved with respect to the energy baseline consumption norm. The energy savings fee is computed as under: Energy Savings Fee for a given month = 90% * {actual energy saved in a given month(kwh)} * {Tariff(5.8/kwh) assumed for making payments} (a) 10% represents the actual share of savings passed on to Municipal Corporation based on overall savings achieved. (b) Energy savings in a given month should not be less than the minimum guaranteed savings of 60% of Municipal Corporation. [clause 16.1 of the contract] 10. We find from the analysis of the terms of the contract that the contract involve more than two taxable supplies such as supply of LED lights, fixtures & other equipment, their installation, commissioning, operation & maintenance etc., We also find that the impugned supplies of goods and services are in conjunction with each other in the ordinary course of business and hence the impugned transaction satisfies the ingredient of composite supply, as defined under Section 2(30) of the CGST Act 2017. Now we proceed to disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... W of the Indian Constitution and hence the said service is exempted under Entry No.3 of the Notification No. 12/2017-CentraI Tax (Rate) dated 28.06.2017. Further they also contest that if their supply is not entitled for exemption under Entry No.3 of the said Notification, then the said services are entitled for exemption under Entry No.3A of the same Notification, as the value of their supply of materials (goods) is less than 25% of the total value of the contract. 15. It is an undisputed fact that the Notification No. 12/2017-CentraI Tax (Rate) dated 28.06.2017 is related to the exemptions of the intra-state supply of services. The Notification is applicable to the composite supplies of goods & services, where the principal supply is that of services. In the instant case, it is already concluded, in the preceding paras, that the impugned supply is a composite supply, principal supply being that of the goods. Hence the said Notification is not applicable to the instant case. Further, it is an admitted fact that the applicant need to supply the LED Street Lights, during the entire contract period as and when it is required and hence the impugned supply becomes continuous supply o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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