In re McNally Bharat Engineering Company Limited (GST AAR Andhra Pradesh)
Whether the activities carried out by the applicant under all 3 contracts entered for establishment of Solar PV Power Project can be treated as Composite Supply? If yes, whether the said supply can be classified under SI. No.234 of Schedule I of the Notification No.1/2017- Central Tax (Rate) dt.28.06.2017 and GST shall be paid at the rate of 5%.
Ruling: The activities carried out by the applicant under all 3 contracts entered for establishment of Solar PV Power Project can be treated as Composite Supply, which is a composite supply of works contract as defined at Section 2 of CGST Act ‘2017 and APGST Act, 2017 and is treated as supply of service in terms of serial no.6, Schedule II of CGST Act ‘2017 and APGST Act, 2017. Hence, the said supply cannot be classified under SI. No.234 of Schedule I of the Notification No.1/2017- Central Tax (Rate) dt.28.06.2017 and GST at the rate of 5% is not applicable.
Instead it is classified under heading 9954, entry no. (ii) of S. No. 3 of the table of notification no. 11/2017 – Central Tax (Rate), Dated – 28th June 2017 as amended from time to time and corresponding notifications under APGST Act, 2017, and the applicable rate of tax is 18% (9% under Central tax and 9% State tax).
Further, the amended rate of tax vide notification No.24/2018 Central Tax (Rate) dated: 31.12.2018 and notification No.27/2018, Central Tax (Rate) dated:31.12.2018, amending earlier notifications No.01/2017, Central Tax (Rate) dated:28.06.2017 and notification No.11/2017, Central Tax (Rate) dated:28.06.2017 respectively, which came into force from 01.01.2019, is applicable.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, ANDHRA PRADESH
ORDER
(Under sub-section (4) of Section 98 of Central Goods and Services Tax Act, 2017 and sub- section (4) of Section 98 of Andhra Pradesh Goods and Services Tax Act, 2017)
1. The present application has been filed u/s 97 of the Central Goods & Services Tax Act, 2017 and AP Goods & Services Tax Act, 2017 (hereinafter referred to CGST Act and APGST Act respectively) by M/s McNally Bharat Engineering Company Limited (hereinafter referred to as applicant), registered under the Goods & Services Tax.
2. The provisions of the CGST Act and APGST Act are identical, except for certain provisions. Therefore, unless a specific mention of the dissimilar provision is made, a reference to the CGST Act would also mean a reference to the same provision under the APGST Act. Further, henceforth, for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST or AP GST Act would be mentioned as being under the GST Act.
1. Brief Facts of the case:
1 . M/s McNally Bharat Engineering Company Limited (“Applicant”) is engaged in providing turnkey solutions in the areas of Power, Steel, Coal & Mining, Ports, Aluminium, Material Handling, Mineral Processing, Cement, Water, Oil & Gas
and
Infrastructure sectors such as Buildings & Townships, High Rises, Roads, Metro Rail, etc.
2. The applicant has entered into three contracts under Pre-GST regime with M/s Andhra Pradesh Power Generation Corporation Limited (‘APGENCO’) namely,
i. Supply Contract;
ii. Erection Contract; and
iii. Operation and Maintenance Contract.
for the purpose of establishment and Operation & Maintenance of 100MW grid connected Solar PV Project at Talaricheruvu Village, Near Tadipatri, Anantapur District in Andhra Pradesh.
3. The scope of the supply/ work under each of the above mentioned three contracts is as follows:
A. Supply Contract:
Design, Engineering, Manufacture/ Procurement Testing at manufacturer’s works, Inspection, Supply, Packing and Forwarding of all plant and equipment including Mandatory Spares of 100MW grid connected Solar PV Power Project at Talaricheruvu (V), Near Tadipatri, Ananatpuramu District in Andhra Pradesh.
B. Erection Contract:
Providing of all services i.e. loading, inland Transportation for delivery at site, inland Transit Insurance, Unloading, Storage, Handling at site, Installation of the equipment, Civil Works Testing and Commissioning including carrying out guarantee tests in respect of all the equipment supplied for 100MW grid connected Solar PV power project at Talaricheruvu (V) Near Tadipatri Anantapuramu District in Andhra Pradesh.
C. Operation & Maintenance Contract:
The Scope of the contract provides that the applicant shall provide operation and maintenance of Solar PV Plant along with grid connecting system for a period of five years from the date of successful completion of trial run. The applicant shall be responsible for supply of all spares, repairs/replacement of any defective equipment(s) at his own cost as required from time to time during the operation & maintenance period.
4. The consideration for all the three contracts is not single price. Consideration for each contract is mentioned separately under the respective contracts. The value of consideration involved in the supply contract i.e. value of material is predominant, and which is higher than the consideration offered for providing services under erection contract and the operation & maintenance contract.
5. Further, there is a clause in all the above three contracts which specifies that the award of separate contracts shall not in any way dilute the responsibility for successful completion of the facilities, achieving the guaranteed performance of the plant, proper operation & maintenance of the plant after final acceptance by APGENCO. Further, a breach in one contract shall automatically be construed as a breach of the other contracts which will confer a right on the APGENCO to terminate the other contracts. The extract of the said clause is mentioned below.
“The contractor shall note that the total price of all three contracts is the accepted price for carrying out the contract on Lumpsum basis and thus the billing break up that will be issued from time to time against any of the contracts in future, will be meant only for regulating the payments based on completed supplies /works. Therefore, the award of separate contracts shall not in any way dilute the responsibility for successful completion of the facilities, achieving the guaranteed performance of the plant, proper O & M of the plant after final acceptance by the corporation, etc. as per the tender specification and a breach in one contract shall automatically be construed as a breach of the other contracts which will confer a right on the Corporation to terminate other contracts also at the risk and the cost of the contractor.”
7. Presently, the applicant is charging GST @ 5% on supply of solar modules and 18% on the other supplies of goods under the supply contract. In respect of civil works and other services covered under erection contract, the applicant is charging GST @ 18%.
On Verification of basic information of the applicant, it is observed that the applicant falls under State jurisdiction, Assistant Commissioner, O/o. the Asst. Commissioner of State Tax, Steel Plant Circle, Visakhapatnam Division. Accordingly, the application has been forwarded to the State jurisdictional officer, with a copy marked to the Central Tax authorities to offer their remarks as per the Section 98(1) of CGST/APGST Act 2017. In response the jurisdictional officer concerned stated that there are no pending proceedings relating to the applicant and no proceedings were passed on the issue, for which the advance ruling is sought by the applicant.
2. Questions Raised Before the Authority:
a. Whether the activities carried out by the applicant under all 3 contracts entered for establishment of Solar PV Power Project can be treated as Composite Supply? If yes, whether the said supply can be classified under SI. No.234 of Schedule I of the Notification No.1/2017- Central Tax (Rate) dt.28.06.2017 and GST shall be paid at the rate of 5%
b. If not, whether GST can be paid on value relating to supply of solar modules alone at 5 % as per SI. No.234 of Schedule I of the Notification No.1/2017- Central Tax (Rate) dated. 28.06.2017.
3. APPLICANT’S INTERPRETATION OF LAW AND FACTS:
The Applicant believes that the supplies made under present contracts shall be classifiable under Entry No.234 of Schedule I of the Notification No. 1/2017- Central Tax (Rate) dated 28th June, 2017 and Entry 234 of Schedule I of the Notification No. 1/2017- State Tax (Rate) dated 29th June, 2017 and shall be liable to GST (CGST and SGST) at the rate of 5%.
Applicable provisions:
Composite supply- Section 2 (30) of CGST Act,
“Composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;
Principal Supply – Section 2 (90) of the CGSTACT;
“Principal supply” means the supply of goods or services which constitutes the predominant element of a composite supply is ancillary;
Section 8 of the CGST Act:
The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:
(a) A composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply,
and
(b) A mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax
Notification No. 1/2017 – Central (Rate! dated 28 06 2107:
Notification No. 01/2017- Central (Rate) specified the applicable rate of tax that shall be levied on intra-state supply of goods. The applicant claims that goods under question fall in ‘Solar Power Generating system’ under the entry No.234 of Schedule I of chapter heading /subheading 84 or 85.
In the present case, the applicant has entered into three contracts with APGENCO namely, Supply contract. Erection contract and Operation & Maintenance contract
Thus, the intention of APGENCO is to procure a completely functional solar power plant as a whole wherein applicant undertakes end to end responsibility of supply of equipment solar power plant including designing engineering, supply of Solar modules and other equipment, installation, testing and commissioning of a functional solar power plant as well as operation and maintenance of the power plant for a period of 5 years.
Therefore the applicant submits that, though it has entered into three different contracts with APGENCO, it is only for the purpose of clear understanding of the scope & terms of each activity and for better execution of the project. Hence, the applicant submits that all the contracts are meant for supply, installation and operation & maintenance of the Solar Power Project only. Further, it is also stated that the consideration involved in the contract (consideration specified in all the three contracts put together) predominantly consists the value of solar modules being supplied as per the supply contract. The following table summarizes the break-up of consideration of all the 3 contracts:
