Gujarat GST AAAR Denies GST Exemption for Suzlon’s Transformers

In re Suzlon Energy Ltd (GST AAAR Gujarat)

The Gujarat Appellate Authority for Advance Ruling (GST AAAR) addressed whether specially designed transformers supplied along with wind turbine generators (WTGs) by Suzlon Energy Ltd. qualify as parts of WTGs and are eligible for tax exemptions under Notification No. 1/2017-CT (Rate). The AAAR upheld the earlier ruling by the Gujarat Authority for Advance Ruling (GAAR), stating that such transformers, despite performing dual functions of step-down and step-up transformation, do not constitute parts of WTGs as per the Ministry of New and Renewable Energy’s guidelines and relevant circulars.

The AAAR emphasized that the Ministry’s exclusion of transformers from the list of WTG components undermines Suzlon Energy’s argument. The appellant’s reliance on common parlance or popular meaning to classify transformers as part of WTGs was deemed unsupportable without substantive evidence. Additionally, previous judicial rulings cited by Suzlon Energy, primarily pertaining to other contexts like depreciation under income tax laws, were found irrelevant to the present dispute.

The AAAR also dismissed the appellant’s reliance on Supreme Court judgments, highlighting that these were based on different laws and circumstances unrelated to the current case. Strict interpretation of exemption notifications was reiterated, aligning with the Supreme Court’s precedent in the Dilip Kumar and Company case. The authority ruled that transformers are not part of WTGs and, therefore, ineligible for tax benefits under the specified exemptions. Consequently, the appeal was rejected, affirming the GAAR’s earlier decision.

FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARAT

At the outset we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 and Gujarat Goods and Services Tax Act, 2017 (hereinafter referred to as the `CGSTs Act, 2017′ and the `GGST Act, 2017‘) are pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act, 2017 would also mean reference to the corresponding similar provisions in the GGST Act, 2017.

2. The present appeal has been filed under Section 100 or the CGST Act, 2017 and the GGST Act, 2017 by Suzlon Energy Ltd., (hereinafter referred to as `appellant’) against the Advance Ruling No. GUPGAAR/R/2022/16 dated 12.4.2022.

3. Briefly, the facts are enumerated below for ease of reference:

• The appellant is engaged in supply of goods required for setting up of power projects enabling generation of power through renewable sources of energy on its own & through its subsidiary companies;
• Appellant manufactures Wind Operated Electricity Generators [WOEG] falling under chapter 85023100; parts like Nacelle, Blades & Towers fa ling under chapter heading 8503; transformers falling under chapter heading 8504.

• Transformers for WOFG is installed on the ground adjoining WOEG & is a device to link the electricity generated by the WOEG to the distribution grid and make it usable for distribution/consumption;
• The appellant feels that the transformers are specially/specifically designed the used along with WOEGs & is therefore to be treated as part of WOEG.

4. In view of the foregoing facts, the appellant had sought Advance Ruling on the following questions, viz:

The spec! Illy designed Transformers for Wind Operated Electricity Generator which are meant to perform dual function of Step Down and Step Up Manufactured by Suzlon and supplied to the customers of Suzlon as part of Wind Operated Electricity Generator he treated as part of Wind Operated Electricity Generator and falls under Sr. No. 234 in Scbedule-1 to Notification No. 01/2017-Central Tax (Rate) dated 28th June. Page 14 of 25 2017 read with Notification No. 1/2017- State Tax(Rate) Dated 30th June, 2017 and liable to Central GST at the rate of 2.5% a ,)ng with Gujarat State GST at the rate of 2.5% up to 30th September 2021 and 6% each towards CGST and SGST with effect from 1st October, 2021 by virtue of omission of the said entry and addition ( Entry No. 201A to Notification No. 01 /2017-Central Tax (Rate) dal, .d 28th June, 2017 vide Notification No. 08/2021-Central Tax (Rate) dated 30th September, 2021 read with Notification No. 08/2021-State Tax( Rate) dated 30th September, 2021?

5. Consequent to hearing the applicant, the Gujarat Authority for Advance Ruling GAAR], recorded the following findings viz

• that a system includes devices and not just a generator in terms of judgement in the case of Electric Photovoltaic India P Ltd;
• that WOEG however, is a generator & hence is different from wind power project/wind turbine system;
• that there is no scope to include transformer as a part of WOFG;
• that transformer is not a constituent of WOEG;
• WOEG which is a generator in itself & the use of transformer is to link the WOEGs electricity generated to the distribution grid;
• that wind mill is a powered machine to convert wind energy into mechanics energy; that if a stepdown transformer is additionally attached to a wind mill for it to function, that does not make transformer a part of Wind mill; that dual function of the transformer does not equate itself to be treated as a part and parcel of WOEG;
• that the Word used in the notification is WOEG and not wind turbine system/wind power system/wind turbine project;
• that CBIC circular dated 20.10.2015, listed parts of WOF,G, wherein transformer does not find a mention;
• that transformers connect/link WOEG to distribution network; that there is nothing on record to substantiate that transformer is an inalienable part of WOEG;
• that transformers are neither placed in nacelle nor tower but are placed on the ground beside the WOEG;
• that WOEG per se is capable of generating electricity with wind;
• that the appellant is supplying transformers directly to the recipients on principal to principal basis and not on bill to ship basis.

6. The GAAR, vide the impugned ruling dated 18.10.2021, held as follows

RULING

1. Transformers are not part of WOEG and are leviable to CGST @9% vide Sr. No. 375 of Schedule-III of Notification No. 1/2017-CT (Rate) dated 28-6-2017,

7. Aggrieved by the aforesaid advance ruling, the appellant is before us, raising the following contentions, viz

• impugned order erred in holding that in the case of Enercon India, the matter was remanded back; in-fact in the said case the I Hon’ble SC allowed the appeal while holding that transformers are vital parts of a windmill;
• the impugned order failed to look at the transformer from the angle of general principles of interpretation; that they should also be understood by their popular meaning/common parlance principle;
• that WOFG and Wind Turbine system are used interchangeably; that there is no disarmed between the two;
• the appellant never expected any ruling considering the same as a. composite supply;
• that had the transformer been placed in the Nacelle or the tower, the benefit of the notification would have been allowed;
• that though the transformer placed adjacent to the WOEC’, is doing the same function performed by Turbine step up transformer I which is usually installed in the Nacelle] but since it is placed adjoining to WOEG, it has not been considered as a part of the WOEG;
• that the transformer supplied are an inevitable component of the entire WOEG; that WOHG is of no use if the electricity generated cannot be put to use by the end customer.

8. Personal hearing in the matter was held on 15.10.2024, wherein Shri Dhruvank Parikh, CA, appeared on behalf of the appellant and reiterated the grounds of appeal.

9. We have carefully gone through and considered the appeal papers, written submissions filed by the appellant and submissions made at the time of personal hearing. the Advance Ruling given by the GAAR and other materials available on record.

10. The primary issue to be decided is whether the specially designed transformers for WOEG which perform dual function of Step Down and Step Up manufacture by the appellant and supplied to the customers as a part of WOEG he treated as part of WOEG and the rate of duty.

11. Before dwelling, on to the issue, we would like to reproduce relevant portions of circular/clarification & the exemption notification for ease of reference viz

–

–

12. The first averment which needs to be addressed is whether specially designed transformers for WOEG, which perform the dual function of step down and step up, supplied by the appellant along with WOEG, should be treated as part WOEG or otherwise. GAAR has relied on circular No. 1008/15/2015-C dated 20.10.2015, issued by CBIC consequent to seeking clarification from Ministry of New and. Renewable Energy, on the items which would constitute parts of WOEG. The GAAR has also relied on the Minutes of the Tariffs Conference, held consequent to the issue or the aforementioned clarification, wherein the same was reiterated. As is evident, transformers have not been Included as parts of WOEG by the Ministry of New and Renewable Energy and hence, the contention of the appellant that they are parts of WOEG is not a legally tenable argument.

13. The next averment is that GAAR failed to examine the transformer from the angle of general principles of interpretation & that they should be understood by their popular meaning/common parlance principle. We find that the appellant has not produced any material before us which could lead us to a conclusion that transformer in terms of their popular meaning/common parlance principle, are part of WOEG. Further, when the concerned Ministry itself has not included transformer to be a part of the WOF,G, the reliance on popular meaning, etc., is not a plausible argument.

14. The next averment of the appellant is that the GAAR erred in holding that the order in the case of Enercon India ‘Ltd, ibid, is not applicable; that the matter has not been remanded back to the assessing officer but instead the appeal stands allowed by the Hon’ble Apex Court. We have read the order dated 8.3.2016 in CA No. 1954/2006, passed by the Division Bench of the 1lon’ble Supreme Court. The matter in-fact was remanded by the first appellate authority, which was upheld by both the Hon’ble tribunal and the Hon’ble highs Court. The aforementioned order dated 8.3.2016, is passed in an appeal against the order of the Hon’ble high Court. What is forthcoming is that the dispute in the said case was whether M/s. Enercon (I) Ltd, would he eligible for exemption u/s 8 read with the 5^1h Schedule of the Karnataka Sales Tax Act. It is in this background that said orders needs to be read. The relevant portion of the order, is reproduced below for ease of reference

The high Court after taking note of the provisions of Section 8 and Entry 57 has observed that meaning of the words “Wind Mills” is not defined under the Act and, therefore, some meaning has to he assigned to the same. It has further observed that since Section 8 of the Act exempts certain categories of “goods” which are specified in the Fifty Schedule of the Act, it is only those items which qualify as goods are to he exempted. Thereafter, an endeavour is made to point out what would he the goods “idling within the expression “Wind It has held that the expression “Wind Mill” would include rotor consisting of blades, the hub assembly: nacelle; yaw .ci stem. tower and grid .synchronization 5 assembly including transformer unit for delivering the power 10 the grid net work. It is also opined shut the electrical work^. and transformers are vital parts wind mill and the wind mill cannot be put to use anti it would that be functional device without the electrical works and the transformers and. therefore, they would also be recorded as parts of wind mill. however, the high court has come to the conclusion that insofar as Inundation work etc. is concerned that would not be exempted as it does not fall within the meaning; of wind mill. It is the validity of this part of the order which calls far our attention.

Aller hearing the learned counsel for the parties. we are of the opinion that a fundamental mistake which is committed by the authorities below is that foundation

work or instillation work, which is even considered as part of works contract by the Assessing ( edifice himself, cannot he treated as “goods^... Even if we proceed on the basis that such work does not full within the expression “Wind Mill”. still it could not be traded as goods which could be exigible to sales lax under the Act. As pointed out above, the /Assessing Officer himself classified such goods involved in execution works contract. Once this was the opinion of^. the Assessing Officer and the part of work viz. foundation or erection work related to works contract. on this. ground its no sales tax could have been charged thereon. We have also pointed out above I at even the First Appellate Authority proceeded on the basis that the work like foundation work, electrical work, commissioning etc. was “series of activities and Further that it was indivisible”. On this finding us well. no further action to levy sales tax was 6 required.

[emphasis supplied]

The aforementioned order of the Hon’ble Supreme Court is on an entirely different aspect. relating to a different law and to an exemption, which incidentally is not a dispute in the present proceeding. The findings of the I ion He high Court, as quoted supra and of the Supreme Court are qua the Act and the exception in question. In view of the foregoing, the appellants averment relying on the above judgement that the specially designed transformers for WOEG, which perform dual function of step down and step up, should be trended as a part WOEG, is not legally tenable.

15. The appellant we find has relied upon many case laws to substantiate his ^–gument, some of which are as under viz

• Sonai Engineering P Ltd²
• Parry Engine ring Electronics Ltd³
• Precicast P Ltd & Western Precicast P Ltd & VTM Ltd [citation not mentioned]
• CTR Manufreturing, Industries Ltd4

These are judge rents pertaining to the Income Tax Act. A bare reading would reveal at the dispute in a majority of the cases pertained to depreciation. Depreciation not being an issue in the present appeal, we do not find the case lay\ applicable as far as the present appeal is concerned. In-fact, we would like IA substantiate our finding, by quoting the relevant extracts or the judgement of the Hon’ble Supreme Court in the case of Deepak 13ajaj I WP (Cri) No. 77/200 I, wherein it was held as follows:

7. It is well settled that a judgment of a Court is not to he read mechanically as a Euclid’s theorem nor as U^. it was a statute.

8. On the subject of precedents Lord Halsbury, L.C., said in Quinn vs. Leathern, 1901 AC 495..

“Now before discussing the case of^. Allen Vs. Hood (1898) AC 1 and what was decided therein, there are two observations of a general character which I wish to make, and one is to repeat what I have very often said before. that even’ judgment must he read as applicable to the particular facts proved or assumed to he proved. since the generality of the expressions which may he found there are not intended to be expositions of the whole law, but are governed and qualified by the particular Facts of the case in which such expressions are to he found. The other is that a case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may seem to Allow logically_. from it. Such a mode of reasoning assumes that the law is necessarily a logical Code, whereas every lawyer must acknowledge that the law is not altars logical at all.

We entirely agree with the above observations.

16. We concur with the findings of the GAAR in Kara 38.3 of the impugned ruling, so far as it states that WOFG as used in the notification no. 1/2017-CT (Rate), ibid, would not include the specially designed transformer. Even otherwise, it’s a trite law that exemption notifications are to be interpreted strictly. We substantiate this finding, by relying on the judgement of’ the Constitution Bench of the Hon’ble Supreme Court in the case of Dilip Kumar and Company [2018 (361) ELT 577 (SC)] wherein the Court held as follows viz [relevant extracts]

52. To sum up, we answer the reference holding as under –

(1) Exemption notification should he interpreted strictly; the burden of proving applicability would be on the assessee to show that his cave comes within the parameters of the exemption clause or exemption notification.

(2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of .such ambiguity cannot he claimed by the subject/s.ee and it must be interpreted in favour of the revenue.

(3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export case (supra) stands^. overruled

17. We therefore, hold that the specially designed transformers for WOFG, which perform dual function of step down and step up, supplied by the appellant is not a part of WOFG and hence it would not he eligible for the benefit of Sr. No. 234 and Sr No 201 A of exemption notification No. 1/2017- CT (Rate), as amended.

18. In view the above findings, we reject the appeal filed by appellant M/s. Suzlon Energy Ltd., against the Advance Ruling No. GUJ/GAAR/R/2022/16 dated 12.4.2022, passed by the Gujarat Authority for Advance Ruling

Notes:

¹ 2019 (21) GSTL 39(MP)

² 2014 (8) ‘Tax Corp (AT 37915 (Pune)

³Tax Appeal 604/2012 Gujarat High Court

⁴ 2016 Tax Corp (DT) 64061 (HC Bombay)