In re RFE Solar Private Limited (GST AAAR Rajasthan)
AAAR held that Turnkey EPC contract is a ‘composite supply’ under section 2(30) of the CGST Act, 2017.The said composite supply falls within the definition of Works contract under section 2(119) of the CGST Act, 2017 (SAC9954) and attracts 18% rate of tax (either 9% each under CGST Act and RGST Act or 18% under IGST Act)
Also Read AAR Ruling- 18% GST on EPC Contract of solar power plant treated as ‘Works contract’
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING, RAJASTHAN
1. At the outset, it is made clear that the provisions of both the CGST Act, 2017 and the RGST Act, 2017 are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the RGST Act.
2. The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Rajasthan Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and RGST Act”] by RFE Solar Private Limited , (herein after also referred to as the “Appellant”) against the Advance Ruling No. RAJ/AAR/2018-19/08 Dt. 1.8.2018.
3. Brief Facts of the case
3.1. Appellant undertakes itself in executing ‘ Engineering Procurement, and Commissioning’ – EPC contracts for Solar Power Generating Systems commonly known as ‘ Solar Power Plants’ .
3.2. Typically a contract is entered into by the Appellant to do end to end setting up of a solar power plant which includes supply of various goods (such as modules, structures, inverter transformer etc.) as well as complete design, engineering and transportation, unloading, storage and site handling, installation and commissioning of all equipments and material, complete project management as well as civil works/construction related services for setting up of a functional Solar Power Plant.
Accordingly, the contract entered into by the Appellant includes end to end activities i.e. supply of various goods and services and hence is for the supply of Solar Power Generating System.
3.3. The intent of the contract is that the entire contract would be undertaken by the Appellant for supply and setting up of the Solar Power Plant which includes supply of both goods and services as well as setting up of transmission lines for transmission of the electricity generated up to the storage or the GRID.
3.4. There may be a single lump sum price for the entire contract for supply of both goods and services and payment terms may be defined depending on agreed milestones.
3.5. The Appellant filed an application for Advance Ruling seeking clarification basis draft contracts of the Appellant, in view of the provisions of ‘composite supply’ and the rate of tax provided for ‘Solar Power Generating System’ (hereinafter referred as ‘SPGS’) under GST, the Appellant sought clarification in respect of the following :
(I) Whether contract for Erection, Procurement and Commissioning of Solar Power Plant shall be classifiable as Supply of Goods or Supply of Services under the provisions of the Central Goods and Services Tax Act, 2017 and Rajasthan State Goods and Service Tax Act,2017.
(II) If it is supply of Goods, then what will be its HSN classification and rate of tax in terms of the Notification No. 1/2017 – Central Tax (Rate) Dt. 28.6.2017.
(III) If it is supply of Services, then what will be its HSN classification and rate of tax in terms of the Notification No.11/2017 -Central Tax (Rate) Dt. 28.6.2017.
3.6. The Authority for Advance Ruling, Rajasthan (hereinafter also referred to as ‘the AAR’ ) vide Advance Ruling No. RAJ/AAR/2018-19/08 Dt. 1.7.2018 passed the following order :
3.6.1. As per the statement of facts submitted by the applicant, the scope of work in respect of “Turnkey EPC Contract” includes civil works, procurement of goods and erection and commissioning. Accordingly, “Turnkey EPC Contract” are not getting covered under supply of ‘Solar Power Generating System’ under Entry 234 of Schedule I of the Notification no. 1/2017 – Integrated Tax (Rate), Entry 234 of Schedule I of the Notification no. 1/2017 – Central Tax (Rate) both dated 28 June, 2017 and Entry 234 of Schedule I of the Notification no 1/2017 – State Tax (Rate) dated 29 June, 2017. EPC Contract for Solar Power plant comes under the purview of Works Contract as per Section 2(119) of GST Act.
3.6.2. The contract for Erection. Procurement and Commissioning of Solar Power Plant falls under the ambit ” Works Contract Services” ( SAC 9954 ) of Notification no. 11/2017 Central Tax (Rate) dated 28 June, 2017 and attracts 18% rate of tax under IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%.
4. GROUNDS OF APPEAL :
4.1 SUPPLY OF GOODS
As per terms of the contract and definition of Composite and Mixed supply, the given work requires classification as composite supply only. Since the contract is in relation to Solar Plant (supply and installation) they are bundled in ordinary course of business. The term “goods” has been defined under section 2(52) as “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
The term “services” has been defined under section 2(102) “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.
Further, section 7(1 )(d) of the CGST Act 2017 provides for the activities which shall be treated as either supply of goods or supply of services in accordance with Schedule II of the Act.
The Point No. 6 of the Schedule II reads as under:
The following composite supplies shall be treated as a supply of services, namely:- (a) works contract as defined in clause (119) of section 2.
The term Works Contract has been defined under Section 2(119) as
(119) “Works Contract” means a contract for building, construction, fabrication, completion, erection, installation fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.
As per Section 2(30) Composite Supply is defined as
(30) “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;
Further Principal Supply is defined under Section 2(90) as
(90) “principal supply” means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary;
The term Mixed Supply is defined under Section 2(74) as
(74) “mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.
For determination whether the Principal Supply is of goods or service, the concept of Works Contract can be explored first. Works Contract in itself is a composite supply in which construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning etc. are involved along with transfer of property in goods.
However under GST, there is a monumental shift in concept of Works Contract which was prevalent under erstwhile VAT and Service Tax regime. In GST, as per definition of works contract service if construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning is for immovable property’ only, then it will classify as works contract only. Hence it means that aforesaid activities if they are undertaken for a movable property then it will not be works contract service.
That in the typical Erection and Supply of Solar Power Generating System, which is also proposed to be undertaken here , the process which is followed by the appellant is as under:-
