Facts: M/s. Giriraj Renewables Private Ltd is engaged in the business of supply and end to end setting up Solar Power Generating Systems. The appellant is a contractor and enters into contracts with various Developers who desire to set up and operate Solar Photovoltaic Plants for supply of power generated. In certain cases, the appellant is also the Project Developer wherein it is engaged in operation of renewable energy power plant projects.The contract entered into by the Appellant includes end to end activities i.e. supply of various goods and services intended for setting up, operation and maintenance of a Solar Power Plant. 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.
After detailed examination of the draft contract, the Karnataka Authority for Advance Ruling vide Advance Ruling No. KAR ADRG 01/2018 dated 21.03.2018 held that since the major component (PV Module) said to have been constituting 70% of the whole project is imported and directly transferred to the owner by way of high seas sales cannot be construed to be supplied by the appellant and hence it cannot be construed to be a principal supply of the project. Further the concept of natural bundling does not apply to the present case and thereby cannot be a composite supply. As regards the supply made by sub-contractor, it was held that the same need to be viewed as an individual supply and thereby the appropriate rate of GST has to be applied depending on the specific nature of supply.
Issues Involved: Being aggrieved by the ruling of the AAR, Karnataka, the appellant filed an appeal to the Appellate Authority of Advance Ruling, Karnataka to determine:
- Whether supply of turnkey Engineering, Procurement & Construction (EPC) Contract for construction of a solar power plant wherein both goods and services are supplied can be construed to be a composite supply in terms of Section 2(30) of the CGST Act, 2017?
- If yes, whether the principal supply in such case can be said to be of “Solar Power Generating System”, which is taxable at 5% GST?
- Whether, benefit or concessional rate of 5% on Solar Power Generation System and parts thereof would also be available to sub-contractors.
Held: The Hon’ble AAAR of Karnataka vide Order No.AR/AAAR/02/2018-19 dated September 5, 2018 broadly upheld the findings of AAR to held that:
- The supply of the PV module which is the major component of the Solar Power Plant is not naturally bundled with the supply of the remaining components & parts of the Solar Power Plant and the supply of the services of Erection, Installation and Commissioning of the Solar Power Plant.
- The supply of PV module is a distinct transaction from the supplies in contract in question as it is the owner whose responsibility it is to procure and supply the PV module. This PV module is to be supplied as free issue material over and above the plant being supplied by the contractor. The owner is responsible for transportation of the PV module from the point of origin till plant site and he bears the other risks and rewards of ownership. The PV module which is procured by the Project owner on High Sea Sale basis and imported by availing Customs duty exemptions and later supplied to the Appellant as a free issue for use in the setting up of the Solar Power Plant.
However, the Hon’ble AAAR also held that the supply of the remaining portion of the contract in question by the Appellant which involves the supply of the balance components and parts of the Solar Power Plant and the supply of services of Erection, Installation and Commissioning of the Solar Power Plant is viewed as a composite supply as the supply of goods and services are naturally bundled. Thus, the tax liability on this portion of the contract in question (other than PV module) which is termed as a composite supply will be determined in terms of Section 8 of the CGST Act, 2017 wherein the rate applicable to the dominant nature of the supply will prevail.
Citation: [2018] 97 taxmann.com 510 (AAAR-KARNATAKA)