RAJASTHAN AUTHORITY FOR ADVANCE RULING

GOODS AND SERVICES TAX

KAR BHAWAN, AMBEDKAR CIRCLE, NEAR

RAJASTHAN HIGH COURT

JAIPUR - 302005 (RAJASTHAN)

Note: Under Section 100 of the CGST/RGST Act, 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act, 2017, within a period of 30 days from the date of service of this order.

> At the outset, we would like to make it clear that the provisions of both the CGST Act and the RGST Act 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 provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / RGST Act would be mentioned as being under the "GST Act".

> The issue raised by M/s Zuberi Engineering Company, 204-206, Anukampa, First Floor, MI Road, Ajmeri Gate, Jaipur-302001, Rajasthan - (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (a) given as under:-

a. Classification of goods and / or services or both

> Further, the applicant being a registered person (GSTIN is 08AAAFZ2103K1ZA as per the declaration given by him in Form ARA-01) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority. Based on the above observations, the applicant is admitted to pronounce advance ruling.

A. SUBMISSION AND INTERPRETATION OF THE APPLICANT:

1. M/s Zuberi Engineering Company (hereinafter referred to as "applicant"), having its registered address as Anukampa 1st, M.I. Road Jaipur is a partnership firm engaged in undertaking multidisciplinary projects on turnkey basis for Power Plants, Industrial Plants, Cement Industries, Fertilizer Industries, Mining Industries, Steel Pl ants & Oil Refineries.

2. That the applicant is registered under GST as per the provisions of the GST laws bearing GSTIN 08AAAFZ2103K1ZA in the state of Rajasthan.

3. That the applicant has to undertake a supply in respect of a tender floated by Water Resources Department, a unit of Government of Rajasthan for Survey, Investigation, designing & detail Planning, including Land acquisition (Private and Forest) process for pressurized Irrigation (Sprinkler System) including Construction of Intake well, Pump House, Panel Room and Supply, Erecting/Laying, Testing Commissioning Submerge V.T. Pumps, Rising Mains, Distribution network of Pipe Line at Chaks, O&M for Eight years including installation of Solar Power unit of 5x100 KW capacity, EPC contract on turnkey basis.

(There are three volumes of the tender document and copies of all three volumes of the Tender document issued by Water Resources Department are enclosed and marked as Annexure-3, 4 and 5 respectively.)

4. That the tender document is clear on the levy of taxes/duties that the Contractor shall be responsible for payment of all Taxes/Duties/Levies etc. The contractor's prices are deemed to be inclusive of all such all taxes/duties/levies etc. Hence, it is important for the applicant to understand their liability of GST in relation to the said activity.

5. That the Solar power unit to be constructed in the EPC contract is required for power supply for running the pressurized Irrigation Sprinkler system and it is mandatorily required to have a sufficient capacity to run the complete irrigation system.

6. That this Advance Ruling is sought from the Authority for Advance Ruling in respect of the following question:

Considering the construction and installation of solar power unit as a part of the EPC contract and the fact that the irrigation system has to be operated on solar power, what will be the rate of tax applicable on supply of goods and services involved in the whole contract to be undertaken on turnkey basis?

7. According to Section 7 of Central Goods and Services Tax Act, 2017 7. (1) For the purposes of this Act, the expression "supply" includes,-

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

8. The term "goods" has been defined under section 2(52) as

(52) "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;

9. The term "services" has been defined under section 2(102) as

(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;

10. According to Section 9 of the Central Goods and Services Tax Act 2017 which is charging section for GST

9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.

11. The GST rates on goods have been notified by the Government in Notification No. 01/2017 - Central Tax (Rate) dated 28.06.2017 which has been amended by various notifications and the extract of the said notification amended till 21.02.2020 relevant for the present issue is reproduced as under:

12. Similarly, the GST rates on services have been notified by the Government in Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 which has been amended by various notifications and the relevant extract of the said notification (as amended up to 22.11.2019) for the present issue is reproduced as under:

13. On a conjunctive reading and analysis of above entries in Tariff Schedule of goods and services, the rate of GST on a supply involving goods falling under Entry 234 of Goods Tariff Schedule and services falling under Entry 38 of Services Tariff Notification comes to 8.9% of the gross consideration, being arrived as under:

> (5% of 70% of gross consideration + 18% of 30% of gross consideration) = 8.9% of gross consideration

FACTS AND APPLICATION OF PROVISIONS IN APPLICANT'S CASE

1. In order to derive the classification of the supply to be undertaken by the applicant, primarily the nature of activity to be undertaken by the applicant needs to be understood.

2. A clause of PROJECT PROFILE /INTRODUCTION TO PROJECT is given in Volume-I (TECHNICAL BID) of Tender Document from where extract of Introduction to Project is reproduced as under:

Introduction and History

Ambapura Lift Irrigation Project is proposed in Mahi dam submergence area near village Padla of Banswara District. The water lift from Mahi dam reservoir for irrigation purpose in the command area by sprinkle system.

3. That according to the scope of works under the contract, the applicant has to develop a pressurized irrigation sprinkler system on turnkey basis to be operated on Solar power which includes the following activities to be carried out:

> Survey and Investigation

> Land acquisition (Private and Forest)

> Designing and Detailed planning

> Construction of Intake well, Pump House and Panel room

> Erecting/Laying, Testing, Commissioning of Submerge V.T. Pumps, Rising Mains, Distribution network of Pipe Line

> Installation of Solar Power unit of 5x100 KW capacity

> O&M for Eight years

4. A detailed scope of work is given in Tender Document VOLUME-I (TECHNICAL BID) wherein parameters for every activity covered in the contract have been iterated. In Para 1.5 of Scope of Work in the above document, titled as 'Electrical Facility' it is clearly mentioned as under: 'The cost of installation of solar power system for the lift scheme shall also be borne by the contractor and the solar system should be capable to run the complete system.9

5. Further, under VOLUME-II (Financial - Bid) of Tender Document, GENERAL AND TECHNICAL SPECIFICATION FOR SOLAR POWER PLANT have categorically been detailed. Extract of the said clause is reproduced here for understanding:

INTRODUCTION

Broad Scope Includes Supply, Design, Engineering, Manufacture, Procurement of equipment and materials; testing at manufacturers works; inspection, packing and forwarding; unloading at site; associated civil works, services, permits, installation and incidentals, insurance at all stages; erection, testing and commissioning of PV/mono based solar power plant to feed the power.

SYSTEM PHILOSOPHY

The stabilized power output of the complete power plant shall be as per the power requirement of complete system. Bidder shall design the power requirement during the design stage. The rates shall be quoted in the per MW form. Therefore, the designed solar power plant shall linearly pay in proportion to rate quoted by the bidder. The solar power generation system is required to generate approximately 25,60,000 kWh per year/MW capacity of plant of solar power plant during entire operation period of 5 years, irrespective of site and weather conditions. The bidder shall design the major components and subsystems as per MNRE guidelines and other standards.

As the solar power can be produced during 8 hours a day and power will be required during all 24 hours, employer need to enter in power wheeling and banking agreement with DISCOM for uninterrupted supply and banking of surplus and deficient power.

6. On the basis of meticulous reading of the complete Tender document and focusing the relevant clauses as highlighted above, it is understood that the broad scope of work includes construction of a sprinkler irrigation system including supply of materials to be operated on solar power generated by a Solar Power Generating System to be constructed and commissioned as part of the EPC contract.

7. Now, moving on to the classification of said supply involving supply of goods as well as services, firstly the relevant Tariff item of the goods should be recognized.

8. As per the understanding of the applicant, the HSN Code of the irrigation sprinkler system should be 8424 falling under the below highlighted entry of Chapter 84 as specified in the First Schedule to the Customs Tariff Act, 1975 which has to be referred as Tariff Item for GST Tariff Schedule as per Explanation provided therein:

9. Thus, all the materials to be supplied by the applicant like Submerge V.T. Pumps, Rising Mains or material for Distribution network of Pipe Line are the goods to be supplied by the applicant which are parts for manufacture of irrigation sprinkler system classifiable under Chapter 84.

10. As per detailed discussion above, the said system is required to be completely operated by solar power to be generated by the Solar Power Unit to installed by the applicant at site and hence it is a 'solar power based device'.

11. Hence, the relevant entry for supply of goods in the contract in Goods Tariff Schedule under GST is Entry 234 which reads as under:

Explanation: If the goods specified in this entry are supplied, by a supplier, along with supplies of other goods and services, one of which being a taxable service specified in the entry at S. No. 38 of the Table mentioned in the notification No. 11/2017-Central Tax (Rate), dated 28th June, 2017 [G.S.R. 690(E)], the value of supply of goods for the purposes of this entry shall be deemed as seventy per cent, of the gross consideration charged for all such supplies, and the remaining thirty per cent, of the gross consideration charged shall be deemed as value of the said taxable service.

12. Now, the services of construction, erection and commissioning for setting up of the solar power based irrigation sprinkler system are also required to be undertaken by the applicant as part of same EPC contract. The classification of the said service is primarily under HSN 9954 under the below reproduced entry of Scheme of Classification of Services under GST:

13. Further, HSN 9954 is covered under Entry 38 of Notification 11/2017-CT (Rate) where the relevant entry for construction services in relation to solar power based devices is notified being taxable at the rate of 18% and the relevant extract of the said entry is as under:

Explanation: - This entry shall be read in conjunction with serial number 234 of Schedule I of the notification No. 1/2017- Central Tax (Rate), published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) dated 28th June, 2017 vide GSR number 673(E) dated 28th June, 2017.

14. The services of construction and installation to be provided by the applicant in respect of setting up of lift irrigation sprinkler system based on solar power are clearly classifiable under the above entry.

15. Now, once it is concluded that goods to be supplied by the applicant are classifiable under Entry 234 of GST Goods Tariff Schedule and service to be supplied under Entry 38 of the service notification and both are required to be supplied along with each other as part of an EPC contract, both the entries have to be read and applied in conjunction with each other as provided in the Explanation to both the entries.

16. Thus, as per the Explanation in Entry 234 of Goods tariff, value of supply of goods under the contract shall be deemed as 70% of the gross consideration charged for all such supplies, and the remaining 30% of the gross consideration charged shall be deemed as value of the said taxable service.

17. The 70% portion being value of supply of goods should be taxable at the rate of 5% and the 30% value deemed as value of supply of service should be taxable at the rate of 18%.

18. Hence, as per the understanding of the applicant, the supply to be undertaken by the applicant should be classifiable under Entry 234 of Notification No. 1/2017 - CT (Rate) dated 28.06.2017 read with Entry 38 of Notification No. 11/2017 - CT (Rate) dated 28.06.2017 both amended till date and accordingly the goods portion should be taxed at the rate of 5% and services at the rate of 18% as per the Explanation in these entries.

B. QUESTIONS ON WHICH THE ADVANCE RULING IS SOUGHT

1. Considering the construction and installation of solar power unit as a part of the EPC contract and the fact that the irrigation system has to be operated on solar power, what will be the rate of tax applicable on supply of goods and services involved in the whole contract to be undertaken on turnkey basis?

C. PERSONAL HEARING

In the matter personal hearing was held on 17.08.2020 through video conference and on 04/02/2021 at Room no. 2.11 NCRB, Statue Circle, Jaipur. Shri Yash Dhadda (Authorized Representative) of applicant appeared for personal hearing. During the personal hearing, he reiterated the submissions already made in the application. He further requested that the case may be decided at the earliest.

D. COMMENTS OF THE JURISDICTIONAL OFFICER:

Comments received from the Assistant Commissioner, CGST, Division - I, Jaipur vide letter dated 13.08.2020 are reproduced as under: -

1. The M/s Zuberi Engineering Company i.e. the applicant has to undertake an EPC on turnkey basis in respect of a tender floated by water resource department, a unit of Govt, of Raj. For pressurized irrigation (Sprinkler System) including Construction of Intake well, pump house, panel room and supply, erecting/laying, testing commissioning submerge V.T. Pumps, rising mains, distribution network of pipeline at Chaks, O and M for eight years including installation of solar power unit of 5*100 KW capacity, EPC contract on turnkey basis, as mentioned by the applicant in their form GST ARA-01 dated 13.05.2020.

2. The applicant has sought advance ruling on classification of any Goods or Services or both through their GST ARA-01 dated 13.05.2020.

The GST rate on goods have been notified by the Govt, in notification no. 01/2017-Central Tax(Rate) dated 28.06.2017 which has been amended by various Notifications, wherein it has been described as follows: -

Sl.No.-234

Chapter-84, 85 or 94

Description- Following renewable energy devices and part for their manufacture:-

a) Bio gas plant

b) Solar power based devices

c) Solar power generating system Etc.

Explanation if the goods specified in this entry are supplied, by a supplier, along with supplies of other goods and services, one of which being a taxable service specified in the entry at SI. No. 38, of the Table mentioned in the notification No. 11/2017-Central Tax(Rate), dated 28th June, 2017 [ G.S. R. 690(E)], the value of supply of goods for the purpose of this entry shall be deemed as seventy percent, of the gross consideration charged for all such supplies, and the remaining thirty percent, of the gross consideration charged shall be deemed as value of the said taxable service.

3. Similarly, the GST rate on goods have been notified by the Govt, in notification no. 11/2017-Central Tax(Rate) dated 28.06.2017 which has been amended by various Notifications, wherein it has been described as follows: -

SI. No.-38

Chapter-9954 or 9983

Description- Service by way of construction or engineering or installation or other technical services, provided in relation of setting up of following:-

a) Bio gas plant

b) Solar power based devices

c) Solar power generating system Etc.

Explanation: - This entry shall be read in conjunction with serial number 234 of Schedule I of the notification no. 01/2017 -Central Tax(Rate), published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-Section (i) dated 28th June, 2017 vide GSR number 673(E) dated 28th June, 2017.

4. Further, it is submitted that if the Services of construction and installation to be provided by the applicant in respect of the above project based on solar power if correctly matched and classified by the above stated entries as produced by the applicant then the GST ARA-01 dated 13.05.2020 may be accepted but subject to the compliance of all the procedures followed by them in accordance of GST Law.

5. Further the party has applied for advance ruling under section 97(2) of the CGST Act '2017 which specifies the issues for which an advance ruling can be sought. The party has sought for determination of the liability to pay tax on any goods & services as per section 97(2) of the CGST Act '2017.

In this connection, it is pertinent to mention here that, the project of instant case falls under Notification No. 11/2017 dated 28.06.2017 which specifies the levy of rate of duty on goods as well as services. This notification is totally applicable for the goods/services covered under chapter-84, 85 or 94 & there is no ambiguity on the levy of taxes.

Therefore, this application is not fit for consideration under the advance ruling. It is also submitted that Turnkey project are always changeable during project period so this office cannot comment on the applicability of rate of levy of taxes, of the project contract as submitted by the party.

E. FINDINGS, ANALYSIS & CONCLUSION:

1. We have considered the submissions in their application and also during personal hearing made by the applicant. We have also gone through the tender document issued by Water Resources Department of Government of Rajasthan for awarding EPC contract for pressurized Irrigation (Sprinkler System) including Construction of Intake well, Pump House, Panel Room and Supply, Erecting/Laying, Testing Commissioning Submerge V. T. Pumps, Rising Mains, Distribution network of Pipe Line at Chaks, O & M for Eight years including installation of Solar Power unit of 5x100 KW capacity, EPC contract on turnkey.

2. The applicant has contended that the lift irrigation project is required to be completely operated by Solar Power to be generated by the Solar power unit to be installed by the applicant at site and hence, it is a "Solar power based device" and falls under S.No. 234 of Schedule I of Notification No.01/2017-Central Tax(Rate) dated 28.06.2017 as inserted vide Notification No. 24/202018-Central Tax (Rate) dated 31.12.2018 and S.No. 38 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as inserted vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018. According to the explanation to the said S.No. the project should be taxable @ 5% on Goods portion and 18% on Service portion. The relevant portions of the said notifications (as amended) are reproduced below: -

3. Now the question arises whether the supply to be made by the appellant would be covered under the term "Solar power devices" or otherwise. Solar power device has not been defined under GST law.

A device means an object, the Oxford dictionary defines 'device' as 'an object or a piece of equipment that has been designed to do a particular job:

Further, Solar power device means: - Device which uses solar energy directly as heat or convert it into electricity, i.e. solar cooker, solar lamp, solar dryer etc.

Whereas, as per tender documents floated by water resources Department Government of Rajasthan the applicant has to undertake a Supply of a complete irrigation Project starting from survey, investigation designing & details planning including land acquisition (private & forest) for Ambapura lift irrigation scheme for pressurized Irrigation (Sprinkler System) including Construction of Intake well, Pump House, Panel Room and Supply, Erecting/Laying, Testing Commissioning Submerge V. T. Pumps, Rising Mains, Distribution network of Pipe Line at Chaks. O & M for eight year including installation of Solar power unit of 5*100 KV EPC contract on turnkey basis.

From the above, it is clear that the applicant is neither manufacturing renewable energy devices & parts thereof nor providing Service by way of construction or engineering or installation or other technical services in relation of setting up of renewable energy. The tender is for supply of the lift irrigation project as a whole and not only for solar power generating system. The applicant will be undertaking the construction of a lift irrigation project for irrigation (Sprinkler system) in various villages of Banswara district, where solar power would be used only for power, which is a small fraction of the whole project. Whereas the applicant has claimed that the whole project system is a "solar power device" which is incorrect and contrary to their own contention made in their application. The applicant has categorically admitted in their application that the construction and installation of solar power unit is a part of the EPC contract and the irrigation system is to be operated on solar power. Thus Solar power unit is a part which functions for 'power generation' only. The whole irrigation project cannot be called as a "Solar Power device". From the definition of the Solar power device & the nature of work to be undertaken by the applicant, it cannot be classified as solar power device, resultantly would not be covered under the entry 234 of Schedule I of the notification No. 1/2017 & entry no. 38 of Notification No. 11/2017 -Central Tax (Rate) dated 28.06.2017.

4. As per the tender documents, the contractor has to complete the task of setting up of entire Irrigation Project broadly ranging from Survey, investigation designing, planning, land acquisition, construction of intake wells, Pump House, Panel Room and Supply, Erecting/Laying, Testing Commissioning Submerge V. T. Pumps, Rising Mains, Distribution network of Pipe Line at Chaks. O & M for eight year including installation of Solar power unit of 5*100 KV EPC contract on turnkey basis.

Thus, the tender is primarily for setting up of the sprinkler system based irrigation Project as a whole, various goods and services are involved in setting of the project. The contractor has to start from the scratch and bring into existence a fully operational irrigation project. The execution of the project would also involve the transfer of property in goods.

5. In light of these fact, we examine the definition of work contract as provided under Section 2(119) of the CGST Act 2017 which reads as under: -

(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;

The tender is for the engineering, procurement and commissioning of the sprinkler system based irrigation project including the installation of Solar Power units and what would be transferred is the entire irrigation project including the Civil work and land involved in project. Private and forest land would be acquired, civil structure would be created and various equipment would be installed.

The said project cannot be shifted anywhere, it is essentially of the nature of immovable property. The project after completion at the time of transfer will be an immovable property. Further the maintenance and other related service are also part of the tender documents and involve the project as a whole. It is thus, we are of the considered view that the work specified in the tender documents qualifies as "work contract" and will be taxed accordingly.

6. According to Section 8 of Central Goods and Services Tax Act, 2017, 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).......................

7. As per Section 2(30) composite supply is defined as,-

"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;

8. Further principal supply is defined under Section 2(90) as,-

"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;

9. Further, as per Para 6 of Schedule-II

Composite supply: -

The following composite supplies shall be treated as a supply of services, namely:-

(a) works contract as defined in clause (119) of section 2;

10. However, since composite supply of works contract has been explicitly classified as supply of service under Schedule II, the concept of works contract follows that: -

a. 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 or property in goods.

b. Under 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 be classified as works contract.

11. Further, we observe that the activity proposed to be undertaken is a composite supply of works contract, the rate of tax in given service shall be determined in accordance with the Notification No 11/2017-CT (Rate) dated 28.06.2017, as amended from time to time.

The relevant portion of the S. No. 3(Heading 9954) (iii) of the Notification No 11/2017-CT (Rate) dated 28.06.2017 (as amended) is as under: -

12. It is therefore, we find that as per tender document the setting up the irrigation project including Construction of Intake well, Pump House, Panel Room and Supply, Erecting/Laying, Testing Commissioning Submerge V.T. Pumps, Rising Mains, Distribution network of Pipe Line at Chaks, O&M for Eight years including installation of Solar Power unit of 5x100 KW capacity, EPC contract on turnkey basis by the applicant is a Works Contract of Composite Supply. This composite supply is a mixed of goods and services. Since this supply is undertaken for a Water Resources Department, a unit of Government of Rajasthan, hence shall attract GST @12% (6% CGST and 6% SGST) under S. No. 3 (Heading 9954) (iii) of Notification No. 11/2017, dated 28.06.2017.

13. Based on above discussion and finding we rule as under: -

RULING

The activities of supply, design, installation, commissioning of irrigation project as per tender document floated by Water Resources Department, a unit of Government of Rajasthan shall attract GST @12% (6% CGST and 6% SGST).