AAR : Solar Power Plant involves element of 'permanency'; EPC agreement taxable as "works contract"

Maharashtra AAR holds that turnkey Engineering, Procurement and Construction contract for setting up of solar power plant, would constitute a “works contract” in terms of Section 2(119) of CGST / MGST Act; Rejects applicant’s stand that such transaction should be treated as “composite supply” u/s 2(30) of CGST Act, inasmuch as supply of Solar Power Plant does not result into transfer of an “immovable property”; To understand the meaning of the term “immovable property”, AAR refers to SC judgments in T.T.G. Industries Ltd. & Solid and Correct Engineering Works as well as Bombay HC ruling in Bharti Airtel Ltd. and states, “The principles laid down in the judgments…stand good under all statutes unlessany specific definition is available under statute…”; Analyzing the agreement in present case, AAR finds that the owner expects the contractor i.e. the applicant to perform all activities from engineering, design to procurement of materials and also perform the testing and commissioning, and “the liability of the contractor doesn’t end with the procuring of materials but extends till the successful testing and commissioning of the system”; Observes, said contract is to develop a 60 MWAC / 81 MWDC solar power plant for onward sale of power to its customers, therefore such output supply would involve an element of permanency for which it would not be possible and prudent to shift base from time to time or locate the plant elsewhere at frequent intervals; AAR also refers inter alia to definitions of “Commissioning”, “Government Order”, “Grid” and “Grid Substation” along with ‘Obligations of Contractor’ clause to remark, “After having established and commissioned such a Project which is connected to a Grid Substation, who would be taking the Project to a different location. It would be farfetched an argument that the Project could be shifted to a different location just to prove that the Project is movable”; Resultantly, observes that since “works contracts” u/s 2(119) are deemed to be supply of services, the transaction in instant case would constitute supply of “services” falling in Entry at Sr. No. 3(ii) [Heading 9954 (Construction Services)]; Accordingly, there arises no occasion to visit the entries prescribing tax rates for ‘goods’ and there would be no relevance of “principal supply”, observes AAR; As regards liability of sub-contractors, AAR notes that they either supply goods, viz. renewable energy products and parts thereof to the contractor or engage in providing certain portion of contract, but in the absence of documents to establish that transaction is supply of ‘goods’, refuses to delve into said question : Maharashtra AAR