The Applicant undertakes Engineering, Procurement and Construction (‘EPC’) activities for Group companies as well as third parties for setup of solar power generating system where contract for commissioning of solar power generating system involves simultaneous supply of goods and services.

The Applicant has sought Advance Ruling on "Whether EPC contract for set up of solar power generating system be considered as a composite supply with PV modules being the principal supply and be taxed at a rate of 5% (i.e. tax rate applicable on the P.V. modules)?"

The Solar Power Plant is a big project and has a permanent location as it is meant for onward sale of power to the consumer. The output of the project i.e. Electricity, would be available to an identifiable segment of consumer and 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.

Further it includes civil work such as development of site, structure foundation, building cable trenches, civil work relating to invertors and control buildings, store rooms , canopies and such other civil structure and related activities as set out in Scope of work and the Technical Specifications and there is a single lump sum price for the entire contract. Hence for convenience of contractor the said EPC contract cannot be split in two separate contracts one for supply of goods and another for supply of services and taxed accordingly.

Therefore EPC Contract for the Solar Power Plant which includes engineering, design, procurement, supply, development, testing and commissioning is a “works contract” in terms of clause (119) of section 2 of the GST Act.

CRUX: The scope of work in respect of “Turnkey Composite EPC Contract” includes designing, planning civil works, procurement of good, erection, testing and commissioning. Accordingly, “Turnkey EPC Contract” is not covered under Entry 234 of Schedule 1 of the  Notification no. 1/2017 – Central Tax (Rate) and falls under the ambit “ Works Contract Services” ( SAC 9954 ) of Notification 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.