Madhya Pradesh High Court
M/S Belectric Photovoltaic India ... vs Commercial Taxes Department on 2 January, 2019
Equivalent citations: AIRONLINE 2019 MP 6
Writ Petition No.1245/2018 1
HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE
D.B: HON'BLE SHRI JUSTICE S.C. SHARMA & HON'BLE SHRI JUSTICE
VIRENDER SINGH
Writ Petition No.1245/2018
M/s Belectric Photovoltaic India Pvt. Ltd.
v/s
The Commissioner of Commercial Tax & Another
Shri P.M. Choudhary, learned senior counsel along with Shri Anand
Prabhawalkar, learned counsel for the petitioner.
Shri Umesh Gajankush, learned Deputy Advocate General for the
respondents/State.
__________________________________________________________________
ORDER
( Passed on this 2nd day of January, 2019 ) Per : S.C. Sharma, Justice:
The petitioner before this Court, a company registered under the Companies Act, 1956, has filed this present petition under Article 226 of the Constitution of India challenging validity of the order dated 25.03.2017 passed by respondent No.1/Commissioner of Commercial Tax, State of Madhya Pradesh under Section 70 of the Madhya Pradesh Value Added Tax Act, 2002, by which, the application filed by the petitioner/company seeking clarification/determination for exemption/remission on the articles used for installing "Solar Power Generating System", has been rejected.
2. It has been stated in the writ petition that the petitioner/company is engaged in the business of execution of contracts for construction and commissioning of Solar Power Plants on Engineering, Procurement and Commissioning basis for their clients. The contracts are in the nature of works contract involving Writ Petition No.1245/2018 2 supply of material and equipments required for installation and commissioning of such solar power plants, covered by the extended definition of 'sale'. The dispute in the present petition, is in respect of classification of the product 'Substation Equipments' installed by the petitioner/company under the contract with its clients Focal Energy Group of Companies as integral and inseparable part of the works contract for erecting and installing the solar power generating system.
3. The State Government has framed a policy keeping in view the need of generation of power by capturing solar energy and the policy framed on the subject is known as "Policy for Implementation of Solar Based Power Project in Madhya Pradesh"\, 2012". The policy provides various incentives to the developer of the project including exemption from value added tax/entry tax. The policy of exemption has been incorporated in Schedule-1 of the Madhya Pradesh Value Added Tax, 2002 as entry No.71. The entry No.71 reads as under:-
"(1) Flat plate solar collectors.
(2) Concentrating and pipe type solar.
(3) Solar cookers.
(4) Solar water heaters.
(5) Solar crop driers and systems.
(6) Solar air/gas/fluid heating system. (7) Solar refrigeration, cold storages and air conditioning system.
(8) Solar stills and desalination system. (9) Solar pumps based on solar thermal and solar photo- volatic conversion.
(10) Solar power generating system.
(11) Solar photo-voltaic modules and panels for water pumping and other applications.Writ Petition No.1245/2018 3
(12) Windmills and any specially designed devices which run on windmills.
13. Any special devices including electricity generators and pumps running on wind energy.
14. Bio gas engines and bio gas plant and accessories and equipments connected therewith for utilizing energy from bio gas.
15. Agricultural and municipal waste conversion devices producing energy from bio mass.
16. Equipments for utilizing ocean waves.
17. Hydrams or hydraulic ram or similar other devices using energy derived from flowing or stored up water.
19. Solar lantern and lamps."
4. It has been contended by the petitioner that keeping in view entry No.71, exemption has been granted in respect of renewable energy devices or equipments including their parts and the entire solar power generating system has to be treated as renewable energy device or equipment.
5. The petitioner has further stated that M/s Focal Energy Group of Companies has been approved by the Government of Madhya Pradesh for construction of solar power generating system at Sitamau, District - Mandsaur, who in turn, allotted the work of construction of solar power plant along with a common substation to the petitioner/company.
6. The petitioner, keeping in view entry No.71 (10) of Schedule- 1 of the Madhya Pradesh Value Added Tax Act, 2002, was under an impression that it is entitled for exemption both for devices and equipments supplied for solar power plant and also for common substation/grid. However, in order to avoid the future dispute about the scope of exemption, the petitioner preferred an application under Section 70 of the Madhya Pradesh Value Added Tax Act, Writ Petition No.1245/2018 4 2002 requesting the Commissioner of Commercial Tax, Madhya Pradesh to verify the rate of tax in respect of substation equipments supplied/installed by the petitioner during the course of execution of the works contract. However, the respondents have rejected the contention of the petitioner.
7. The order passed by the Commissioner of Commercial Tax dated 25.03.2017 reads as under:-
"vkosnudrkZ O;olkbZ EPC (Engineering, Procurement and commissioning ) Basis ij lksyj ikWoj IykUVl ds fuekZ.k ,oa deh'kfuax dk dk;Z djrs gSA vkosnd }kjk fd, tk jgs dk;Z ldeZ lafonk (Work contracts) dh Js.kh esa vkrs gS rFkk blds fu"iknu esa eVsfj;y ,oa bD;wiesaV~l dh lIyk; Hkh dh tkrh gSA vkosnd }kjk e/;izns'k osV vf/kfu;e] 2002 dh /kkjk 70 ds vUrxZr vkosnu izLrqr dj ldeZ lafonkvksa ds fu"iknu esa dh tk jgh eVsfj;y ,oa bD;wiesaV~l dh lIyk; ij osV dh ns;rk ds laca/k esa tkudkjh pkgh xbZ gSA 2- tkjh lwpuk i= ds ikyu esa Jh ih- ,e- pkS/kjh vf/koDrk ,oa Jh fodze xqIrs] lh-,- mifLFkr gq,A vius i{k ds leFkZu esa fyf[kr Li"Vhdj.k ,oa ekSf[kd rdZ izLrqr fd;s x;sA izLrqr fyf[kr Li"Vhdj.k esa fuEukuqlkj rF; fofnr fd, x, %& "The applicant has entered into EPC contracts with Focal Energy Group companies for construction and installation of solar power generation system at Sitamau in Dist. Mandsaur (MP) and has supplies various equipments and materials required for execution of the said contract under the contracts executed by and between the parties. The present application relates to determination of rate of tax on supply of certain contracts. The company is duly registered dealer under the provisions of MP VAT Act, 2002. It is well known that the Government of MP has recently announced its solar policy for encouraging establishment of solar power generation systems in MP and various projects have been approved by government. One such project relates to M/s Focal Energy Group who has entered into contracts in question with the applicant company for construction and installation of th solar power plants at site on EPC basis. The said Focal Energy Group how has won the Govt. bid for sale of solar power, as a part of requirement of bid, formed separate project companies as special purpose vehicles (SPVs) and has entered into a separate contracts with the applicant company through the SPVs. As Writ Petition No.1245/2018 5 per the technical requirements in case of solar plants, separate plants of smaller capacities are required to be set up and the power generated from such plants in required to be transmitted to one common sub station.
The applicant company submits that as stated above, the applicant company has been awarded a contact for installation of one such solar plant as also for installation of the common grid on EPC basis and accordingly the applicant company has entered into two separate contracts with Three SPVs of the Focal Energy Group, 1) with Focal Energy Solar India on Pvt. Ltd. for installation of 1 x 20MW and Globus Steel and power Pvt Ltd for installation of 1 x 20 MW Solar Power Generation System at 33 KV voltage level and 2) with Focal Energy Solar India Three Pvt Ltd. for installation and connecting it to the grid at 132KV voltage level through 33/132KV step up substation at site for evacuation of the power generated by the Solar power Plants set up by said Focal Group including the plant constructed and installed by the applicant company. Under the first contract with Focal Energy Solar India One (P) Ltd. and Globus Steel and Power Pvt. Ltd. the applicant company is required to procure and supply various equipments required for installation of solar power plants in accordance with the terms and conditions and the specifications of the contract. Similarly under the second contract with Focal Energy Solar India Three (P) Ltd., the applicant is required to precure and syupply the equipements required for setting up of the common substation / grid in accordance with the conditions and specifications of contract.
The applicant submits that the applicant has already executed the contract and has supplied various equipment to its above clients for establishment of the solar power plant along with substation as an essential requirement of the contract. Os far as the equipments for the establishment of the solar power plant is concerned there is no difficulty because supply of such equipment clearly falls in Entry No.71 of Schedule I of the MP VAT Act, 2002 which relates to 'Renewable Energy Devices or Equipments, including their parts' The said entry enumerates various renewable energy devices and equipments covered by the said entry. Item No.10 of the said Entry No.71 specifies 'Solar Power Generating Writ Petition No.1245/2018 6 System' as and item covered by said entry No.71. For the sake of convenience relevant extract of the said entry 71 is reproduced herein below -
Entry No.71 Schedule I MP VAT Act, 2002 "Renewable Energy Devices or Equipments, including their parts, that is to say -
1. ---------------,
2. ---------------,
3. ---------------,
4. ---------------,
5. ---------------,
6. ---------------,
7. ---------------,
8. ---------------,
9. ---------------,
10. Solar power generating system
11. ---------------,
12.---------------, Contention of the applicant - As stated above since the existence of a substation is an essential technical requirement of a solar power plant without which the solar energy generated by such plant cannot be put to consumer use and since in the present case as per the contract between the applicant and the client Focal Energy Solar India One (P) Ltd and Globus Steel and Power Pvt. Ltd. construction of substation, its connection of solar plant and successful transmission of power from plant to substation is an essential condition of contract. Thus in the instant case, supply of substation equipment being a part of contract for construction / installation of solar power generation plant, such equipments are also convered by exemption under item No.10 of Entry No.71 of Schedule I of the MP VAT Act, 2002."
3- vkosnd }kjk izLrqr Li"Vhdj.k dk ijh{k.k fd;k x;kA vkosnd }kjk lIyk; fd, tk jgs Substation equipments vius vki esa i`Fkd ,oa fof'k"V midj.k gSA vkosnd }kjk vius fyf[kr Li"Vhdj.k esa ;g mYysf[kr fd;k x;k gS fd bu midj.kksa dh lIyk; muds }kjk fu"ikfnr dh xbZ lafonk dh 'krZ ds vuqlkj gS blfy, bUgs e/; izns'k osV vf/kfu;e 2002 dh vuqlwph&,d dh izfof"V dzekad 71 ds rgr~ djeqDr gksuk pkfg,A ;gkW ;g mYys[kuh; gS fd fdlh Hkh oLrq ij dj dh nj dk fu/kkZj.k fu"ikfnr dh xbZ lafonk ds varxZr iznk; fd, x, ekyksa ds vk/kkj ij fd;k tkrk gSA 4- e/; izns'k osV vf/kfu;e] 2002 dh vuqlwph&,d dh izfof"V dzekad 71 bl izdkj gS %& "Renewable Energy Devices or Equipments, including their parts, that is to say -
Writ Petition No.1245/2018 7"(1) Flat plate solar collectors.
(2) Concentrating and pipe type solar.
(3) Solar cookers.
(4) Solar water heaters.
(5) Solar crop driers and systems.
(6) Solar air/gas/fluid heating system. (7) Solar refrigeration, cold storages and air conditioning system.
(8) Solar stills and desalination system. (9) Solar pumps based on solar thermal and solar photo-volatic conversion.
(10) Solar power generating system.
(11) Solar photo-voltaic modules and panels for water pumping and other applications.
(12) Windmills and any specially designed devices which run on windmills.
13. Any special devices including electricity generators and pumps running on wind energy.
14. Bio gas engines and bio gas plant and accessories and equipments connected therewith for utilizing energy from bio gas.
15. Agricultural and municipal waste conversion devices producing energy from bio mass.
16. Equipments for utilizing ocean waves.
17. Hydrams or hydraulic ram or similar other devices using energy derived from flowing or stored up water.
19. Solar lantern and lamps."
5- e/; izns'k osV vf/kfu;e] 2002 dh vuqlwph&,d dh izfof"V dzekad 71 esa mYysf[kr ekyksa ds uke Li"V gSA bl izfof"V esa mijksDrkuqlkj mYysf[kr uohdj.kh; ÅtkZ lk/ku ;k midj.k] ftlesa muds iqtsZ lfEefyr gS] dks gh djeqDr ekU; fd;k x;k gSA vkosnd }kjk lafonk ds fu"iknu esa lIyk; fd, tk jgs lc&LVs'ku midj.kksa dks bl izfof"V ds rgr~ djeqDr ugh fd;k x;k gSA 6- vr% vkosnd }kjk lafonk ds fu"iknu esa lIyk; fd, tk jgs lc&LVs'ku midj.k rFkk buds fuekZ.k esa iz;qDr gksus eky@oLrq,a djeqDr ugh gS rFkk bu ij e/; izns'k osV vf/kfu;e] 2002 dh vuqlwfp;ksa esa mYysf[kr njksa ls dj ns; gksxkA"
8. The petitioner's contention is that respondent No.1/Commissioner of Commercial Tax has erred in law and facts in passing the impugned order, as the equipments supplied by the petitioner, are part of "Solar Power Generating System" and are covered under entry No.71. The petitioner has stated that solar Writ Petition No.1245/2018 8 power generating system is incomplete without a substation or a grid and entire object of grant of exemption stands defeated on account of the order passed by the learned Commissioner.
9. The respondents have filed a detailed and exhaustive reply and an attempt has been made before this Court to justify the order passed by the learned Commissioner and it has been stated that only solar power generating system is exempted from the tax liability. The respondents have stated that tax liability has been imposed on non-exempted articles as mentioned hereunder:-
"Single Support Tripod Module Rail, C Profile, Switchyard 40 MW MP Steel Structure, Lase Machine, Oil, Cable, Grounding DC & AC, Hardware, marking page, Tripod, Printer etc."
10. As the aforesaid articles do not find place in entry No.71 of Schedule-1, they are taxable articles. The respondents have further stated that exemption is available only in respect of solar power generating system and allied non-essential machinery, part supporting non-essential equipments etc. etc. are taxable. The respondents have stated that the petitioner/company has made an attempt to include non-exemption article in the exemption category, which is not permissible, in light of the statutory provision as contained under the Madhya Pradesh Value Added Tax Act, 2002 and the exemption is only available in respect of the articles mentioned in entry No.71 of Schedule-1 of VAT Notification, 2002 and Entry Tax Notification, 1976.
11. The respondents have placed reliance upon a judgment delivered by Division Bench of Bombay High Court in the case of Commissioner of Sales Tax v/s Jayanand Khira & Co. Pvt. Ltd reported in (1975) 36 STC 242 Bombay and their contention is that in light of the aforesaid judgment, the present writ petition deserves Writ Petition No.1245/2018 9 to be dismissed.
12. Heard learned counsel for the parties at length and perused the record.
13. Undisputedly, the State Government has framed a policy to promote establishment of solar power generating system and the policy provides for exemption in the matter of payment of VAT and entry tax. The policy is known as Solar Power Based Project in Madhya Pradesh, 2012. The policy framed by the State of Madhya Pradesh has been incorporated under the Madhay Pradesh Value Added Tax Act, 2002 as entry No.71, which has already been reproduced earlier and the petitioner's contention is that the entire set up including common substation/grid for evacuation and voltage upliftment of the power generated by the solar plant is included under entriy No.71 of Schedule-1. Under the aforesaid entry at item No.10, solar power generating system finds place.
14. The moot question before this Court is whether item No.10 includes the entire set up, which constitutes solar power generating system or not. According to Oxford Dictionary, system means a set of things work together as parts of a mechanism or a interconnecting work. The power system as per the Advance Law Laxicon by P. Ramanatha Aiyar, General Editor Hon'ble Shri Justice Y. V. Chandrachud reads as under:-
""Power system" means all aspects of generation, transmission, distribution and supply of electricity and includes one or more of the following namely: -
(a) generating stations;
(b) Transmission or main transmission lines;
(c) sub-stations;
(d) tie-lines
(e) load despatch activities;
(f) mains or distribution mains;
(g) electric supply-lines;
(h) overhead lines;
(i) service lines;Writ Petition No.1245/2018 10
(j) works. [Indian Electricity Act (36 of 2003) S. 2 (50)]"
In light of the aforesaid, it can safely be gathered that the solar power generating system includes all devices or equipments, which are connected or combined together to complete the solar power generating system. If one ingredient is missing, the solar power generating system will not function.
15. The dictionary meaning of the word 'system' also finds place at page-4589 of Advance Law Lexicon by P. Ramanatha Aiyar, General Editor Hon'ble Shri Justice Y. V. Chandrachud reads as under:-
"System. "The word 'system' is defined by the Encyclopaedic Dictionary as a plan or scheme according to which things are connected or combined into a whole; an assemblage of facts or of principles and conclusions, scientifically arranged or disposed according to certain relations, so as to form a complete whole, as a system of philosophy, a system of government". etc. For the purposes of sub-heading 8471 49, the term "SYSTEM" means automatic data processing machines whose units satisfy the conditions laid in down Note 5(B) to Chapter 84 and which comprise at least a central processing unit, one input unit (for example, a keyboard or a scanner), and one output unit (for example, a visual display unit or a printer).[Customs Tariff Act (51 of 1975), I Sch, Import Tariff S. XVI, Chap. 84, Note 8, Sub-heading]"
Keeping in view the aforesaid, it can safely be concluded that solar power generating system would necessarily include a substation for evacuation and upliftment of power generated by solar power plants.
16. The Hon'ble Supreme Court in the case of CCE v/s Hewlett Packard India Sales Pvt. Ltd. reported in (2007) 11 STJ 625 has explained the meaning of word 'System' with reference to operating system of the computer and it has been held that the pre-loaded operating system recorded in the hard drive of the computer is an Writ Petition No.1245/2018 11 integral part of the computer, without which, the computer cannot open and work and has been classified as operating system under entry relating to computer itself.
17. The respondents have certainly placed reliance upon a judgment delivered in the case Commissioner of Sales Tax (supra) and the Bombay High in the aforesaid case has held as under:-
"that in order to determine whether a particular article is a component part of another article, the correct test would be to look both at the article which is said to be the component part and the completed article and then come to the conclusion whether the first article is a component part of the whole or not. If one were to look at a complete and finished product, one might find so many parts which, by being fixed or otherwise made part of the said product, would lead one into a fallacious impression that they are component parts. One must first look at the article itself and consider what its use are and whether its only use or its primary or ordinary use is as the component part of another article."
18. Even by taking into account the aforesaid judgment, this Court is of the opinion that power generating system includes all components even the grid/goods related to substation, without which, the system cannot work.
19. The policy framed by the State Government otherwise will have no meaning. The policy was framed keeping in view global warming and resultant climatic changes and all kinds of incentives have been provided for setting up of solar power based projects in the State of Madhya Pradesh. It is really unfortunate that instead of promoting such projects, all kind of hurdles are being created on the ground of technicalities, on the ground that exemption notification is not clear, as has been done in the present case. Once an exemption has been granted in the matter of Value Added Tax/Entry Tax for setting up solar power based projects, the exemption has to be given in respect of a complete project, as all the equipment used in the project are integral part of the project and even without one Writ Petition No.1245/2018 12 of the equipments, the project cannot function. Once the entry includes "Solar Power Project", all the material equipments used for the purposes of setting up power based project are certainly entitled for grant of exemption.
20. In the considered opinion of this Court, the learned Commissioner, with a total non-application of mind, has passed the impugned order, and therefore, the impugned order dated 25.03.2017 passed by the learned Commissioner deserves to be quashed and is accordingly quashed. The respondents shall grant exemption under entry No.71 (10) in respect of substation equipment/grid and all other equipments supplied by the petitioner during the course of execution of its works contract, as they form integral part of solar power generating system. Recovery, if any, on account of impugned order dated 25.03.2017 also stands quashed. The petitioner shall be entitled for all consequential benefits.
With the aforesaid, the present writ petition stands allowed. Certified copy, as per rules.
(S.C. SHARMA) (VIRENDER SINGH)
JUDGE JUDGE
Ravi
Digitally signed by Ravi Prakash
Date: 2019.01.02 17:55:27 +05'30'