Supply of Goods and Services for Solar Projects Cannot have Flat GST Rate of 5%: Karnataka

In another order aimed at reducing the ambiguities of the GST rate implementation on solar projects, the Authority of Advance Ruling (AAR) in Karnataka concluded that a turnkey engineering, procurement & construction (EPC) contract for the construction of solar power project in which both goods and services are supplied cannot be interpreted as a composite (a mix of components which make up a solar project) supply contract. Therefore, the supply of each component in a ‘Solar Power Generating System’ cannot have a flat tax rate of 5 percent GST.

The AAR branch of Karnataka responded to a petition filed by Giriraj Renewables. The company had petitioned the state authority to seek an advanced ruling on whether a turnkey EPC contract for construction of a solar project could be interpreted as a composite supply in terms of Central Goods and Services Tax (CGST).

In a similar petition filed by Giriraj Renewables, the Maharashtra State Authority of Advanced Ruling (AAR)  passed an order clarifying that GST will be applicable at individual component rates.

The authority viewed that a major component of solar power plants, Photovoltaic (PV) modules, constitutes 70 percent of the cost of the entire project and is imported and directly transferred to the owner. In this case, the legal title of the goods rests with the owner and not the applicant, Giriraj Renewables.


It observed that the bill of entry to clear imported PV modules from the customs area is also filed by the owner. Hence, it is the owner who has procured the goods and given it to the applicant. However, this finding does not match the applicant’s claim that it supplied the goods.

Giriraj Renewables had also asked the authority if the concessional rate of 5 percent of solar power generation system and parts could be made available to sub-contractors.

In response, the authority (AAR branch in Karnataka) ruled that the rate of GST will depend on the supply type as the sub-contractor is an individual supplier and cannot avail any GST concessional rate.

The ambiguity in the GST rate on various facets of the solar industry continues to plague the sector, especially in the face of various orders passed by different state authorities. Recently, Maharashtra State Authority of Advanced Ruling in another order contended that if an agreement for the ‘supply of goods’ extends the Advanced Ruling to other aspects of a solar power project, such as design and operations, then the rate of tax would be 18 percent under the IGST Act.