GST Council Recommends 5% GST for 70% of Solar Project Cost

After waiting for months for clarity on Goods and Services Tax (GST) rates, the GST Council has now given its recommendations on solar power generating projects and other renewable energy projects. These recommendations will become law after gazette notifications.

The GST Council has recommended that where a solar power generating system (under chapter 84, 85 or 94 of the tariff) attracting 5 percent GST is supplied with services of construction, then in all such cases:

“70 percent of the gross value will be deemed as the value of supply of said goods attracting 5 percent rate and the remaining portion, 30 percent, of the aggregate value of such EPC contract will be deemed as the value of supply of taxable service attracting standard GST rate.”

Earlier, Mercom reported how contrasting state commission rulings regarding GST were creating confusion and uncertainty in the solar market. Though it was clear in law that solar power generating system will attract 5 percent GST, what created the main confusion was that solar power generating systems are procured in various contracting structures. For example, composite turn-key supply or segregated supply and services.

Commenting on the GST recommendations, a Solar Project Developers Association (SPDA) spokesperson said, “The clarification from the government has come, but the way the clarification has come, it has increased the effective rate of GST from 5 percent to 8-9 percent, which is not really favorable for the industry. The 5 percent GST rate for the solar power generating system was clear in the law. The confusion was between the composite supply and services supply.”

Answering a question on if they are going to make another representation to the MNRE and GST Council, he said, “We will take the feedback from the developers and members of the SPDA, and only after discussing internally we would be able to take a further view.”

So, will the recent recommendation will have any effect on the litigation? He answered, “The GST is a pass through in the PPA. However, many people have sought relief on the GST rate of five percent, as per the contract. The respective commissions have also given the relief considering 5 percent GST. But as the effective rate has increased to 8-9 percent now, the commission may have to add extra compensation to the developers. The future compensation will also be at a higher effective rate.”

A project developer informed Mercom, “We have just gone through the recommendations, but we are waiting for the detailed order. It will be too early to comment unless we study the order. These are only suggestions, once the order is out, we will know how the implementation will happen.”

He added, “But one thing is clear as there is no ambiguity with regard to GST rates. The recommendation has made it clear that solar power generating system and parts thereof will attract 5 percent GST and for EPC contracts, it is assumed that 70 percent of the cost will at 5 percent.”

Nitin is a staff reporter at Mercomindia.com and writes on renewable energy and related sectors. Prior to Mercom, Nitin has worked for CNN IBN, India News, Agricultural Spectrum and Bureaucracy Today. He received his bachelor’s degree in Journalism & Communication from Manipal Institute of Communication at Manipal University and Master’s degree in International Relations from Jindal School of International Affairs. More articles from Nitin Kabeer