Supply of Goods and Services for Solar Projects to Attract 18% GST_ Maharashtra

The ambiguity regarding the imposition of appropriate rate of Goods and Services Tax (GST) on various facets of the solar industry continues to plague the sector. Recently, the Maharashtra State Authority of Advanced Ruling (MSAAR) in its order contended that if an agreement for the ‘supply of goods’ extends 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.

The authority was responding to a petition filed by Fermi Solar Farms Private Ltd. The company had petitioned the state authority seeking an advanced ruling on the following matters:

  • Whether in case of separate contracts for the supply of goods and services for a solar power plant there would be separate taxability of goods as solar power generating system at 5 percent and services at 18 percent?
  • Whether parts supplied on a standalone basis (when supplied under PV modules) would also be eligible for a concessional rate of 5 percent, as parts of a solar power generation system?
  • Whether the benefit of a concessional rate of 5 percent of solar power generation system would be available to subcontractors?

The authority did not pass any observation on the last two points due to the absence of required documents.

Fermi Solar had argued that a separate contract for the supply of goods and services for a solar power plant should attract separate taxes of 18 percent and 5 percent respectively.



In response, MSAAR noted that the agreement is clear in its intention that the buyer wants to purchase the entire solar power generating system with various components and not just the components.

It also observed that the supplier’s involvement is not limited to just supplying of the equipment but extends to the engineering and design of the project as well. A separate clause in the contacts also indicates that the supplier would implement, operate, and maintain the plant.

In the light of these observations, the authority felt that the contract is not only meant for the ‘supply of goods’ but for the entire solar power generating system, as it involves the supplier to provide both goods as well as services. The nature of the payment in the agreement also helped in this decision.

Earlier this month, in another order of MSAAR, the body stated that the supply of turnkey engineering, procurement and construction (EPC) contracts for the construction of a 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. Instead the GST will be applicable at individual component rates.

“The GST issue was supposed to be resolved six months ago but solar firms are still running into hurdles. It is extremely challenging to plan a project if each state start interpreting GST rates differently. Government needs to step in and clarify solar rates once and for all,” said Raj Prabhu, CEO of Mercom Capital Group.

After much confusion, India’s GST rates for solar components were finalized last July.