The government of India released the Goods and Services Tax (GST) schedule on May 18th, listing commodities in respective tax slabs of zero, 5 percent, 12 percent, 18 percent and 28 percent. The Tax schedule came with a statement that it will be subject to further vetting during which the list may undergo some changes.
The initial reading by the industry was that solar cells and modules were assigned an 18 percent tax rate and solar water heater systems, solar power based devices, solar power generating systems, solar lanterns and lamps come under the 5 percent rate slab (the tax rate is listed under the correct harmonized code – 8541).
But in another part of the report – all renewable energy devices and spare parts for their manufacture including – bio-gas plant, solar power based devices and solar power generating systems, wind mills and wind operated electricity generators, waste to energy plants/devices, solar lantern/solar lamps and ocean waves/tidal waves, and energy devices/plants, are listed under the 5 percent tax rate.
A source at NTPC told Mercom that there is still no clarity whether the GST is 5 percent or 18 percent. Currently the feedback session is in progress and MNRE is lobbying. The MNRE did not want to go into details except telling us that they are doing their best for the industry. However, there is an MNRE official on record saying that the issue of 5 percent or 18 percent should be clarified soon. A SECI official told Mercom that they are coming out with a detailed study regarding GST by the end of the week.
Meanwhile experts have analyzed the implications even before we know what the GST rate is. In some cases, multiple times adding to confusion.
“We will know the severity of the GST impact on solar as soon it is clarified whether the rate is 5 percent or 18 percent. The most important thing the government can do right now is clarify the rate immediately and remove uncertainty surrounding this issue. As of now, the whole industry has come to a grinding halt,” said Raj Prabhu CEO of Mercom Capital Group.
According to an official at Central Board of Excise and Customs, chapter 85 clearly shows that solar comes under 5% tax slab – it states, ‘devices and spare parts for the manufacture of’ and lists the power sources including solar. It is not practical to list each and every product part. And in a case where the same component is listed under different tax slabs, Supreme Court has ordered us to take the lowest rate. In that case, we will issue an order/revision. This is not final yet; and it will be announced by GST Council once it is finalized.
Mercom will publish a more detailed analysis as more reliable information comes out.
Updated last paragraph with comments from Central Board of Excise and Customs
Raj Prabhu is a recognized thought leader in clean energy markets where his work has influenced policies worldwide. He has a deep understanding of regulatory policy and clean energy markets and his market and opinion pieces are regularly published on both MercomIndia.com and other leading publications globally. Raj is also a regular speaker and presenter on clean energy policy and finance topics at conferences worldwide. Raj attended the KLE College of Science in Bangalore, India for physics and chemistry, and holds a Bachelor of Science Degree in Hotel and Institutional Management from Johnson and Wales University, Rhode Island. More articles from Raj Prabhu.