The Authority of Advance Ruling (AAR) for the state of Uttarakhand has ruled that the supply of solar inverter, controller, battery, and solar panels fall under the definition of ‘solar power generating system’ and therefore the applicable rate of Goods and Services Tax (GST) on supply of these items will be five percent and treated as ‘composite supply’.
The AAR branch of Uttarakhand was responding to a petition filed by Eapro Global Limited based in Roorkee.
Appellate authorities across states have been consistent in defining what constitutes a ‘solar power generating system’. According to the tribunal, the items which are used in connection with the generation of power from sunlight are covered under serial number 234 of schedule- I of the notification no 01/2017-Central tax and the applicable rate on such supply will be five percent.
Recently, the Maharashtra State Authority of Advanced Ruling (MSAAR) in a petition filed by Giriraj Renewables ruled that the supply of turnkey engineering, procurement and construction (EPC) contract for the construction of a solar project wherein both goods and services are supplied falls within the definition of ‘composite supply’. Therefore, composite supply falls within the definition of works contract.
The petitioner has asked if ‘solar power generating system’ could be considered principle supply and taxed at five percent GST. The agency had replied that the transaction would be treated ‘composite supply’ and not as principle supply, therefore cannot be taxed at five percent.
Whereas, AAR of Uttarakhand ruled that ‘composite supply’ will be taxed at five percent.
Also, responding to a petition by Fermi Solar, the MSAAR had 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.
In a similar petition, the AAR in Karnataka concluded that a turnkey 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 five percent GST.
These contradictory rulings have been creating confusion among stakeholders. One of the executives from a renewable energy firm told Mercom, “It is essential that the Ministry of Finance (MoF) clarifies this matter once and for all. Otherwise the assessment officer will rule in one way or the other and that would lead to further litigation.”