AAAR : 18% GST on Solar Power Plants

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Mumbai : The Appellate Authority for Advance Ruling ( AAAR ) Maharashtra, in September, upheld the order of the AAR that in the case of separate contracts for supply of goods and services for solar power plant, there would be a cumulative consideration as ‘works contract’ and hence the rate of tax would be 18% under IGST and an aggregate of 18% GST (CGST and SGST).

The applicant M/s Fermi Solar Farms Ltd. is engaged in the operation of renewable energy power plant projects. These typically include operation of soar power plants set up across India for generation and distribution of electricity generated through solar plants.

While disposing the advance ruling application, the authority had ruled that depending upon the nature of supply, intra-state or inter-state, the rate of tax would be governed by the governed by the entry under Integrated Goods and Service Act, 2017

On appeal, the appellate authority has held that on 18% GST would be applicable on solar projects, and dismissed the solar developers’ demand to be taxed at a lower 5%. Previously, the AAR in Rajasthan too had declared 18% GST rate for solar projects.

Reports said that the matter appears headed for a prolonged legal battle, unless the government steps in to clarify the taxation of solar power projects. A higher project cost could reflect in tariffs that developers offer in auctions to win projects.

Under the current regime, the electricity is out of the ambit of GST. Putting a higher tax on the solar projects would definitely increase the cost of production of solar power which would ultimately result in inflating the final price.

The safeguard duty on imported solar panels to support domestic industry has added to the uncertainty. Solar panels, which constitute 60-70% of the cost of solar projects, are taxed at 5% GST.

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