Advance Ruling on Construction of Solar Plant with Case Law Study: Advance ruling mechanism under GST is at the state level and here, we have a case where two different state advance ruling authority has given two different ruling. This has put the taxpayers in a fix. In case of Construction of Solar Plant, the issue was whether the Construction of Solar Plant is a ‘Works Contract’ and liable to 18% GST or ‘Composite Supply’ and liable to concessional rate of 5%.
Law related to Construction of Solar Plant
As per Section 2(30) of CGST Act, Composite Supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.CASE
The AAR ruling came in response to an application by M/s Giriraj Renewables Private Ltd. who is an EPC contractor and has entered into agreement with various developers who desire to set up and operate solar photovoltaic plants for supply of generated power. The contracts are for supply of goods as well as services. The applicant has contended that:- The agreement is construed as a composite supply; the principal supply would be the supply of PV Modules which again are liable to tax @ 5%.
- He is engaged in the business of supply of ‘solar power generating system' and the same should be liable to tax at 5%.
- The proposed agreement with its customers should be taxable @5% GST, and the same should be applicable to subcontractors as well.
Karnataka Authority of Advanced Ruling (AAR)
- The major component (PV Module) said to have constituted 70% of the whole project procured by the owner himself. Therefore, the same cannot be construed as a principal supply by the applicant and hence, it cannot be construed to be a principal supply of the project and thereby cannot be a composite supply.
- 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 5 percent GST.
- Further, the authority clarified that the rate of GST will depend on the supply type as the sub-contractor is an individual supplier and cannot avail any GST at concessional rate.