Solar industry seeks clarity on GST rates post divergent AAR rulings

The industry, which had enjoyed various concessions under the previous tax regime, fears that the levy of 18 per cent GST on installation would render projects unviable.

By BusinessToday.In  
Monday, July 30, 2018

The ambiguity in GST law where solar power generating systems (SPGS) are concerned has long plagued the industry. There is a complete lack of clarity on the definition of SPGS, with some equipment attracting a tax rate of 5 per cent while others are at the highest slab of 28 per cent, in addition to the 18 per cent rate applicable on composite supplies. According to The Economic Times, the solar industry has finally sought urgent clarification on the matter from the policymakers.

The trigger was the recent divergent pronouncements by the Authority for Advance Rulings (AAR) in different states - courtesy the current ambiguity on the topic - leaving taxpayers and expert advisors confused. For instance, two recent rulings from the Maharashtra AAR have favoured a GST rate of 18 per cent on solar projects, treating installation as a whole works contract. However, the Karnataka Authority on an application from Giriraj Renewables - ironically one of the applicants before the Maharashtra AAR posing an identical case - held the contract was not a 'composite supply' and hence was taxable at 5 per cent.

The industry, which had enjoyed various concessions under the previous tax regime, fears that the levy of 18 per cent GST on installation would render projects unviable. And in the bargain, Prime Minister Narendra Modi's target of 100 gigawatts of solar capacity by 2022 will get affected.

The report added that the Solar Power Developers Association (SPDA) has already made a representation to the finance secretary, Hasmukh Adhia. The SPDA's petition requests the Law Committee to examine the current ambiguity in interpretation and the diverse advance rulings on the issue and take up the matter in the GST Council meeting scheduled for August 4.

"Complete clarity on the quantum of tax applicable is very essential to arrive at fair cost and tariffs," Shekhar Dutt, director general, SPDA, told the daily. "Continuity of ambiguous tax structure is affecting the solar tariffs and recent advance rulings by various states authorities has been very alarming towards additional tax burdening on the projects as their interpretations aren't aligned with 5 per cent GST guided by the law. It raises serious concerns on economics/viability of the projects," he added.

The association, incidentally, has also made a representation to Finance Minister Piyush Goyal claiming that the current situation is impacting solar industry and, hence, there is an urgent need to address the same.

"The issue needs an urgent resolution by way of an amendment or a clarification that solar equipment and parts are taxable at 5 per cent, which appears to be the intention of the government as well," Pratik Jain, lead-indirect taxes, PwC, told the daily, adding, "Generally, over 90 per cent of the contract value pertains to equipment only. GST Council has recently clarified many complex issues and one would hope they take up this one in the next meeting scheduled on August 4."

Edited By: Sushmita Choudhury Agarwal

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