AAAR Fixed 18% GST Rate for Solar Power Projects


January 18, 2019


Putting all questions and doubts to rest, the AAR Maharashtra has confirmed that all EPC activities will be subjected to 18% GST. This decision could affect India’s Solar Capacity. Reportedly, the cost of setting a solar plant would increase post the ruling. Most importantly, solar plants are considered immovable property under GST and hence there are no provisions of Input Tax Credit claim on the supply of input services.

  • Solar Plants are permanent stations to fixed Consumers.
  • EPC contractor and the counterparty are bound by a contract that clearly states the place of operation and construction will remain permanent.

The revised Model GST Law leaves service providers under work contracts on slippery ground. The ambivalence related to ITC claims for works contracts related to immovable properties has been the topic of several debates now. The point of concern is the GST provisions which make work contract services during construction on immovable properties eligible for ITC claims but the same services are eligible for ITC claims if input services are meant for a further supply of works contract services.

This has further aggravated with the recent ruling from Authority for Advance Ruling (AAR) for GST in Maharashtra. The ruling states that EPC (engineering, procurement, and construction) activities are liable for 18 percent GST. A petitioner argued that EPC activities must be treated as composite supplies and thereby a concessional rate of 5 percent must be levied on all solar power generation stations. But the AAR Ruling stands true for now.

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The issue was taken to the Supreme Court but to no avail. EPC players confirm that they are now planning to raise concerns with GST council against the 18 percent GST. Tax Experts believe that the 18% GST is not in tune with the general industry belief of 5 %. In case the GST Council sticks with the 18%, and electricity not falling within GST ambit, cost of solar power plants increases..”

Solar Contractors argue that the ‘works contract’ under GST involve immovable property and the solar power plant is movable. This necessitates consideration of solar power plant under the ‘works contract’.

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