1. Home
  2. India
  3. AAR rulings put solar cos in a bind
AAR rulings put solar cos in a bind

AAR rulings put solar cos in a bind

77
0

NEW DELHI: Divergent decisions from two separate Authority for Advance Rulings (AAR) on the GST rate applicable on installation of solar plants have thrown the solar industry into a conundrum.

The industry has knocked at the doors of the government seeking clarity on the matter. Two rulings, from the Maharashtra AAR, have favoured a GST rate of 18%, treating installation as a whole works contract. The Karnataka AAR, however, has ruled to tax installation at the concessional rate of 5% applicable on equipment.

The solar power sector was given concessions under excise, customs as well as value added tax under the previous regime. The industry fears that the levy of 18% GST on installation would derail the country’s target to have 100 gigawatts of solar capacity by 2022. Experts say the industry faces issues of ambiguity under the GST about what would be construed as the ‘solar power generating system’ with some equipment attracting 5% GST and some 18% and even 28%, besides the 18% rate applicable on composite supplies.

Due to the ambiguity, provisions were being interpreted differently by different industry players. Divergent AAR rulings have only added to the confusion, prompting the Solar Power Developers Association to represent before the government asking it to clarify specifically on the issues grappling the sector.

“Nothing that causes uncertainty is good for the sector. This sector has to be successful as it provides the most crucial input to the most important activity that is manufacturing,” said Shekhar Dutt, director general, Solar Power Developers Association. “If conditions prevailing at the time of bidding such as taxes change, it will affect the project as a whole making it unviable including the bank funding …Government needs to ensure status quo prevails in terms of taxes.”

AAR rulings put solar cos in a bind -1

The Maharashtra AAR has, in response to an application by Giriraj Renewables Pvt Ltd on the question whether supply of EPCNSE -19.88 % contracts for construction of a solar power plant can be construed as a ‘composite supply’ and be subject to a concession rate of 5% since the solar power generating system is the dominant supply, held such contracts to be ‘works contracts’, taxable at 18% as a deemed supply of service.

A similar ruling was pronounced by Maharashtra Authority in case of Fermi Solar Farms, stating that irrespective of the fact that there are separate contracts for supply of goods and services for a solar power plant, the entire project of setting up and operation of a solar photovoltaic plant shall qualify as a works contract, taxable at 18%.

However, the Karnataka Authority on an application from Gririraj Renewables — the same applicant before the Maharashtra AAR that posed an identical case — held the contract was not a ‘composite supply’ and hence was taxable at 5%. “The recent advance rulings are a blow to the power sector.

Additional tax exposure of 13% (i.e. 18% less 5%) would not only marginalise the returns from such EPC contracts but may act as a deterrent to expansion of the renewable energy sector in India,” said Harpreet Singh, partner, KPMG. Ahigher rate is likely to increase project cost, as no credit of tax so paid is available on account of end product that is solar power (electricity) being outside ambit of GST, Singh added.

Source: economictimes.indiatimes
Anand Gupta Editor - EQ Int'l Media Network

LEAVE YOUR COMMENT

Your email address will not be published. Required fields are marked *