Discrepancies in rulings given by the Authority for Advance Rulings (AAR) in different States have made life tough for solar power producers. The latest ruling came from AAR-Uttarakhand which favoured levying Goods and Services Tax (GST) at the rate of 5 per cent, similar to what AAR-Karnataka had prescribed but much lower than the GST of 18 per cent that AAR-Maharashtra had asked for.

In a matter relating to Eapro Global, a Roorkee-based firm that produces inverters, AAR-Uttarakhand recently held that supply of solar inverter, controller, battery, is a ‘composite supply’ of which ‘Solar Power Generating System’ is the principal supply. Further, in terms of GST Law, as the rate on a composite supply is the rate as applicable to the principal supply, the entire supply would be liable to tax at the rate of 5 per cent. Further, it held that the above would also hold good in case of solar inverters and solar panels supplied together for generating power as well.

“With this favourable Advance Ruling, the propensity of the dealers to charge tax at the lower beneficial rate of 5 per cent would increase,” said Harpreet Singh, Partner, Indirect Taxes, KPMG.

Anita Rastogi, Indirect tax Partner at PwC, termed the ruling as interesting and is in favour of the taxpayer, but said since divergent views have been given by different States, “It will be a challenge for a company having offices in two States to follow different tax treatment.” This could be because rulings by AAR-Karnataka and AAR-Maharashtra were contested at Appellate Authorities for Advance Rulings (AAAR) and on expected lines and here too rulings were different. The AAAR in Karnataka held that in the absence of natural bundling, EPC (Engineering, Procurement and Construction) contract for solar power plant involving PV (Photovoltaic) module and other supplies, is not a ‘composite supply’. In this case, the AAAR has agreed with the findings of AAR that supply of PV module is a distinct transaction by itself and cannot be said to be naturally bundled with supply of remaining components and parts of ‘solar power plant’ and hence the rate of GST would be 5 per cent. However, AAAR in Maharashtra held that supply of ‘solar power generating system' constitutes composite ‘works contract’ and hence GST would be 18 per cent.

Industry divided

Now, different rulings have divided the industry. Some companies are treating the entire project as WCT (Work Contract Tax) and charging GST at flat rate of 18 per cent. Some are treating the entire project under ‘renewable energy devices & parts for their manufacture like ‘solar power generating system’ and charging tax at the rate of 5 per cent. Some are levying individual tax rate on each component, for example, 5 per cent for PV modules and 18 per cent for services.

Singh said that frequent divergent advance rulings and orders of appellate authorities are only adding to the confusion of the already perplexed solar power industry. “It is important that the government quickly slake the concern of the industry and issue an appropriate clarification,” he said.

The problem is that some companies that charged GST at the rate of 5 per cent already received notices from the Tax Department. This is despite the Solar Power Developers Association has already written to the Finance Secretary (who is also holding charge of Revenue) seeking clarity on the rate and recommending the rate of 5 per cent. Any decision on the GST rate has to be taken by the GST Council.

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