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The Goods and Services Tax (GST) Council has offered the much awaited clarity for solar power project developers by defining the tax applicability on goods and services that develop a solar project.
Project developers were confused as there were contradictory advance tax rulings that defined the applicable tax on composite orders where both services and goods were offered. The solar industry has been requesting for clarity of this issue for over 500 days since the sector was brought under GST.
“There were multiple contradictory advance tax rulings pertaining to the tax applicability in cases where both goods and services were offered under a composite contract. While paying taxes, the costs were front loaded on the goods. The tax incidence on goods stood at 5 per cent, while the incidence on services was 18 per cent,” an industry watcher told BusinessLine .
“Companies were allegedly reporting higher costs for goods to lower the overall tax incidence. This was red flagged by the tax authorities,” the industry watcher said.
A GST council statement said, “To resolve the dispute, the Council has recommended that in all such cases, the 70 per cent of the gross value shall be deemed as the value of supply of said goods attracting 5 per cent rate and the remaining portion 30 per cent of the aggregate value of such EPC (Engineering, Procurement and Construction) contract shall be deemed as the value of supply of taxable service attracting standard GST rate.”
Effectively, if a company bags an EPC contract, it will now pay 5 per cent GST on up to 70 per cent of the total value of the contract. And pay 18 per cent on 30 per cent of the contract value.
While this does offer much needed clarity for both the tax man and the assessee, the renewable energy sector is not really satisfied.
“The solar industry wanted a bifurcation with 90 per cent of the value earmarked for goods and 10 per cent for services. It is expected that they will continue to pursue the GST council for the same,” Anita Rastogi, Partner – GST and Indirect Tax at PwC said.
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