Solar EPC Contracts Cannot be Composite as per GST, Rules Maharashtra Authority

The bench was hearing a petition filed by Giriraj Renewables


In a recently issued order, the Maharashtra State Authority of Advanced Ruling (MSAAR) stated that the supply of turnkey engineering, procurement and construction (EPC) contract for the construction of a solar power project in which both goods and services are supplied cannot be interpreted as a composite (a mix of components which make up a solar project) supply contract. Instead GST will be applicable at individual component rates.

The Maharashtra State Authority of Advanced Ruling was responding to a petition filed by Giriraj Renewables. The company had petitioned the state authority seeking an advanced ruling on whether a turnkey EPC contract for construction of a solar project can be interpreted as a composite supply in terms of Central Goods and Services Tax (CGST).

The company had sought a ruling on whether the principle supply in such cases can be called “solar power generating system” which is taxable at 5 percent GST, and whether the benefit of this concessional rate of 5 percent GST for these solar power generating systems will be made available to the sub-contractors.

In its order, the Maharashtra State Authority of Advanced Ruling stated, “Since the transaction is treated as a work contract, there would be no relevance of principle supply.”

On the issue of benefits made available to sub-contractors, the state authority observed, “In the absence of documents, it is not appropriate to deal with this issue in the current proceedings.”

When contacted to comment on the development, Mercom’s source at a major EPC player in the renewable energy sector said, “The final applicable rates for solar power generating systems and other parts such as inverters, metal components and the like had been issued and they have been following the same for billing.”

This ruling will help remove various misconceptions and myths regarding GST taxation in the solar sector. In July 2017, GST rates for solar components were finalized, with GST rates expected to be 18 percent or more for some solar components and services, and 5 percent for solar modules. The tax schedule came with a statement that it will be subject to further vetting during which the list may undergo some changes.