Solar plants await clarity on GST rate

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There is still no clarity on the rate of goods and services tax (GST) that’s applicable on solar plants, with the industry divided on the matter and two state appellate authorities for advance rulings issuing divergent orders.

The rulings of the appellate authorities came on appeals against the decisions of the Karnataka and Maharashtra advance ruling authorities, which had pegged the GST rate at 5% and 18%, respectively.

The Karnataka Appellate Authority for Advance Rulings (AAAR) backed the findings of the state AAAR that supply of photovoltaic modules is a distinct transaction and cannot be said to be naturally bundled with the supply of other components and parts of a solar power plant.

It observed that the supply of other components and parts and the supply of services of erection, installation and commissioning of the solar power plant are ‘composite’ as they are naturally bundled and accordingly, the tax rate applicable to the dominant nature of supply shall prevail.

Taking a divergent stand from the Karnataka AAAR ruling, the Maharashtra AAAR, in the case of Fermi Solar Farms and Giriraj Renewables, held that the supply of solar power generating system constitutes a composite works contract that’s liable to taxed at 18%.

Even the solar power industry remains divided on the issue, with players taking varying positions.

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