JULY 24, 2019

By Pritam Mahure, CA

GST is payable on the 'transaction value' (section 15 of CGST Act). 'Transaction value' is the price actually paid or payable for the said supply of goods and/or services between un-related parties and where 'price is the sole consideration'.

Typically, in cases where two or more goods or services are supplied together by a supplier, the supplier, may either:

a. Invoice the goods and services, individually

b. Invoice the goods and services, as a bundle

In such cases, the issue that crops up, inter-alia, is regarding rate of GST. For eg. in case a GST payer supplies a solar power plant and installs the same, then whether GST should be levied:

a. As a service, on entire invoice value @ 18% or

b. As a supply of goods i.e. solar power plant, on entire invoice value @ 5% or

c. As two separate transaction with deemed value i.e. 30% service value liable @ 18% and supply of solar power plant liable @ 5% [refer recommendation of 31 st GST Council meeting and Not. No. 24/2018-CTR]

d. As two separate transactions with actual value declared by supplier i.e. invoiced value of service liable @ 18% and invoiced value of supply of solar power plant liable @ 5%

At present, as per Not. No. 24/2018-CTR, when solar power plant is supplied and installed, the recommended deemed value is 30% (than the actual value of services in such case), effectively levying GST rate in such cases at 8.90% (i.e. 5%*70%+18%*30%).

It may be noted that this arbitrary levy of GST on 30% value of total contract value is already questioned by the Delhi High Court in the petition filed by Solar Power Developer Association (SPDA) - 2019-TIOL-1011-HC-DEL-GST and the matter is to be listed before the Hon'ble High Court on 6th August 2019.

Given the aforesaid, it becomes imperative to explore the implication in case of option (d) as aforesaid. In case, a supplier opts for option (d) aforesaid then from GST perspective, isn't it justifiable for the supplier to levy GST on the actual value of the goods and services, as long as there is no attempt to offload the value of one on to another that is chargeable at a concessional rate.

It may be noted that a clarification on similar aspect has already been provided in Circular no. 47/21/2018-GST wherein its stated that if value of goods and services supplied are shown separately, then goods and services would be liable to tax at the rates as applicable to such goods and services separately.

Thus, as regards the deemed 30% value of service (Notification 24/2018-Central Tax Rate dated 31 st December 2018), it may be stated that ' it is permissible for the State to prescribe a presumptive value for determining the services value by fixing a particular percentage of the total value, however, it must be ensured that the deemed particular percentage for services should not differ appreciably from the actual services value that would be incurred in normal circumstances in respect of that particular type of contracts.' [refer Apex Court in the case of Gannon Dunkerley & Co. - 2002-TIOL-103-SC-CT-CB].

Also, it is pertinent to note that even when a deeming fiction is applied, still the scheme and spirit behind such valuation should amply demonstrate that the endeavour is to have closest proximity with the open market value / actual transaction value of such services. Further, only in the absence of actual transaction value, mechanism of fictionalised deemed value should be provided for. This is because the objective behind Section 9 of CGST Act is to levy GST on the 'value' of 'supply' of 'goods' or 'services' or 'both'.

Thus, in cases where the actual value paid or payable for such transaction, between independent supplier and recipient is available, GST should be leviable on the actual value. Further, in case of absence of separate value, the value of services should be the most proximate to the actual cost. Generally, as regards, power plant supply and installation contracts, it is learnt that the proportion of service component is not more than 5% and thus, the approximate proportion could be 95%:5% instead of prescribed 70%:30%. Given this, levying GST @ 30% of the value appears to be arbitrary and could be violative of Article 14 of the Constitution [refer Wipro Ltd) - 2015-TIOL-79-SC-CUS].

Further, it may be noted that the right of the supplier to identify value of services and goods, individually, in accordance with terms of contract, may not be considered as a 'concession' but rather an existing privilege of the GST payer to value the components as per the open market value. One may recall that even in earlier Service Tax regime, there was a specific notification (Not. No. 12/2003-ST) permitting deduction of value of goods subject to condition that there is documentary proof specifically indicating the value of the said goods.

Given the aforesaid, the GST Council should specifically state that if separate value of goods and services is available, then such values should be acceptable than providing for 'deemed valuation' (such as 30% as provided at present).

Also, it becomes critical to clarify the aspect of levy even for prior period as due to contradictory Advance Rulings on levy of GST on solar power equipment supply and installation. Thus, clarity should be provided for the period from 1st July 2017.

It is worth noting that the entire debate on levy of GST on solar power plant has led to crippling of business for solar equipment suppliers. To promote solar industry similar to electric vehicles and to boost clean energy initiative of the Government, the GST Council should look into this aspect and provide suitable solution at the earliest.

(Author was supported by CA Vaishali Kharde, Sr. Manager, Pritam Mahure and Associates. The views expressed are strictly personal.)