MAY 11, 2020

By CA Pritam Mahure

SOLAR is considered as one of the cleanest and most preferred renewable energy alongwith hydropower and wind power.

However, the ongoing pandemic a.k.a. COVID-19 has severely affected the solar power industry on two fronts. Firstly, the procurement solar panels are affected as the biggest manufacturer of solar panels is China. Secondly, the installations of solar panels are stalled due to lockdown as well as a scarce labour force.

Due to the aforesaid challenges, numerous solar power projects are either on the verge of getting delayed indefinitely or even cancelled!

In these challenging times, as discussed in ensuing paras, clarity on certain key GST provisions and simplification of GST rate structure can help the solar sector sail over these challenging times.

Rate of GST (5% or 18%) prior to 31 st December 2018

The levy of GST with respect to Solar Power Plant (SPP) and devices has been a subject matter of debate over the years. In GST regime, supply of solar plant is subject to GST @ 5% (refer sr. no. 234/235 of Not. No. 1/2017 dated 28 June 2017 as amended from time to time).

However, in cases where solar power plant was supplied alongwith installation, unfortunately, the issue got entangled in the rate of tax and valuation debate. Subsequently, the issue was addressed by GST Council by vivisecting the value of supply of goods (i.e. 70% value being subjected to 5%) and services (i.e. 30% value being subjected to 18%) vide Not. No. 24/2018 dated 31.12.2018.

However, still the issue is unsettled for the period prior to 31st December 2018 (i.e. prior to the date of notification). This effectively means that for first 18 months of GST (from 1st July 2017 till 31st December 2018) the rate debate is still alive! In this regard, based on the concept of ‘composite supply' it could be clarified that the applicable rate of GST will be 5% or an option could be provided to pay GST on the actual cost of services.

Rate of GST on ‘leasing' of solar power plant

It may be noted that solar power plant can be supplied as such (permanent transfer) or on lease basis (transfer for a specified period). In cases where SPP is sold as such then GST @ 5% is applicable.

However, in cases where SPPs are supplied on lease basis then the consideration may be charged in following two ways:-

a. Charging a fixed rent for supply of solar power plant

b. Charging a variable amount based on electricity generated from solar power plant

Herein, the question that arises is whether leasing of SPPs will attract GST @ 5% or @ 18% (as leasing of immovable property). Alternatively, one may also state that the rate of GST is ‘Nil' as electricity is not subject to GST.

It may be noted that the aforesaid debate not only has implications on the supplier from a rate perspective (i.e. 5% or 18% or Nil) but even from input tax credit (‘ITC') perspective. The ITC implications for a supplier will follow if a view is adopted that the consideration charged is for supply of electricity which attracts ‘Nil' rate of GST. Thus, even paying a GST (say @ 5% or 18%) may not relieve the supplier from the worry of ITC denial.

Way forward:

It can be observed that the aforesaid issues are crippling the SPP industry. It may be noted that by promoting solar power plant industry our dependence on import of oil can also be reduced. Given this, an early suitable clarification on aforesaid issues will certainly help the solar industry as well as provide support to the renewable energy sector.

[Author is Founder of CA Pritam Mahure and Associates and was supported by CA Vaishali Kharde (Associate Director, PMA)]