TaxTMI 
TaxTMI 
TaxTMI 
There was no confusion during initial days of GST when supplies of goods attracted GST @5% and services attracted 18% GST while the taxpayer was engaged in the business of setting up of the solar power plants for their customers. The total GST implication would vary in terms of tax amount as it differs from project to project based on the values of supplies of goods as well as services. Though all the goods supplied for setting up of a solar power plant may not be taxed uniformly @ 5% and also there is a possibility that the taxpayer may break up total project cost by making supplies of goods portion more to take advantage of lesser GST, a notification was issued made applicable with effect from 01/01/2019 to treat supply of goods portion as 70% and supply of services portion as 30% uniformly to avoid any complications.
Route Number 1). During the period commencing from 01/07/2017 ending on 31/12/2018, there could be no dispute on the first route as this was the only option available to the taxpayer. However, it was absolutely possible for the developer of the solar power plant to allocate a higher value, say 75% for example to supplies of goods portion so as to minimize the total GST amount as services portion attracts 18%, the Government decided to pluck this possible loophole under GST and accordingly decided to tax all solar power plants at a uniform rate of 8.90% as the effective rate by allocating 70% to goods portion and 30% to services portion, which was a good move on 01/01/2019.
Route number 2). The move to go for the suggested route of allocating 70% for goods and 30% for services was a good one as it saves the taxpayer from several complex issues which may creep in under Route 1. This position of 70:30 shall remain even when there is a change in GST Rates specified at 5 and 18. In fact the rate 5 was increased to 12 and again brought down to 5, whereas 18 remains as it is. The issues connected with this route are 1). Notification dated 31/12/2018 was made effective from 01/01/2019 itself which may not be noticed by few solar power plant developers. 2). The question on whether this 70:30 is mandatory or optional to the taxpayer 3). Wherever materials component is less than 70%, developer of solar power plant might have shifted happily. However, in projects where materials supply portion is more than 70%, the customers would insist on route 1 to minimize their project cost.
Route Number 3). This is really a novel route invented by GST officials. Whenever the GST Audit team verifies documents of solar power plant developers, during the course of their audit, they simply compare route 1 as well as route 2 and wherever they observe that the taxes actually paid were higher than 70:30 route, they simply accept route 1. However, wherever the tax paid is less than 70:30 route, they immediately take the stand that route 2 is mandatory and not optional one, even though they accept route 1 in cases wherever this route is beneficial to the tax authorities.
Under the above circumstances, I came across a case law as reported in M/s. Vikram Solar Limited Versus The Commissioner of Central Tax, GST Tirupati, The Additional Commissioner of Central Tax, GST Commissionerate, Tirupati, The Assistant Commissioner of Central Tax, Tirupati, Directorate General of GST Intelligence, Mumbai Zonal, Central Board of Indirect Taxes And Customs, Union of India. - 2026 (3) TMI 721 - ANDHRA PRADESH HIGH COURT yesterday by which I was immediately prompted to share the above views with all who are in to the business of Solar Power Plants.
The story behind the above case law is really very interesting. The GST officer insisted the solar power plant developer to furnish complete and comprehensive data on supply of goods portion. When it was argued by the taxpayer that the GST was paid appropriately at 8.90 % in line with the notification number 24/2018 dated 31/12/2018 made effective from 01/01/2019, the arguments were not accepted and surprisingly, demand appears to be raised at the rate of 18% on the entire supply of goods on the pretext that there could be some materials which attracted more than 5% and accordingly, payment at the rate of 8.90% on a solar power plant was not acceptable.
This issue was examined in depth the high court. The court observed that the contentions of the GST officer is not sustainable and accordingly allowed the writ filed by the taxpayer. The operative portion is furnished below.
11. In that view of the matter, this Writ Petition is allowed setting aside the order of assessment, dated 27.11.2024, passed by the 3rd respondent and the assessment is remanded back to the 3rd respondent to complete assessment in terms of this order by applying a uniform rate of 8.9%, on the gross consideration, as the tax which can be levied on the petitioner for the relevant period. Needless to say, the assessment is remanded in respect of all items which had been considered in the assessment order. The question of whether the works contracts related to movable property or immovable property is left open inasmuch as this writ petition is being disposed of on the basis of the aforesaid notifications.
Conclusions: The solar power plant developers in general are not interested to evade payment of GST but choose route 1 or route 2 as per the facts, situations as well as timing differences on account of changes made by way of notifications affecting rate as well as method of calculation. A detailed article on the rates prevalent during various durations from 01/07/2017 till date shall be available in taxtmi.com by next week.
GST Officials are kindly requested to pass adjudication orders based on the practice which is generally followed by the solar power plant developers all over India and not to invent any novel method to increase the tax collection as in the above case.