Solar power system contracts: EPC gets 18% GST, separate supply contracts eligible for 5% concessional rate

AAR Andhra Pradesh ruled on GST classification for solar power generating systems under various contract structures. For turnkey EPC contracts including civil works, procurement, and commissioning, the 5% concessional rate under Entry 234 does not apply. For supply contracts where assembly/commissioning is separate, goods qualify for 5% rate if they constitute solar power generating system devices/parts, while services attract rates per Notification 11/2017. When third parties handle installation, goods suppliers can claim 5% rate subject to eligibility conditions. Balance of Plant contracts constitute composite supply with services as principal supply, attracting 18% tax under Entry 25 (Heading 9987). Assembly/commissioning contracts fall under Heading 9987 at 18%, not SAC 9954. Time of supply follows Section 31(4) read with Section 12(2) of CGST/SGST Act.

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Issues Involved:
1. Classification of supply under various EPC contracts.
2. Applicability of tax rates under specific notifications.
3. Nature of supply (composite or mixed).
4. Taxability of service contracts.
5. Determination of time of supply.

Detailed Analysis:

Issue No. 1: Classification under Turnkey EPC Contract
- Ruling: Turnkey EPC Contracts, which include civil works, procurement, erection, and commissioning, do not fall under the supply of 'solar power generating system' as per Entry 234 of Schedule I of the relevant notifications.

Issue No. 2: Classification under Other EPC Contract
- Ruling: Similar to Turnkey EPC Contracts, Other EPC Contracts also do not qualify as the supply of 'solar power generating system' under Entry 234 of Schedule I of the relevant notifications.

Issue No. 3: Classification under Supply Contract with Separate Assembly by Applicant
- Ruling: The determination depends on whether the contract split is artificial or necessary for execution. If artificial, the ruling for Issue 2 applies. Otherwise, supply of goods as 'device and parts' of the solar power generating system attracts a 5% tax rate, while services are taxed as per Notification No. 11/2017.

Issue No. 4: Classification under Supply Contract with Third-Party Assembly
- Ruling: When goods are supplied by one contractor and services by another, the supply of goods, if qualifying as 'device and parts' of the solar power generating system, attracts a 5% tax rate.

Issue No. 5: Classification under Balance of Plant Supply Contract
- Ruling: This is a composite supply where goods and services are naturally bundled. The principal supply is service, and the applicable tax rate is 18% as per Entry 25 of Notification No. 11/2017.

Issue No. 6: Nature of Supply if Issue 5 is Negative
- Ruling: This issue is covered under the clarification for Issue 5, confirming it as a composite supply.

Issue No. 7: Taxability of Separate Assembly, Erection, and Commissioning Contract
- Ruling: Such contracts do not fall under SAC 9954 but under Entry 25 of Notification No. 11/2017, attracting an 18% tax rate.

Issue No. 8: Determination of Time of Supply
- Ruling: The time of supply shall be determined under Section 31(4) of the CGST Act/SGST Act read with Section 12(2).

Note: All rulings are valid until any amendments in the relevant statutory provisions occur, and any deviation in facts will render the rulings null and void.

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