Solar PV Project Activities Classified as Works Contract for GST Purposes

The activities carried out by the applicant under three contracts for the establishment of a Solar PV Power Project were deemed a Composite Supply by the Authority for Advance Ruling (AAR). The supply was classified as a works contract attracting an 18% GST rate under entry no. (ii) of S. No. 3 of Notification No. 11/2017-Central Tax (Rate). The AAR ruled that the 5% GST rate for solar modules alone was not applicable due to the overall classification of the supply as a works contract. The amended rates effective from 01.01.2019 were confirmed as applicable in determining the taxation for Solar Power Plant Projects.

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Issues Involved:
1. Whether the activities carried out by the applicant under all 3 contracts for the establishment of Solar PV Power Project can be treated as Composite Supply.
2. If yes, whether the said supply can be classified under SI. No.234 of Schedule I of Notification No.1/2017-Central Tax (Rate) and GST shall be paid at the rate of 5%.
3. If not, whether GST can be paid on the value relating to the supply of solar modules alone at 5% as per SI. No.234 of Schedule I of Notification No.1/2017-Central Tax (Rate).

Detailed Analysis:

1. Composite Supply:
The applicant entered into three contracts with APGENCO for the establishment of a 100MW Solar PV Power Project, namely, Supply Contract, Erection Contract, and Operation & Maintenance Contract. Each contract had separate considerations but were interlinked with a clause ensuring the indivisibility of the contracts. The contracts collectively obligate the applicant to provide end-to-end solutions, including design, procurement, supply, installation, testing, commissioning, and maintenance of the Solar PV Plant.

The Authority for Advance Ruling (AAR) examined whether these activities constitute a Composite Supply under Section 2(30) of the CGST Act. The definition of Composite Supply involves two or more taxable supplies of goods or services that are naturally bundled and supplied in conjunction with each other in the ordinary course of business, with one being the principal supply. The AAR concluded that the activities of the applicant are naturally bundled and supplied in conjunction with each other, thus constituting a Composite Supply. However, the supply was also found to fall under the ambit of works contract as defined in Section 2(119) of the CGST Act, which involves construction, fabrication, erection, installation, etc., on immovable property.

2. Classification and Tax Rate:
The applicant argued that the principal supply in the Composite Supply is the supply of solar modules, which should be classified under SI. No.234 of Schedule I of Notification No.1/2017-Central Tax (Rate), attracting a GST rate of 5%. However, the AAR noted that the Solar PV Plant is fixed to the land, involving civil works, and therefore qualifies as immovable property. Consequently, the Composite Supply falls under the definition of works contract, which is treated as a supply of service under serial no.6, Schedule II of the CGST Act.

The applicable rate for works contract services is specified under entry no. (ii) of S. No. 3 of Notification No. 11/2017-Central Tax (Rate), which is 18% (9% Central tax and 9% State tax). The AAR ruled that the supply cannot be classified under SI. No.234 of Schedule I of Notification No.1/2017-Central Tax (Rate) and is instead subject to the 18% GST rate.

3. Separate GST Rate for Solar Modules:
Given the ruling that the entire supply constitutes a works contract and is subject to an 18% GST rate, the question of applying a 5% GST rate solely on the supply of solar modules becomes irrelevant. The AAR confirmed that the amended rates effective from 01.01.2019, which provide clarity on the rate of taxation for Solar Power Plant Projects, are applicable. These amendments specify that if goods and services are supplied together, the material portion is deemed to be 70% of the gross consideration, and the remaining 30% is deemed to be the value of the taxable service.

Rulings:
1. The activities carried out by the applicant under all 3 contracts for the establishment of the Solar PV Power Project are treated as Composite Supply, which is a composite supply of works contract as defined under Section 2 of the CGST Act and APGST Act, 2017. This supply is treated as a supply of service under serial no.6, Schedule II of the CGST Act and APGST Act, 2017, and is classified under heading 9954, entry no. (ii) of S. No. 3 of Notification No. 11/2017-Central Tax (Rate). The applicable rate of tax is 18% (9% Central tax and 9% State tax).

2. The amended rate of tax vide Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018 and Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018, which came into force from 01.01.2019, is applicable.

3. The question of applying a 5% GST rate solely on the supply of solar modules is irrelevant in the context of the ruling that the entire supply is a works contract subject to an 18% GST rate.

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