Solar DC Cables for Solar Power Systems qualify for concessional GST rates under renewable energy provisions

The AAAR Gujarat ruled that Solar DC Cables used in manufacturing Solar Power Generating Systems qualify for concessional GST rates under renewable energy device provisions. The Authority held that these cables, classified under Chapter 85, form an integral part of solar power systems and were eligible for 5% GST under Entry 234 of Schedule-I until September 30, 2021. Following notification amendments, the same products became subject to 12% GST under Entry 201A of Schedule-II from October 1, 2021, when the entry was shifted from Schedule-I to Schedule-II with revised tax rates.

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Issues Involved:
1. Applicability of a concessional GST rate of 5% on Solar DC Cables under Notification No. 1/2017-Integrated Tax (Rate).
2. Validity of purchase orders as legal documents for claiming GST concessions.
3. Determination of whether the supply of Solar DC Cables includes the provision of services.

Detailed Analysis:

Issue 1: Applicability of Concessional GST Rate
The appellant, a manufacturer of various cables including Solar DC Cables, sought a ruling on whether these cables qualify for a 5% GST rate under Sr.No. 234 of Notification No. 1/2017-Integrated Tax (Rate). The notification specifies that goods falling under Chapter 84, 85, or 94, if used as parts for renewable energy devices like Solar Power Generating Systems, are eligible for a concessional rate. The appellant argued that their Solar DC Cables fall under Chapter 85 and are integral to Solar Power Generating Systems, thus qualifying for the 5% rate.

The Gujarat Authority for Advance Ruling (GAAR) initially observed that while Solar DC Cables are integral to Solar Power Generating Systems, the appellant did not provide sufficient contractual documentation to confirm their use in such systems. Consequently, GAAR refrained from ruling on the concessional rate.

Upon appeal, it was determined that the appellant's Solar DC Cables indeed fall under Chapter 85 and are integral to Solar Power Generating Systems. The appellate authority confirmed that the product is eligible for the 5% GST rate under Sr.No. 234 of Notification No. 1/2017-Integrated Tax (Rate) until 30.09.2021. From 01.10.2021, the applicable rate is 12% as per the amended notification.

Issue 2: Validity of Purchase Orders
GAAR had previously ruled that purchase orders submitted by the appellant were not legal documents and thus insufficient for claiming the concessional GST rate. The appellant argued that in the digital economy, documents such as tender/contract/agreement/technical specifications are often not readily available, and purchase orders should suffice.

The appellate authority referred to Section 10 of the Indian Contract Act, 1872, which states that all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration, and with a lawful object. It was concluded that the purchase orders submitted by the appellant met these criteria and thus constituted valid contracts. Consequently, the appellant fulfilled the conditions prescribed in Board Circular No. 80/54/2018-GST for availing the GST concession.

Issue 3: Provision of Services
GAAR had expressed concerns that the supply of Solar DC Cables might include services, which could affect the applicability of the concessional GST rate. The appellant clarified that any services like packing, freight forwarding, and transit insurance are naturally bundled with the principal supply of goods and do not constitute separate taxable services.

The appellate authority agreed with this interpretation, noting that these services are integral to the sale of goods and do not extend beyond the sale itself. Affidavits from Mundra Solar PV Limited and Adani Green Energy Limited confirmed that the purchase orders involved only the supply of goods, with no additional services provided.

Conclusion:
The appellate authority modified the GAAR ruling, confirming that Solar DC Cables used in Solar Power Generating Systems are eligible for the 5% GST rate under Sr.No. 234 of Notification No. 1/2017-Integrated Tax (Rate) until 30.09.2021, and thereafter, a 12% GST rate applies as per the amended notification. The purchase orders were deemed valid contracts, and the incidental services were considered naturally bundled with the supply of goods.

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