Solar Power Plant Invoicing Issue

[DS Pal]

Dear Experts,

One of my client Company "X" receives an order from Company "Y" for EPC of Solar Power Plant. Company "Y" also receives such order from Company "Z".

Now, Company "X" is invoicing to "Y" at the rate of 8.90% (70:30 on 5% & 18%) for Solar power generating system. Till then there is no issue in the transaction.

But contract between Company Z and Company Y says that "Y " will invoice to "Z" individually Item wise / HSN wise.

Now the query is can Company "Y" do this?

If yes, how the inventory be record in the books of Company "Y"?

If No, what will be the possible solution to this transaction?

Should Company "X" needs to change anything in such transaction with Company "Y"?

Thanks

[Sadanand Bulbule]

In my considered opinion, this is not a good tax planning and unacceptable by the department.

In terms of Entry No. 201A of Notification No. 8/2021-Central Tax (Rate) dated 30/09/2021, the benefit of 70:30 is for Solar Power  Generator as one unit only. 

To avail this benefit, you must invoice for " Solar Power Generating System".

So other queries do not deserve any answer.

[Ryan Vaz]

Applicable Law / Notifications / Circulars

• Section 2(30), CGST Act, 2017 – Definition of Composite Supply

• Section 8, CGST Act, 2017 – Tax liability on composite supply

• Notification No. 01/2017–Central Tax (Rate), Schedules I & III – GST rates

• Notification No. 24/2018–Central Tax (Rate) dated 31.12.2018 – Deemed valuation 70:30 for SPGS (Goods @ 5%, Services @ 18%)

• CBIC FAQs & Circulars on Solar EPC (clarifying composite supply treatment)

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Short Practical Answer

• Yes, Company Y can invoice Company Z item-wise/HSN-wise, but it cannot apply the concessional 70:30 rate if it chooses to split supplies.

• Once item-wise invoicing is done, each item/service is taxed at its own applicable GST rate (panels 5%, structures 18%, services 18%, etc.).

• If Y wants to pass on the concessional rate, it must invoice Z as a single composite supply (SPGS), not item-wise.

[DS Pal]

Dear sir,

Thank you for your valuable reply. But how Y will record the Purchase and sale as Purchase consists SPG system but invoicing to be done individually at the time of sale.

[Shilpi Jain]

If its a composite contract between Y and Z is a composite one they will have to follow the 70:30 principle.

 

[KALLESHAMURTHY MURTHY K.N.]

Sir, 

It depends on the nature of supplies involved in the transaction. If the transaction is a composite supply, then the rate of tax applicable under composite supply as defined in Sec. 8 of the CGST Act. If the description in the invoice is made based on item-wise and HSN-wise, the rate of tax is applicable as prescribed on individual items. It can not be charged at the ratio of 70:30, applying a different rate of tax, which is not admissible under the GST Law. 

[Shilpi Jain]

There should not be any issue in purchase as SPGS and sale individually. If its merely requirement of customer to invoice individually without affecting the actual tax liability payable then shoudl not be an issue.

 

Also are you not installing the SPGS at customer locaiton?

[Shilpi Jain]

If Z is only procuring the components and not for installation of SPGS, this may require re-examiniation.

AI Summary

Solar Power Plant invoicing: Y can invoice item-wise but cannot apply 70:30 concessional rate for split supplies.
The concessional 70:30 valuation applies only where the transaction is invoiced and treated as a single composite supply of a Solar Power Generating System (SPGS). If Company Y invoices Z item-wise/HSN-wise, each item or service is taxed at its applicable GST rate and the 70:30 allocation cannot be applied; to pass the concessional rate to Z, Y must invoice Z as a single composite SPGS. Where Z procures only components or the supply is not composite, tax characterisation must be re-examined.