Govt clarifies GST confusion on solar, 70% project cost under 5% rate

Govt clarified saying that 70% of the gross value of project shall be deemed as the value of supply of said goods attracting 5% rate

The GST council issued clarity on the confusion over the rates for solar power projects. While solar panels were classified under 5 per cent tax slab, industry had contested saying other equipments such as metals, electrical material etc are under different and higher tax slabs which would increase the cost of power project. 

The Council on Saturday said certain disputes have arisen regarding GST rates where specified goods attracting 5% GST are supplied along with services of construction etc and other goods for solar power plant. 

It, therefore, said, "70 per cent of the gross value of project shall be deemed as the value of supply of said goods attracting 5 per cent rate." The remaining portion (30%) of the aggregate value of such EPC contract shall be deemed as the value of supply of taxable service attracting standard GST rate, it said. 

Several projects including Central government-sponsored KUSUM scheme for solar run agriculture pumps ran into trouble due to high-cost after GST. Lack of clarity over GST rate on solar run systems coupled with increasing cost, it was feared farmers would become wary of adopting cleaner irrigation systems.

Industry heaved a sigh of relief with this decision. Executives said this would bring down the cost of solar 'Engineering, Procurement and Construction (EPC)' projects. 

"As we under, now 70 per cent cost can have duty of 5% and balance will be at 18%. This is a positive outcome for the industry," said CEO of a leading renewable company.

GST rate for several renewable energy devices & parts for their manufacture (bio gas plant/solar power based devices, solar power generating system (SGPS) etc) [falling under chapter 84, 85 or 94 of the Tariff] would continue to be 5 per cent.