Solar panels stand at a solar farm. (Photographer: James MacDonald/Bloomberg)

Delhi High Court Directs GST Council To Review Tax Structure For Solar Projects 

The Delhi High Court has directed the Goods and Services Tax Council to review the tax structure for solar projects.

This came after the Solar Power Developers Association filed a writ petition challenging the latest taxation formula.

Earlier, divergent state commission rulings regarding GST created confusion and uncertainty in the industry. Though the GST law stated that solar power generating systems will attract 5 percent tax, the absence of their definition led to ambiguity. Project developers procured solar power generating systems as a package from engineering, procurement and construction entities at 5 percent. But EPC companies procured individual components at GST rates of 12-28 percent.

In December, the GST Council recommended a deemed valuation provision that entailed taxing 70 percent contract value of solar power generating systems as goods, taxable at 5 percent, and the balance 30 percent as services, taxable at 18 percent, according to a government statement.

This, however, increased the effective tax rate for solar power developers to 8.9 percent, impacting the financial viability of the projects, the association said in a letter to the revenue secretary.

The levy of GST at higher rate on supply of solar power system raise the capital costs for producers, leading to increased power tariffs for consumers, and impact India’s ability to meet the national solar mission commitment by 2022, according to the writ petition—BloombergQuint has reviewed a copy.

An official from the association told BloombergQuint requesting anonymity that it will bring relevant facts and figures to the table before Central Board of Indirect Taxes and Customs and hopes to reach an amicable and fair settlement on the issue.

The court has directed that the petitioners will be called before the CBIC through their authorised representatives for a consultative meeting within the next four weeks. If necessary, the Ministry of Renewable Energy will also be invited and the deliberations of that meeting also be placed before the GST Council for its consideration, it said in its order.

The court’s direction in this ruling is unconventional, according to Abhishek Jain, tax partner at EY India. Various solar producers, according to him, had concerns on the deemed proportion of services, as the services component in setting up projects was significantly lower than 30 percent. “The directed deliberation with the board does create a ray of hope of further relief for this industry,” Jain said in a statement.

The court will hear the matter on Aug. 6, 2019.