Solar power projects in India have suffered from ambiguity regarding applicability of the goods and service tax (GST) on input. This is a critical issue since power projects have no output GST and thus their entire input GST becomes a cost for the project leading to higher tariff.
A concessionary rate of 5% GST has been provided for solar power generating systems, solar PV modules and parts for manufacture of products under entry 234, notification no.1/2017-Central Tax (rate).
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However, with no clarity as to what constitutes a solar power generating system, coupled with the fact that turnkey EPC (engineering, procurement and construction) contracts for supply of solar power generating system were being consistently held to be works contracts and thus liable to 18% GST led to myriad representations seeking clarity from the government as well as several creative contracting structures (based on varying interpretations of entry 234) and even indemnity negotiations.
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Sudipta Bhattacharjee is a partner in the tax controversy management and contract documentation practice of Advaita Legal.
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