GST Vidhi | GST Advance Ruling


M/s Utsav Corporation Vs Rajasthan Appellate Authority for Advance Ruling (RAJAAAR) (Appellate Order No.: RAJ/AAAR/04/2021-22)

GST Classification of Solar Water Pumping Systems: Rajasthan Appellate Authority Allows 70:30 Benefit

Introduction

In a landmark appellate decision, the Rajasthan Appellate Authority for Advance Ruling (RAJAAAR) resolved several contentious issues around GST classification and tax rates for solar water pumping systems, especially regarding combinations of solar components and turnkey supplies involving installation. The case arose from an appeal filed by M/s Utsav Corporation (Sapna Gupta), Jaipur, against a ruling by the Rajasthan AAR which had imposed 18% GST on certain components and treated bundled supplies as mixed supply or works contract.

Case Background

  • Applicant: M/s Utsav Corporation (Legal Name: Sapna Gupta)
  • GSTIN: 08BXFPG0701B1ZA
  • Appellate Order No.: RAJ/AAAR/04/2021-22
  • Date of Hearing: 08.12.2021
  • Primary Issue: GST classification and rate on solar water pumping system components and contracts involving installation

Original AAR Ruling Highlights

The Rajasthan Authority for Advance Ruling, vide its order dated 03.09.2021, had ruled as follows:

1.    Solar Panel: Has a specific entry under the GST Tariff (Sl. No. 234 of Notification No. 01/2017-CT (Rate)) and is taxable at 5%.

2.    Solar Pump: A solar power-based device also covered under the same notification and taxable at 5%.

3.    Controller: Not classified as a solar device or part thereof; falls under HSN 8504 (Static Converters), taxable at 18%.

4.    Structure: Classified under HSN 7308 (Steel structures), not a part of solar device; taxable at 18%.

5.    Solar Water Pumping System (complete set): Considered a mixed supply, and hence the highest GST rate among the components applies.

6.    Combinations like Solar Pump + Controller, or Solar Panel + Controller: Also classified as mixed supply, taxed at the highest applicable rate.

7.    System with Installation: Treated as works contract attracting 18% GST under Sl. No. 3(ii) of Notification No. 11/2017–CT (Rate) dated 28.06.2017.

This classification led to higher GST liability on supplies that the applicant argued should qualify for the concessional rates applicable to renewable energy devices.

Key Questions on Appeal

The applicant challenged the above rulings and sought clarity on:

1.    Whether controllers and structures, when used exclusively for solar water pumping systems, qualify as parts of renewable energy devices taxed at 5%.

2.    Whether combinations of components supplied together should be treated as composite supply or mixed supply.

3.    Whether the turnkey supply of systems with installation should qualify for 70:30 GST valuation under recent notifications.

Appellant’s Submissions

  • Controllers and structures are technically designed for use only in solar pumping systems.
  • Solar system components, when supplied together, form a natural bundle and constitute composite supply, not mixed supply.
  • The supply of goods with installation is not a works contract but a composite supply, where goods are the principal supply.
  • Cited MNRE guidelines, technical specifications, and rulings from other states (e.g., Premier Solar Systems, Uttarakhand AAR) to support classification as renewable energy devices.

Findings by the Appellate Authority

1. Controllers – Taxable @18%

Controllers, though used in solar pumps, are not solar-specific. They fall under HSN 8504 (static converters) and are classified as electrical items. Thus, they are not eligible for 5% GST and are taxable at 18%.

2. Mounting Structures – Taxable @18%

Structures fall under HSN 7308 (for iron/steel). Despite being solar-specific in design, they do not qualify as “parts” of solar devices under GST and are therefore taxable at 18%.

3. Panel and Pump – Taxable @5%

The appellate authority upheld the AAR’s classification for solar panels and solar pumps as renewable energy devices covered under Sl. No. 234 of Notification No. 01/2017-CT (Rate), attracting 5% GST.

Composite Supply vs. Mixed Supply

The Appellate Authority disagreed with the AAR’s blanket classification of bundled components as mixed supply.

It clarified:

  • If supplies are naturally bundled and one component is clearly the principal supply, it should be treated as a composite supply under Section 2(30) of the CGST Act.
  • Only where supplies are unrelated, priced as a single package, and none is principal, should it be classified as mixed supply (Section 2(74)).

Hence, component combinations (e.g., Solar Pump + Panel + Controller) may qualify as composite supply based on business practices, not automatically as mixed supply.

Supply with Installation – Application of 70:30 Rule

The appellant supplied complete solar pumping systems with installation, often under government contracts (e.g., PHED).

The AAR had wrongly classified such supplies as works contract attracting 18% GST.

The Appellate Authority corrected this and held:

  • Such contracts constitute composite supply, not works contract.
  • Principal supply is of goods, with ancillary installation service.
  • GST should be levied as per the 70:30 valuation mechanism under Notifications No. 24/2018 and 27/2018, further amended by Notification No. 08/2021-Central Tax (Rate).

Effect of Notification No. 08/2021–CT (Rate) [w.e.f. 01.10.2021]

The Authority held that:

“Pursuant to Notification No. 08/2021–Central Tax (Rate) dated 30.09.2021, the GST rate on the goods portion of solar contracts has been increased from 5% to 12%. Accordingly, for contracts involving supply and installation of solar systems post 01.10.2021, the following valuation applies:”

  • 70% of gross value = goods → 12% GST
  • 30% of gross value = installation service → 18% GST

Effective blended GST rate = 13.8%

This ensures fair classification while retaining the concessional benefit to solar infrastructure projects.

Final Ruling Summary

Issue

RAJAAAR Decision

Solar Panel

Renewable energy device → 5% GST

Solar Pump

Renewable energy device → 5% GST

Controller

Electrical equipment (HSN 8504) → 18% GST

Structure

Steel structure (HSN 7308) → 18% GST

Component combinations

May be composite supply (not automatically mixed)

Turnkey supply with installation

Composite supply; Apply 70:30 formula per Notification 08/2021. Effective GST = 13.8%

 

Conclusion

This ruling provides critical clarity for businesses in the solar energy sector:

  • Not all components are automatically taxable at 5%.
  • Proper contract structuring can enable composite supply treatment.
  • From 01.10.2021, use the 13.8% effective GST rate for supply + installation contracts under the 70:30 formula.
  • This ensures consistency, compliance, and GST efficiency in renewable energy projects.

Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.

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