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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