In a ruling that could spike the cost of setting up solar power plants, the Authority for Advance Ruling (AAR) for GST in Maharashtra said that engineering, procurement and construction (EPC) activities will be considered as ‘work contract’ and liable to be taxed at 18%.
The petitioner had argued that these should be considered as ‘composite supply’, which would attract a concessional GST of 5% for solar power generation stations.
Abhishek Jain, tax partner, EY India, said: “If the levy of 18%, vis-a-vis a general industry belief of 5% is upheld at higher judicial forums as well, it may increase the cost of solar power plants since electricity is not liable to GST and input GST becomes a cost.”
The applicant, which is a Mumbai-based solar EPC contractor, argued that since the GST definition of ‘works contract’ involved immovable property, the commissioning of solar power plant — a movable supply — should not be considered as ‘works contract’.
The authority, however, pointed out that commissioning of such plants have an element of permanency about them as they cater to identifiable consumers, and a contract between an EPC contractor and the counter-party is entered into on the premise that the plant would continue to be situated at the place of construction.
The order cited multiple Supreme Court orders to arrive at the conclusion that the solar power plant would be considered as an immovable property and would attract 18% tax under ‘works contract’.
A senior official of a leading solar EPC contract player told FE that the new ruling vindicates solar EPC industry’s opinion about the untenability of the recent circular by the ministry of new and renewable energy (MNRE) in the eyes of law. The ministry, in a note issued in early April, had claimed that EPC contracts would be treated as composite supply and attract 5% GST. However, the MNRE note said that tax incidence might warrant examination of individual EPC contracts. “EPC players are planning to present the issue to the GST council soon,” the person added.
Source :  Financial Express