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Delhi High Court Directs GST Council to Review Tax Structure for Solar Projects

After reviewing a petition filed by the Solar Power Developers Association (SPDA) that challenges the new tax formulation structure for solar projects, a bench of the Delhi High Court has asked GST Council to review the newly-introduced taxation formula.

In December 2018, the GST Council, in its 31st meeting, had given its recommendations on solar power generating projects. In the recommendation, the GST Council stated that in case of contracts of supply for solar power generating systems (SPGS), 70% of the gross value of the contract would be deemed as the value of supply of goods and attract 5% rate while the remaining 30% of the aggregate value of such EPC contract will be deemed as the value of supply of taxable service attracting standard GST rate (18%).

Following the announcement of the recommendations, in January 2019, the SPDA had noted in a letter to Finance Minister Arun Jaitley that the new recommendations from the council have made the effective tax rate to be 8.9% (70% X 5 % + 30 % X 18 %), which is considerably higher when compared to the rate of 1.5 to 2 percent in the pre-GST era.

Commenting on the development, the SPDA spokesperson said, “We are thankful to GST Council for bringing necessary clarity on the taxability of various types of contracts for the supply of goods and services in solar power generating system. However, with the 70:30 ratio of supply of goods and services, the industry is ending-up paying a higher effective tax rate of 8.9% which is again impacting the financial viability of the solar projects. We welcome the decision of Hon’ble High Court of Delhi and as directed, we will bring relevant facts and figures to the table before CBIC and hope to reach an amicable and fair settlement on the issue”.

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