GST 70:30 Solar Tax Split Cannot Be Applied Retrospectively: AP HC

My Trah Energy India Private Limited Vs Union of India (Andhra Pradesh High Court)

In My Trah Energy India Private Limited vs Union of India, the Andhra Pradesh High Court examined the validity of applying a 70:30 tax split on solar EPC (Engineering, Procurement, and Construction) contracts, particularly whether such a split could be imposed retrospectively through a GST circular.

The petitioner, engaged in manufacturing and installing solar panels and solar power generating systems, was subjected to assessment proceedings for the period between March 2018 and April 2019. During the pendency of a writ petition challenging jurisdiction, the assessing authority issued an order dated 11.07.2024. The petitioner amended the petition to challenge this assessment order.

The tax authority applied a bifurcated tax structure based on an explanation inserted into Notification No. 24/2018 (effective from 01.01.2019). Under this approach, 70% of the turnover was taxed as goods at 5%, and 30% as services at 18%. The petitioner opposed this, arguing that its activities constituted a “composite supply” under Section 2(30) of the GST Act, which should be taxed uniformly under Section 8 at the rate applicable to the principal supply—5%.

The authority contended that the explanation to Sl. No. 234 of Notification No. 1/2017 created a legal fiction mandating this 70:30 split even for composite supplies. However, the petitioner challenged this interpretation on two grounds: first, that the explanation was intended as a facilitative provision and not a mandatory rule; and second, that even if applicable, it could not apply retrospectively to transactions before 01.01.2019.