The AAR, Uttar Pradesh in the case of In Re: M/s. Aastha Traders [Advance Ruling No. UP ADRG-30/2023 dated August 25, 2023] ruled that, solar powered submersible pump along with solar panels and convertor would be considered as mixed supply and GST would be levied at the rate of 18 percent.
Facts:
M/s. Aastha Traders (“the Applicant”) is a partnership firm and desires to engage in the business of submersible pump specifically solar pump which has been designed to operate using solar power modules. As per the market research conducted by the Appellant it came to the knowledge of the Appellant that some dealers were charging GST at the rate of 18 percent and some dealers were charging GST at the rate of 12 percent on solar device driven submersible pump and were using different HSN Code.
Therefore, the Applicant has filed an application for advance ruling before the AAR, Uttar Pradesh on what would be the applicable rate of GST on Solar powered water submersible pump and what would be the applicable HSN Code which has to be used while issuing the invoice.
Issue:
Whether GST would be levied at the rate of 18 percent on solar powered submersible pump?
Held:
The AAR, Uttar Pradesh in the case of Advance Ruling No. UP ADRG-30/2023 held as under:
- Relying upon the definition of Composite Supply as per Section 2(30) of the CGST Act observed that, composite supply can be determined based on the criteria that there is supply of two or more goods or services or combination of both, the supply should be made in a natural bundle i.e., the goods and / or services are provided as a combination in the ordinary course of the business, the individual items (goods and /or services cannot be supplied separately and one of the supplies is a principal supply.
- Relying upon the definition of Mixed Supply as per Section 2(74) of the CGST Act, further observed that, the possible combination of more than one type of goods which are independent of each other but are sold together as a combination of goods would be considered as mixed supply. Also, as per sub-section (b) of Section 8 of the CGST Act, the tax would be leviable on the particular supply of goods or service on which highest rate of tax is to be levied.
- Noted that, for determining the classification of the product, it is important to differentiate between the product ‘solar power-based devices’ and ‘submersible that is run using solar power’. Also, it is important to determine whether a device can run independently using solar power.
- Further Noted that, solar water pumps are powered by solar energy and are used for water transfer and other related purposes. The solar water pumps include different components such as solar panels, controller and water pump.
- Opined that, each individual component is capable of functioning independently and cannot be treated as single supply. Therefore, the aforesaid supply cannot be treated as composite supply and has to be treated as mixed supply.
- Ruled that, the rate of tax on sale of solar driven submersible pump would be 18 percent GST and HSN code with highest tax rate would be applicable for invoice.
Relevant Provision:
Section 2(30) of the CGST Act:
“Composite Supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;
Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.”
Section 2(74) of the CGST Act:
“Mixed Supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply;
Illustration: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.”
Conclusion
The AAR’s ruling provides clarity on the taxation of solar-powered submersible pumps, resolving the Applicant’s query regarding applicable GST rates and HSN codes. By categorizing the supply as a mixed supply and applying the highest tax rate, the decision establishes a framework for consistent tax assessment in similar cases.
Businesses operating in the solar energy sector must adhere to this ruling to ensure compliance with GST regulations. Understanding the implications of composite and mixed supplies is crucial for accurate tax calculation and invoicing. As the renewable energy market continues to expand, clear guidelines from authorities like the AAR are essential for promoting transparency and facilitating smooth business operations.
****
(Author can be reached at [email protected])
Author Bio
