GST Rates on Solar Power based devices & System

GST Rates on Solar Power based devices & System

The ARA, Rajasthan has pronounced judgment on 3.9.2021, in the case of Sapna Gupta (2021) 36 J.K.Jain’s GST & VR 338, holding that;

“1. Solar pump is solar power based device. As such, it falls under HSN code 8413 and attracts GST @5% under Entry No.234 of notfn No.1/2017-CT(R) dated 28.6.2017

2. Solar Controller─It measures the efficiency of the entire system as well as the operating life of the batteries. Solar controller is neither solar power based device nor a part of it. As such, it falls under HSN code 8504 reading as “Electrical transformers, static converters and inductors” and taxable @ 18%.

3. Solar Structure─The structures are neither solar power based devices nor their parts and fall under HSN code 7308 and taxable at 18%.

4. Solar Panels─It falls under HSN code 8413 and attracts GST @5% under Entry No.234 of notfn No.1/2017-CT(R) dated 28.6.2017.

5. Mixed Supply─Rate of Tax─The combination of “Solar panel, Solar Controller & Solar Pump” and “Solar Pump & Solar Panel” and “Solar Pump & Solar Controller” and “Solar Panel & Solar Controller”, constitute mixed supply of goods. As such, per S.8(b), CGST Act, 2017, the highest rate of GST on such combination of supply will be applicable.

6.Composite Supply─Solar Water Pumping System─It comprises of Solar panel, Solar Controller, Solar Pump, Structure along with the installation & tantamounts to Composite supply attracting 18% GST under entry No. 3 of Heading 9954─S.8(a), GST Act, 2017.”

1. Background.─Sapna Gupta Prop. of M/s Utsav Corporation is engaged in providing products and services in energy conservation, renewable energy sources, water infrastructure and water treatment project management. The applicant is engaged in supply of solar energy based products under various contracts and on the basis of purchase orders from customers with or without installation service.

That in relation to the contracts/orders of pure sale of solar energy devices, the applicant is willing to seek an advance ruling for classification and GST rate on supply of solar energy products as Solar Water pumping system as a whole, sale of one of the products on standalone basis, and sale of the products under various combinations to be undertaken by them.

That this Advance Ruling is sought from the Authority for Advance Ruling, Rajasthan in respect of the following question:

1) What should be the classification and GST rate on sale of following goods or combination of goods:

(a) Solar Pump (b) Controller (c)Structure (d) Solar Water Pumping System (comprising of Solar panel + Controller + Solar Pump + Structure) (e) Solar panel+Solar Controller +Solar Pump (f) Solar Pump + Solar Panel (g) Solar Pump+Controller (h) Solar Panel +Controller

2). What should be the classification and GST rate on Supply of Solar water pumping system as a whole comprising of goods (Solar Panel + Solar Controller + Solar Pump + Structure) along with the installation of Solar water pumping system for drinking water application?

2. Findings, Analysis & Conclusion by ARA.─Solar panels:–Solar Panels (also known as “Photovoltaic/PV Panels”) are made of solar cells (also known as “PV cells”) which are connected to each other in series and parallel connection. Solar cells are made up of silicon semi-conductor material which converts the energy generated from sunlight into electrical energy. The electrical energy generated by conversion of sunlight is known as Solar power. Solar PV modules/panels are to be positioned at proper inclination to collect maximum energy from the sunlight.

Under the GST tariff, entry No.234 of Sch.-I has a specific entry for Solar PV cells which is taxable at the rate of 5%. The entry is as under:

S.No.	HSN	Description	Rate
234.	84, 85 or 94	Following renewable energy devices & parts for their manufacture (h) Photo voltaic cells, whether or not assembled in modules or made up into panels	2.5%

Hence, the classification of solar panels is clear and it attract 5% rate of GST.

Solar pump:–A solar water pump is used for extracting water from ponds, rivers. bore wells or other sources of water which are then used to meet the water requirements for irrigation, community water supply, livestock and other purposes. Pumps are also used for water transportation from one location to another.

When sunlight falls on the solar panels, it produces direct current (DC) which then feeds the DC motor to pump out the water, In the case where the motor requires an alternating current (AC), the DC produced by solar panels is converted to AC using an inverter/Variable Frequency Drive, and the motor uses that AC to pump out the water.

The important characteristic of solar pumps (whether DC or AC) is that it is designed with low voltage capacity to be run on solar energy. As compared to the above general standards, the voltage of solar power is lower. The solar pumps are designed to primarily run on solar energy. Hence the solar pump motors have a low voltage capacity as compared to electric pumps. Hence this is a differentiating factor of solar pumps that their voltage capacity is lower as compared to electric pumps of similar phase.

The solar pumps whether AC or DC have a low voltage capacity and hence in solar water pumping systems, solar pump sets are fitted with solar charge controllers to maintain the frequency of current supplied to them. The relevant entries in GST Tariff for pumps classifiable under Chapter 84 are as under:

S.No.	HSN	Description	Rate
234.	84, 85 or 94	Following renewable energy devices & parts for their manufacture (b) Solar power based devices (c) Solar power generating system	2.5%

Entry 234 of Schedule-I, specifically covers the parts for manufacture of ‘Solar Power Generating System’ or ‘Solar Power based devices’.

Hence, solar pump is solar power based devise (sic. device) and is classifiable under entry No.234 of notfn No.1/2017-CT(R) dated 28.6.2017 and taxable at the rate of 5% GST.

Solar Controller.–Solar Controller is technically known as a Charge controller. It determines how much power should be injected into the batteries for optimum performance. It measures the efficiency of the entire system as well as the operating life of the batteries. It also protects the battery bank from overcharging. Whenever a battery is used, a charge controller is also used to ensure longer battery life.

The above item i.e., controller is neither solar power based devise (sic. device) nor part of solar power based devices and fall under chapter heading 85 of GST Tariff which has a specific entry for Electrical transformers, static converters and inductors as under:–

HSN	Description	Rate
8504	Electrical transformers, static converters and inductors	9%

Thus, controller attracts 18% rate of GST.

Structure:–structures are used for mounting of PV modules in a solar water pumping system.

The structures are neither solar power based devices nor part of solar power based devices and fall under chapter heading 7308 of GST Tariff as under:

HSN	Description	Rate
7308	Structures (Excluding Buildings of Heading 9406) And Parts of Structures (For Example, Bridges and Bridge sections. Lock-(1) (2) (3) (4) (5) Section-XV 642 Chapter-73 Gates. Towers, Lattice Masts, Roofs, Roofing Frame-Works. Doors and Windows and their Frames and Thresholds for Doors. Shutters. Balustrades. Pillars And Columns) of Iron or Steel: Plates, Rods, Angles, Shapes, Sections, Tubes and the Like. Prepared for Use in Structures, of Iron or Steel	9%

Thus, Structures attracts 18% rate of GST.

Solar Water Pumping System (comprising of Solar panel + Controller + Solar Pump + Structure):–

Solar Water Pumps are of different types which includes DC Pumps and AC Pumps:

DC pump: This pump runs on a motor which operates on direct current.

AC pump: The motor of this pump operates on alternating current, which means the direct current produced by the solar panels gets converted to AC using the inverter.

A solar panel produces direct current. The sun on the panels stimulates the flow of electrons, creating current and since these electrons flow in the same direction, the current is direct.

Since, Solar Water Pumping System is not the whole device it is made of Solar panel, Controller, Solar Pump, Structure etc. includes procurement, development, testing, commissioning etc. hence, it is a mixed supply for goods and services.

Mixed Supply has been defined in S.2(74) of GST Act, 2017 as below–

(74) “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:

Further, tax liability on a mixed supply shall be determined as defined in S.8(b) of GST Act, 2017 which is as under–

“a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.”

Therefore, the Solar Water Pumping System (comprising of Solar panel + Controller + Solar Pump + Structure) is a Mixed Supply and highest rate of GST will be applicable amongst goods supplied by the applicant.

Solar panel + Solar Controller +Solar Pump

Solar Pump + Solar Panel

Solar Pump + Controller

Solar Panel + Controller

Since the above composition is the mixed supply of goods, as already discussed in above para, hence the highest rate of GST will be applicable amongst goods supplied by the applicant.

In the present case, the applicant is proposed to supply the functional solar water pumping system as a whole, which include supply, installation, commissioning & maintenance. The proposed supply including installation, commissioning & maintenance would fall under the ambit of works contract service as per S.2(119) of CGST Act, 2017 and attracts 18% GST.

5. Ruling by ARA.─ Q.1 What should be the classification and GST rate on sale of following goods or combination of goods:

i) Solar Pump: fall under chapter 84, HSN code 8413 and attracts GST at the rate of 5% under SI.No.234 of notfn No.1/2017-CT(R) dated 28.6.2017.

ii) Controller: Fall under chapter 85, HSN code 8504 and taxable at 18% rate of GST

iii) Structure:–Fall under chapter 73, HSN code 7308 and taxable at 18% rate of GST

iv) Solar Water Pumping System (comprising of Solar panel + Controller + Solar Pump + Structure):–

v) Solar panel + Solar Controller + Solar Pump:–

vi) Solar Pump + Solar Panel

vii) Solar Pump + Controller

vii) Solar Panel + Controller

Serial No.(iv) to (Vii) is mixed supply of goods and the highest rate of GST will be applicable amongst goods supplied by the applicant.

Q.2. What should be the classification and GST rate on Supply of Solar water pumping system as a whole comprising of goods (Solar Panel + Solar Controller + Solar Pump + Structure) along with the installation of Solar water pumping system for drinking water application?

Ans:–The proposed supply comprising of Solar Panel, Solar Controller, Solar Pump, Structure along with the installation shall attract GST@18% under S.No.3 of Heading 9954 (ii) of notfn No.11/2017, dated 28.6.2017.

Our Analysis.─In my view, the rate of GST on Solar water pumping system should be 5% since under entry No.234 of Sch.I, the rate of GST prescribed in specific entry on “Solar Power Generating System” is 5% (2.5% CGST + 2.5% SGST).