The basic idea behind implementing GST was to provide a simplified taxation system. However, upon implementation the actual picture was little different due to various technical glitches in the portal and the ambiguity in the law. One such ambiguity was with respect to the taxability of renewable energy devices and the related services with respect to their installation and set up.
Notification No. 1/2017-Central Tax (Rate) dt. 28.06.2017 (“Goods Rate Notification” for short) lays down the rate for renewable energy devices as 5 % (CGST 2.5%; SGST 2.5%). Further, Notification No. 11/2017-Central Tax (Rate) dt. 28.06.2017 (“Services Rate Notification” for short) lays down the GST rate of 18% (CGST 9%, SGST 9%) for services by way of construction or engineering or installation or other technical services, provided in relation of setting up of renewable energy devices. So it gave rise to the ambiguity about the rate which should be applicable in cases wherein the person is undertaking the complete contract of providing the renewable energy devices alongwith the services of their installation and setting up. Even the advance rulings issued in this regard gave divergent views. So to bring the clarity on this issue, an explanation was inserted in the Goods Rate Notification vide Notification No. 24/2018- Central Tax (Rate) dt. 31.12.2018 w.e.f 01.01.2019. The relevant extract of the Goods Rate Notification reads as under:
|S. No.||Chapter/Heading/Sub-Heading/Tariff item||Description of Goods|
|234.||84, 85 or 94||Following renewable energy devices & parts for their manufacture
(a) Bio gas Plant
(b) Solar Power based devices
(c) Solar Power generating system
(d) Wind mills, Wind Operated Electricity Generator (WOEG)
(e) Waste to energy plants/devices
(f) Solar Lantern/ solar lamps
(g) Ocean wave/ tidal wave energy devices/plants
(h) Photo voltaic cells, whether or not assembled in modules or made up into panels
Explanation:– If the goods specified in this entry are supplied, by a supplier, along with supplies of other goods and services, one of which being a taxable service specified in the entry at S.No. 38 of the Table mentioned in the Notification No. 11/2017-Central Tax (Rate), dated 28.06.2017 (G.S.R. 690 (E)), the value of supply of goods for the purposes of this entry shall be deemed as seventy percent of the gross consideration charged for all such supplies and the remaining thirty percent of the gross consideration charged shall be deemed to be value of the said taxable service
From the perusal of the above, it is evident that in case of complete contract of supply and installation of renewable energy devices, the service portion would constitute of 30% of the gross value and the goods portion would constitute for 70% of the gross value which gives the effective rate of 8.9% [(5%*70%) + (18%*30%)].
Since, the above explanation was effective w.e.f. 01.01.2019, there was no clarity w.r.t. the applicable rates for the period upto 31.12.2019. Again to bring clarity in this matter GST Council in its 45th meeting sated that the for the period before 01.01.2019, GST on the renewable energy projects shall be paid on 70:30 mechanism only i.e. the explanation has a retrospective effect. The relevant extract of the minutes of 45th GST Council meeting reads as under:
8. GST on specified Renewable Energy Projects can be paid in terms of the 70:30 ratio for goods and services, respectively, during the period from 1.7.2017 to 31.12.2018, in the same manner as has been prescribed for the period on or after 1st January 2019.
Further, vide Notification No. 8/2021- Central Tax (Rate) dt. 30.09.2021, the Goods rate Notification has been amended and the rate on renewable energy devices has been increased to 12% (CGST 6% and SGST 6%) from 5% w.e.f. 01.10.2021. Therefore, now the effective rate on renewable energy projects would be 13.8% [(12%*70%) + (18%*30%)].
(Author CA Palash Sharma is Partner at M/s Palash Sharma & Associates)