A year on, stakeholders are still in the dark about how the rate applies, while conflicting state commission rulings on the rate have only added to the confusion
Passed on 1st July 2017, India’s Goods and Services Tax (GST) is an indirect tax imposed on goods and services, and replaces existing state and central taxes of a similar nature. The goal of the GST is to simplify the indirect tax for the country as a whole.
“It has now been well over a year since the GST came into effect and there is still no clarity which has been a drag on solar installations in the country. States are also issuing their own interpretations, adding to the confusion. Solar companies are still struggling to figure out the GST rates applicable on various goods and services that go into the development of a solar project,” said Raj Prabhu, CEO of Mercom Capital Group.
The ongoing delays in GST reimbursement and lack of clarity are affecting solar project developers in India. Today, the situation remains the same.
An official at Rays Infra, an EPC services company told Mercom, “If we sell the complete solution, then it has a GST rate of 5 percent. But in case we unbundle it and provide to the customer separately, then the components will have 18 percent GST rate.”
Highlighting the issues faced by developers, he added, “What we expect is that the GST rate of 5 percent should be applicable to the entire range of products and services in the renewables industry. At times, it is difficult to include every product and make it an integrated solution as you don’t know if you are going to sell it as a total solution or a separate product.”
A project developer shed some more light on the issue, “As far as GST is concerned, the issues we had have been mostly cleared by the CERC. But the key issue is that there are advanced rulings which talk about 5 percent as well as 18 percent GST. We have claimed only 5 percent for power generating systems but if there is a change again from 5 percent to 18 percent, as some of the advanced rulings have come, this issue will again come up. This is where we are stuck. The Ministry of Finance is yet to confirm which contract would come under 5 percent and which under 18 percent. This is not clear in the law and that’s why it has to be clarified by the Ministry of Finance. Unless they declare it, the courts and commissions will take decisions on their own reading and understanding of the law. These rulings are creating a lot of confusion”.
The ongoing confusion and uncertainty has been compounded due to the varied state commission rulings on the matter.
He added “Solar power generating systems are also procured in various contracting structures. For example, composite turn-key supply or segregated supply and services. Only the supply part has 5 percent GST, so we are seeking clarification from the MoF about which contracting structure will attract a particular rate.”
Currently, the ministry is reviewing the documents submitted by SPDA and is expected to take this matter with the GST Council, according to the representative.
Recently, the CERC issued an order to compensate solar power developers through a one-time payment, which they would have incurred as an additional capital expenditure after the introduction of GST Law. It asked the government agencies to make adjustments in the quoted tariff because of the additional operating and recurring expenditure that will incur for the entire term of the project.