Since solar developers hardly ever build their own
projects but use contractors, the ruling, which is
almost certain to serve as a precedent for other states
as well, in effect takes away the advantage of the
concessional GST rate for solar panels from them. It
will increase their tax burden and in turn may well
raise solar tariffs at future auctions.
The petition filed before MAAR by Fermi Solar Farms, a
leading EPC contractor, had noted that setting up
solar projects usually involve two separate contracts
with the developer – one for supply of goods, which
includes solar panels and related equipment , and the
other for setting up the plant, erecting civil works,
connecting transmission lines, etc. It had argued that
the GST rate for the first contract should be 5% and for
the second, 18%. MAAR’s ruling, however, concluded that
both contracts should invite GST at 18%.
MAAR noted that a solar plant consisted of a host of
equipment – solar panels and inverters merely being the
most prominent – which were put together on the site by
the contractor to form a solar power generating system (SPGS).
“A solar power generating system is not available as a
system as such,” its ruling said. “The agreement very
clearly mentions that the buyer desires to purchase an
end-to-end SPGS with various integral components. Thus
the buyer has expressed a clear intent to purchase an
end-to-end SPGS with various integral components. Thus
the buyer has expressed a clear intent to purchase an
SPGS with the various components and not the components
merely... The supplier is appointed not merely to supply
the equipment, but there is design and engineering work
even before the supply of equipment... The agreement
does not stop at supply of equipment but extends to
implementation, operation and maintenance as well.... On
what basis can such a contract be termed a contract
merely for ‘supply of goods’?”