GST on Solar EPC Contracts to be Levied at 8.9% Under 70:30 Formula: Andhra Pradesh HC Sets aside ₹18% Assessment

The Andhra Pradesh High Court has held that GST ( Goods and Services Tax ) on Solar Engineering, Procurement and Construction ( EPC) contracts is leviable at an effective rate of 8.9% by applying the 70:30 valuation formula prescribed under GST notifications, and not at 18% as assessed by the department.

According to the facts, a writ petition filed by Vikram Solar Limited, which is engaged in executing contracts for supply, installation, commissioning, and operation of solar power generating systems.

The issue was related to the GST assessment for the period April 2018 to March 2020, wherein the department treated the contracts as works contracts involving immovable property and subjected the entire consideration to GST at 18%.

The petitioner contended that its contracts involved supply of solar modules and components forming part of solar power generating systems, which are specifically taxed at 5% under Notification No. 1/2017 dated 28 June 2017.

It was further argued by the petitioner’s counsel, Adv. Lakshmi Sukumaran Sridharan that even if such supplies were made along with services, the Explanation inserted vide Notification No. 24/2018 dated 31 December 2018 mandated a deemed valuation mechanism, under which 70% of the gross consideration is treated as supply of goods taxable at 5%, and the remaining 30% as supply of services taxable at 18%, resulting in a weighted effective rate of 8.9%.

The High Court noted that the assessing authority itself had recorded that the petitioner had self-assessed GST liability at 8.9% and paid the differential tax during March 2019, and that the interest shortfall was also subsequently discharged.

The Court rejected the department’s argument that the concessional rate would not apply where the transaction is treated as a works contract relating to immovable property

The Bench of Justices R. Raghunandan Rao and T. C.D Sekar held that Entry No. 234 of Schedule I to Notification No. 1/2017, along with the explanatory provision inserted with effect from 1 January 2019, squarely applies to contracts involving erection and commissioning of solar power generating systems.

It clarified that the 70:30 valuation formula applies irrespective of whether the contract is characterised as a composite supply or a works contract relating to immovable property.

Accordingly, the High Court set aside the assessment order dated 27 November 2024 and remanded the matter to the assessing authority with directions to recompute the tax liability by applying a uniform GST rate of 8.9% on the gross consideration.

However, the Court left the question of whether the contracts involved movable or immovable property open, as the matter was decided purely on the basis of the applicable GST notifications. The writ petition was allowed with no order as to costs.

The Andhra Pradesh High Court has held that GST ( Goods and Services Tax ) on Solar Engineering, Procurement and Construction ( EPC ) contracts is leviable at an effective rate of 8.9% by applying the 70:30 valuation formula prescribed under GST notifications, and not at 18% as assessed by the department.

According to the facts, a writ petition filed by Vikram Solar Limited, which is engaged in executing contracts for supply, installation, commissioning, and operation of solar power generating systems.

The issue was related to the GST assessment for the period April 2018 to March 2020, wherein the department treated the contracts as works contracts involving immovable property and subjected the entire consideration to GST at 18%.

The petitioner contended that its contracts involved supply of solar modules and components forming part of solar power generating systems, which are specifically taxed at 5% under Notification No. 1/2017 dated 28 June 2017.

It was further argued by the petitioner’s counsel, Adv. Lakshmi Sukumaran Sridharan that even if such supplies were made along with services, the Explanation inserted vide Notification No. 24/2018 dated 31 December 2018 mandated a deemed valuation mechanism, under which 70% of the gross consideration is treated as supply of goods taxable at 5%, and the remaining 30% as supply of services taxable at 18%, resulting in a weighted effective rate of 8.9%.

The High Court noted that the assessing authority itself had recorded that the petitioner had self-assessed GST liability at 8.9% and paid the differential tax during March 2019, and that the interest shortfall was also subsequently discharged.

The Court rejected the department’s argument that the concessional rate would not apply where the transaction is treated as a works contract relating to immovable property

The Bench of Justices R. Raghunandan Rao and T. C.D Sekar held that Entry No. 234 of Schedule I to Notification No. 1/2017, along with the explanatory provision inserted with effect from 1 January 2019, squarely applies to contracts involving erection and commissioning of solar power generating systems.

It clarified that the 70:30 valuation formula applies irrespective of whether the contract is characterised as a composite supply or a works contract relating to immovable property.

Accordingly, the High Court set aside the assessment order dated 27 November 2024 and remanded the matter to the assessing authority with directions to recompute the tax liability by applying a uniform GST rate of 8.9% on the gross consideration.

However, the Court left the question of whether the contracts involved movable or immovable property open, as the matter was decided purely on the basis of the applicable GST notifications. The writ petition was allowed with no order as to costs.

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