Rooftop Solar EPC Categorized as Works Contract: AAR rules GST Applicable on Entire Gross Contract Value [Read Order]

The bench of the West Bengal Authority for Advance Ruling (AAR) ruled that the supply of components of a rooftop solar power plant along with design, installation, testing, and commissioning constitutes a composite supply in the nature of a works contract, with the applicable Goods and Services Tax to be levied on the entire gross contract value.

The applicant, Sunshell Power, is engaged in Engineering, Procurement, and Construction (EPC) execution of rooftop solar power projects, entered into a contract for the supply, design, installation, testing, and commissioning of grid-connected rooftop solar power plants for a division of the Indian Railways. The contract involved both the supply of solar plant components, including monocrystalline panels and inverters, and the provision of installation and commissioning services.

The applicant approached the Authority seeking an advance ruling on whether such supply constituted a composite supply and how the value for levy of Goods and Services Tax should be determined.

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Represented by Shubham Khaitan, the applicant contended that the contract involved naturally bundled supplies of goods and services that are provided in conjunction with each other in the ordinary course of business, and therefore must be treated as a composite supply.

It was argued that the valuation should follow the deeming formula prescribed through Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018, whereby seventy percent of the consideration is treated as supply of goods and thirty percent as supply of services.

The Revenue Authorities submitted that the supply in question results in the creation of an immovable property, as the installed rooftop solar power plant becomes permanently affixed to the roof and cannot be shifted without substantial dismantling. Therefore, the supply meets the statutory definition of a works contract services under Section 2(119) of the Central Goods and Services Tax Act, 2017.

The authority further submitted that valuation must apply the prescribed seventy percent and thirty percent split between goods and services, computed on the gross contract value, as per Notification No. 24/2018-Central Tax (Rate).

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The bench comprising of Dr. Tanisha Dutta, Joint Commissioner and Jaydip Kumar Chakrabarti, Senior Joint Commissioner held that the supply undertaken is a composite supply in the nature of a works contract, since the rooftop solar power plant, when installed, becomes an immovable property due to the degree of fastening and permanence of attachment to the structure. Accordingly, the entire supply is treated as a supply of service.

For valuation, the bench ruled that the entire gross consideration charged under the EPC contract must be taken as the base for determining tax liability, with seventy percent of the value deemed to relate to goods taxed at twelve percent, and thirty percent deemed to relate to services taxed at eighteen percent, in line with the explanation inserted through Notification No. 24/2018-Central Tax (Rate).

In Re: SUNSHELL POWER , 2025 TAXSCAN (AAR) 184 , ARN AD190225003975Z , 8 May 2025