Advance Ruling on Construction of Solar Plant with Case Law Study

Advance Judgment on Building And Construction of Solar Plant with Case Law Research study: Advance judgment system under GST is at the state level and here, we have a case where 2 various state advance judgment authority has actually offered 2 various judgment. This has actually put the taxpayers in a repair. In case of Building of Solar Plant, the concern was whether the Building And Construction of Solar Plant is a ‘Functions Agreement’ and accountable to 18% GST or ‘Composite Supply’ and accountable to concessional rate of 5%.

Based On Area 2(30) of CGST Act, Composite Supply indicates a supply made by a taxable individual to a recipient including 2 or more taxable materials of items or services or both, or any mix thereof, which are naturally bundled and provided in combination with each other in the regular course of service, among which is a primary supply.

According To Area 2(90), Principal Supply suggests the supply of items or services, which makes up the primary aspect of a composite supply and to which any other supply forming part of that composite supply is supplementary.

According To Area 2(119) of CGST Act, Functions Agreement indicates an agreement for structure, building, fabrication, conclusion, erection, setup, fitting out, enhancement, adjustment, repair work, upkeep, remodelling, modification, or commissioning of any unmovable residential or commercial property where, the transfer of residential or commercial property in products (whether as items or in some other kind) is associated with the execution of such agreement ” Functions agreement has actually been considered to be a service under GST– Arrange II of GST law defines that composite supply of works agreement would be considered to be a service. The basic rate of works agreement service is 18%.


The AAR judgment can be found in reaction to an application by M/s Giriraj Renewables Private Ltd. who is an EPC specialist and has actually participated in arrangement with numerous designers who want to establish and run solar photovoltaic plants for supply of created power. The agreements are for supply of products in addition to services. The candidate has actually competed that:

  • The arrangement is interpreted as a composite supply; the primary supply would be the supply of PV Modules which once again are responsible to tax @ 5%.
  • He is participated in business of supply of ‘solar energy creating system’ and the very same needs to be accountable to tax at 5%.
  • The proposed contract with its clients need to be taxable @ 5% GST, and the exact same need to be suitable to subcontractors.

Karnataka Authority of Advanced Judgment (AAR)

  • The significant part (PV Module) stated to have actually made up 70% of the entire job acquired by the owner himself. The very same can not be interpreted as a primary supply by the candidate and thus, it can not be interpreted to be a primary supply of the job and consequently can not be a composite supply.
  • EPC agreement for the building and construction of solar energy job in which both products and services are provided can not be analyzed as a composite (a mix of elements, that make up a solar task) supply agreement. The supply of each element in a ‘Solar Power Getting System’ can not have a flat tax rate of 5 percent GST.
  • Even more, the authority clarified that the rate of GST will depend upon the supply type as the sub-contractor is a specific provider and can not get any GST at concessional rate.

Maharashtra State Authority of Advanced Judgment (AAR)

Has, in action to an application by Giriraj Renewables Pvt. Ltd., clarified that irrespective of the truth that there are different agreements for supply of items and services for a solar energy plant, the whole job of establishing and operation of a solar photovoltaic plant will certify as a works agreement and will be taxable at 18%.


2 different Authorities for Advance Judgments (AAR) on the GST rate relevant on setup of solar plants have actually tossed the solar market into confusion. The market has actually knocked at the doors of the federal government looking for clearness on the matter.

2 judgments, from the Maharashtra AAR, have actually preferred a GST rate of 18%, dealing with setup as an entire works agreement. The Karnataka AAR, nevertheless, has actually ruled to deal with setup at the concessional rate of 5% relevant on devices. The obstacle for the candidate is as he needs to keep it in a different way in both the states as one has actually provided it at 5% and another at 18%.

To prevent such confusion, it might be proposed to have a main body for advance judgment so that the trade and market can actually take advantage of the very same. The present system does not have any representation from the Judiciary and for this a petition is currently submitted in the High Court of Gujarat and it published for hearing on second July2018 Keeping in view of all the above, the advance judgment system ought to be reviewed in GST else it will beat the goal of having such a system.