HC Remands GST Assessment; 70:30 Valuation Not Mandatory

Mytrah Energy, a company specialising in solar power systems, found itself in a tax tangle over its 2018–19 assessments. The GST department insisted on splitting the company’s contracts into two buckets: 70% of the value was taxed as “goods” at 5%, while the remaining 30% was taxed as “services” at a much higher 18%. This formula came from a 2018 notification meant to simplify solar project taxes.

However, the company argued that its work was a “composite supply”, a single, unified project that should be taxed at the lower 5% rate for the whole thing. They also pointed out that the government’s 70:30 rule shouldn’t be forced on them retrospectively for past years, especially since a 2021 circular suggested this split was more of an option than a command.

Central Issue: Is the 70:30 tax split for solar projects mandatory and retrospective, and did the tax office fail to correctly identify whether the project was a unified “composite supply”?

HC’s Ruling: The High Court stepped in and scrapped the tax department’s order. The Court clarified that the government’s 2021 circular doesn’t actually force this 70:30 split on old contracts. It ruled that the tax officers had taken a shortcut; they failed to do the actual homework of checking if the solar installation was a “works contract” (immovable property) or a simple bundle of movable goods and services.

The Judges directed the authorities to take a fresh look at the actual nature of the deal. They emphasised that you can’t just apply a mathematical formula without first deciding what kind of “supply” it is under the law. While the Court left the final decision on whether the 70:30 rule is even constitutionally valid for another day, it made one thing clear: tax officers cannot apply new formulas to old cases without a solid legal reason.

To Read Full Judgment, Download PDF Given Below