Solar power generating systems composite contracts; HC Upholds 70:30 Valuation even if separate GST invoices issued:

Solar power generating systems composite contracts; HC Upholds 70:30 Valuation even if separate GST invoices issued Tata Power Renewable Energies Limited is challenging a Rs. 9.19 crore tax demand in the High Court, centred on the GST treatment of solar power projects. While the company applied the standard 70:30 split (taxing equipment at 5% and services at 18%), authorities claim that issuing separate invoices for these components disqualified them from the concession, necessitating a flat 18% rate on the entire contract. The case is a critical test of whether administrative billing methods can override established tax benefits for renewable energy, with the court's decision likely to set a major precedent for the industry.

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Central Issue: Whether solar power system supplies qualify for 70:30 GST valuation despite separate invoicing or are fully taxable at 18%? HC's Decision: The High Court allowed the writ petition and set aside the impugned assessment order. It held that the statutory scheme under Notification No. 1/2017 and Notification No. 11/2017, along with their explanations, clearly mandates the application of the 70:30 mechanism for taxing solar power generating systems. The Court observed that a legal fiction had been created to treat 70% of the value as goods taxable at 5% and 30% as services taxable at 18%.

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Rejecting the department’s reasoning, the court held that mere issuance of separate invoices does not alter the nature of the transaction, especially when the supplies are made under a single contract. It further noted that the assessing authority failed to conduct any proper valuation exercise and arbitrarily imposed 18% tax on the entire turnover without justification. The Court also relied on its earlier ruling in Sterling and Wilson Pvt. Ltd, reaffirming that such contracts constitute composite supplies. Therefore, the assessment order dated 06.03.2025 was set aside to the extent it levied differential tax, and the authorities were directed to pass consequential orders in line with the correct legal position. To Read Full Judgment, Download PDF Given Below.