The Delhi High Court has asked the Goods and Services Tax Council to re-evaluate the tax structure for solar power projects.
The decision was in reply to a writ filed by the Solar Power Development Association, which had braved the latest tax formulation for solar power generating systems disclosed on January 1.
The court has requested the GST Council to relook at the mater in discussion with the Central Board of Indirect Taxes and Customs and the ministry of new and renewable energy. It has given the government two months to revert and arranged the next hearing in August.
“Between divergent AARs and an ad hoc basis of fixing a presumptive valuation between goods and service, the solar sector has had a chaotic induction into GST…(order) holds out hope of a quick and definitive solution to this long-standing problem of the solar industry,” said Rohan Shah, the counsel who represented the industry.
The Solar Power Developer Association (SPDA) has claimed the goods and services tax rate be kept uniform at 5 percent on solar power generating system (SPGS). The total incidence of tax on the SPGS has increased to 8.9% with the implementation of the GST Council recommendations concluded on December 22, 2018, which became effective from January 1, 2019.
The government, following industry representations on the impact of divergence in tax practices, provided a deemed valuation provision that entailed taxing 70% of contract value as goods, taxable at 5%, and balance 30% as services, taxable at 18%.
The industry was disappointed as the said ad-hoc valuation did not provide a fair estimate of the actual split of goods and services. Typically, the said ratio in the solar sector is around 90:10. The new formulation also brought with itself several implementation challenges.
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