The TrickyScribe: With Indian PM Narendra Damodardas Modi being designated the UNEP Champion of Earth for 2018; the year was slated to be nothing but a sunshine year for renewables including solar power in India.
Power generation capacity touched 22 GW in FY18 displaying a remarkable growth of over 75% as compared to FY17. Despite a humble base, India’s target of achieving power generation capacity of 100GW by 2022 under National Solar Mission seemed within reach.
The prices were dipping. Reverse auctions by the government in 2017 to develop large-scale solar projects had attracted all-time low bids of around Rs 2.50 per unit of electricity. This made solar power cheaper than the traditional coal-based power that generally sells over Rs 3 per unit in the country.
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Minimum possible tariffs for solar and wind power in India now stand at Rs 2.44 and Rs 2.43 per unit respectively while the average rate at which states buy non-renewable power is Rs 3.53 a unit. This is only for the discoms, mind it! The consumers are being sold the same power at hefty rates.
The boom, however, is powered by imports of cheap cells & panels from China. Indian manufacturers raked in losses. Close to 85% of the solar panels used by Indian solar developers are made in China. The prices are falling rapidly as China has invested and also taken lead in mastering the technology.
With global powers including China ramping up and Indian government locking horns with local solar developers over taxation norms, things appear gloomy as far as renewables are concerned. Goods & Services Tax (GST) Council’s recent manoeuvre of recommending a concessional 5% GST on just 70% of the gross value of contracts is the bone of contention.
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According to the minutes of GST Council’s meeting dated December 31, “…disputes have arisen regarding GST rates where specified goods attracting 5% GST are supplied along with services of construction etc. and other goods for solar power plant.”
“To resolve the dispute the Council has recommended that in all such cases, the 70% of the gross value shall be deemed as the value of supply of said goods attracting 5% rate and the remaining portion (30%) of the aggregate value of such EPC contract shall be deemed as the value of supply of taxable service attracting standard GST rate,” the meeting minutes mention.
Ventilating its disappointment, Solar Power Developer Association (SPDA) demanded a uniform 5% GST on solar power generating systems (SPGS) adding that in effect the total tax on SPGS would increase to 8.9%, a rate much higher than the effective 5% tax in the pre-GST days. Roughly 10% of total project costs were covered by a service tax of 15%, with the net tax burden being less than 5% back in those days.
The tax-tussle began when the new GST was introduced in July 2017. As SPGS was not defined in the law, chaos ensued. Meanwhile, Supreme Court ruled that solar power plants would be considered an immovable property and would attract 18% tax under “works contract”.
If the Authority for Advanced Ruling is to be believed, the setting up of solar projects is also classified as a work contract as they include the supply of goods and services packaged into an immovable property. These projects are, therefore, liable to be taxed at the 18% rate that applies to such work contracts.