GST on Solar Power Plant Contracts: Maharashtra Advance Ruling
The Maharashtra Authority for Advance Ruling decided that solar power plant contracts are single works contracts taxable at 18%.
- Ruling
- GST-ARA-03/2017/B- 07 Mumbai, dt. 03.03.2018
- Dated
- 03 Mar 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- The company asked to split solar contracts into separate goods and services agreements.
- The authority ruled the entire project is a single works contract.
- The total contract value is taxable at 18% as a service.
- Artificial splitting of contracts to lower tax rates is not permitted.
In short
Fermi Solar Farms Private Ltd. asked if they could pay 5% GST on solar equipment and 18% on installation services by splitting their contracts. The authority looked at the project as a whole and decided it is a single works contract for building a power plant, which is taxed as a service at 18%.
What has changed
How it worked before
Many businesses assumed they could separate the supply of solar panels from the installation work to benefit from the lower 5% tax rate on goods.
What has changed
The authority confirmed that the substance of the contract matters more than how it is written. If the goal is to build a complete solar plant, the entire project is treated as a single service, meaning you cannot apply the lower goods rate to parts of the project.
Who this affects
Solar power plant developers and contractors who sign composite agreements for supply and installation.
An example
Imagine a company, SunPower Builders, signs a contract to supply solar panels and install them on a client's roof. They try to issue two separate invoices to pay 5% on the panels and 18% on the labor. Based on this ruling, the tax department would likely view this as one works contract and demand 18% GST on the entire project value.
What you should do
Review your project contracts to see if they are composite works contracts. Remember that an advance ruling only binds the company that asked and its specific tax office; it is not a law that applies to your business automatically.
If you do nothing
If you split your contracts to pay less tax, a tax officer may reclassify the entire project as a single service during an audit. You could then be liable for the unpaid tax difference, plus interest and potential penalties for under-reporting your GST liability.
The terms explained
- works contract
- A contract where you provide both goods and services to build or improve a property, such as a building or a power plant.
- advance ruling
- A formal decision from tax authorities on how GST laws apply to a specific business situation.
- bifurcation
- The act of splitting a single contract into two or more separate parts, often done to apply different tax rates.
The ruling in detail
Authority for Advance Ruling
Fermi Solar Farms Private Ltd.
GST-ARA-03/2017/B- 07 Mumbai, dt. 03.03.2018 · Maharashtra
Questions before the authority
- Whether in case of separate contracts for supply of goods and services for a solar power plant, there would be separate taxability of goods as 'solar power generating system' at 5% and services at 18%?
- Whether parts supplied on standalone basis (when supplied without PV modules) would also be eligible to concessional rate of 5% as parts of solar power generation system?
- Whether benefit of concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors?
Facts
The applicant is engaged in the business of setting up solar power plants and sought to bifurcate their contracts into separate agreements for the supply of goods and the supply of services. They contended that the supply of goods should be taxed at 5% as a solar power generating system, while the services should be taxed at 18%. The applicant argued that this structure allows for the concessional rate on goods even when supplied as parts or by sub-contractors.
Ruling
| Question | What the authority ruled |
|---|---|
| Taxability of separate contracts | 18% (as works contract) The authority treated the arrangement as a single works contract. |
| Standalone parts | Not answered No documents provided to evaluate. |
| Sub-contractor benefit | Not answered No documents provided to evaluate. |
The authority ruled that the agreements constitute a single **works contract** for the setting up of a solar power plant, which is classified as a supply of services. Consequently, the entire contract is taxable at 18% rather than being bifurcated. The authority declined to answer the questions regarding standalone parts and sub-contractors due to a lack of specific documentation for those scenarios.
Reasoning
The authority examined the agreements and concluded that the intent was to provide an end-to-end solar power plant, which qualifies as a **works contract** under section 2(119) of the GST Act. Because works contracts are deemed to be a supply of services under Schedule II, the entire transaction is taxable at 18% as per entry 3(ii) of Notification No. 11/2017-Central Tax (Rate). The authority emphasized that the substance of the transaction, rather than the artificial bifurcation of contracts, determines the tax treatment. It relied on the principle that the contract must be read as a whole to ascertain the true nature of the supply.
Provisions relied on
- Section 2(119) of the CGST Act
- Schedule II of the CGST Act
- Notification No. 11/2017-Central Tax (Rate)
- Notification No. 8/2017-Integrated Tax (Rate)
For the practitioner
This ruling serves as a warning that artificial bifurcation of solar project contracts into separate supply of goods and services agreements will likely be disregarded by tax authorities. Practitioners should note that such arrangements are treated as a single **works contract** taxable at 18%. The ruling does not provide guidance on the taxability of standalone parts or sub-contractor supplies, as the authority refused to rule on those points without specific evidence.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/maharashtra_gst-ara-03_2017_dt_3.3.18_fsfpl.pdf
Legibility of the scan, as read: high.
Prepared 12-10-2026.
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