GST Classification of Solar Power Plant EPC Contracts
The Maharashtra Authority for Advance Ruling decided that turnkey solar power plant construction contracts are works contracts, not composite supplies.
- Ruling
- GST-ARA-01/2017/B- 05 Mumbai, dt. 17.02.2018
- Dated
- 17 Feb 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
- Solar EPC contracts are classified as works contracts under GST.
- Works contracts are treated as a supply of services.
- The 5% concessional rate for solar goods does not apply here.
In short
The company asked if their solar power plant construction contracts should be taxed as a composite supply of goods. They wanted to know if they could apply the lower 5% tax rate meant for solar power systems. The authority ruled that because these projects result in immovable property, they are works contracts.
What has changed
How it worked before
Businesses often argued that solar EPC contracts were composite supplies where the solar system was the main item, allowing for lower tax rates on the entire project.
What has changed
The authority clarified that these projects are works contracts, which are legally treated as services. This means you cannot split the contract to claim the lower 5% tax rate reserved for specific solar goods.
Who this affects
Solar energy companies and contractors building solar power plants.
An example
A solar contractor builds a plant for a client and wants to charge 5% GST on the whole project. Based on this ruling, the tax department would likely classify their work as a service-based works contract instead. The contractor would then need to apply the standard GST rate for works contracts rather than the concessional rate for goods.
What you should do
Review your current tax classification for solar projects. Remember that an advance ruling only binds the company that asked and their specific tax office; it is not a universal law for all businesses.
If you do nothing
If you apply the wrong tax rate based on an assumption, you risk a tax demand notice later. A tax officer may disagree with your classification, leading to interest and penalties on the unpaid tax difference. Always consult your tax advisor before changing your tax treatment based on a ruling that does not directly involve your company.
The terms explained
- Works contract
- A contract for building, construction, or improvement of immovable property where both goods and services are provided.
- Composite supply
- A package of two or more goods or services sold together that are naturally bundled and provided in the ordinary course of business.
- Immovable property
- Property that cannot be moved, such as land or buildings permanently attached to the earth.
The ruling in detail
Authority for Advance Ruling
Giriraj Renewables Private Limited
GST-ARA-01/2017/B- 05 Mumbai, dt. 17.02.2018 · Maharashtra
Questions before the authority
- Whether supply of turnkey Engineering, Procurement and Construction (EPC) Contract for construction of a solar power plant wherein both goods and services are supplied can be construed to be a Composite Supply in terms of Section 2(30) of the Central Goods and Services Tax Act, 2017
- If yes, whether the Principal Supply in such case can be said to be 'solar power generating system' which is taxable at 5% GST?
- 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 an EPC contractor engaged in the turnkey construction of solar power plants for various developers. The contract involves the supply of goods, such as PV modules and other components, alongside services like design, engineering, installation, and commissioning. The applicant contends that the entire contract should be treated as a composite supply with the solar power generating system as the principal supply.
Ruling
| Question | What the authority ruled |
|---|---|
| Classification as Composite Supply | Negative The transaction is classified as a works contract |
| Principal Supply | Not applicable No relevance as it is a works contract |
| Concessional rate for sub-contractors | Not addressed Insufficient documentation provided |
The authority held that the transaction constitutes a works contract and not a composite supply. Consequently, the questions regarding the principal supply and the applicability of the 5% concessional rate to sub-contractors were not addressed or were answered in the negative due to the classification as a works contract.
Reasoning
The authority determined that the EPC contract for a solar power plant, which involves installation and commissioning on land, results in an **immovable property** and thus falls under the definition of a **works contract** per Section 2(119) of the CGST Act. Under Schedule II of the CGST Act, works contracts are treated as a supply of services. Because the transaction is classified as a works contract, the concept of a composite supply with a principal supply of goods does not apply. The authority relied on various judicial precedents regarding the definition of immovable property and the nature of works contracts.
Provisions relied on
- Section 2(30) of the CGST Act
- Section 2(90) of the CGST Act
- Section 2(119) of the CGST Act
- Section 8 of the CGST Act
- Schedule II of the CGST Act
- Notification no. 1/2017-Integrated Tax (Rate)
For the practitioner
This ruling is significant for practitioners as it classifies turnkey solar EPC contracts as **works contracts** rather than composite supplies of goods. It settles that such contracts are treated as a supply of services, thereby precluding the application of concessional tax rates intended for the supply of goods. It does not decide the tax liability for sub-contractors due to a lack of specific documentation in this case.
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-01_2017_dt_17.02.18_grpl.pdf
Legibility of the scan, as read: high.
Prepared 12-10-2026.
About Patron Accounting LLP
Patron Accounting LLP is a CA and CS-led accounting and compliance firm that has been working with businesses across India since 2019. We handle the work that keeps a company correct with every department it answers to: day-to-day bookkeeping and accounting, GST registration and returns, income tax filing and assessments, TDS, payroll and PF/ESI, company and LLP incorporation, ROC and MCA compliance, statutory and internal audit, physical stock and inventory audits, trademark and other registrations, and the certificates and reports that banks, buyers and regulators ask for.
Our clients range from a first proprietorship registering for GST to established companies running operations across several states. Much of our work is exactly this: reading what a department has published and telling a business, in plain terms, whether it changes anything for them.
We operate from five offices and serve clients across the rest of India remotely:
- Pune (HQ): RTC Silver, B4-708, Sai Satyam Park, Wagholi, Pune, Maharashtra 412207
- Mumbai: 104, Rajshila Building, 597 J.S.S. Road, Marine Lines, Mumbai 400002
- Delhi: 3rd Floor, B-6/154-155, Sector 5, Rohini, Delhi 110085
- Gurugram: Pioneer Urban Square, B109, Golf Course Ext Road, Sector 62, Gurugram 122098
- Ahmedabad: Phoenix Tower, 1107, near Commerce Six Road, Drive In Road, Navrangpura, Ahmedabad, Gujarat 380009
If anything on this page affects you and you would like somebody to look at your own position, we are glad to help. Call +91 94594 56700, write to sales@patronaccounting.com, or visit patronaccounting.com. The first conversation costs nothing.