GST on Solar Power Plant EPC Contracts: Karnataka Advance Ruling
The Authority ruled that solar EPC contracts where the owner provides major components do not qualify as a single composite supply.
- Ruling
- Advance Ruling No. KAR ADRG 01 / 2018 dated 21st March, 2018
- Dated
- 21 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 if their solar project contract was a composite supply.
- The Authority found the owner, not the contractor, supplied the main components.
- Because the contractor did not supply the main parts, the 5% rate was denied.
- Sub-contractors must pay tax based on their own specific scope of work.
In short
The company asked if their solar power plant construction contract qualified as a composite supply, which would allow them to charge a lower 5% Goods and Services Tax (GST) rate on the entire project. The Authority for Advance Ruling (AAR) examined the contract and found that the owner, not the contractor, was responsible for supplying the most expensive parts, specifically the solar modules.
What has changed
How it worked before
Many businesses assumed that any turnkey solar project contract would automatically be treated as a composite supply, allowing the entire project to be taxed at the concessional 5% rate.
What has changed
The Authority decided that if a contractor does not supply the major components of a project, the contract is not a composite supply. This means the contractor cannot claim the 5% rate for the entire project and must instead tax individual goods and services at their respective rates. For sub-contractors, this confirms they cannot simply adopt the main contractor's tax rate and must evaluate their own work independently.
Who this affects
Solar power plant developers, Engineering, Procurement, and Construction (EPC) contractors, and sub-contractors in the renewable energy sector.
An example
A solar contractor builds a plant where they supply the mounting structures and labor, but the client buys the solar panels directly. The contractor wants to charge 5% GST on the whole bill. Based on this ruling, the contractor cannot do this because they did not supply the main component, the panels. They must charge the standard GST rates for the specific goods and services they actually provided.
What you should do
Review your specific project contracts to see who is responsible for supplying the major components. Remember that an Advance Ruling only binds the company that asked and their local tax office; it is not a law that applies to your business automatically. If your contract structure differs, your tax treatment may also differ.
If you do nothing
If you assume this ruling applies to you and apply the wrong tax rate, you risk a tax demand from your local officer. You may be forced to pay the difference in tax, plus interest and potential penalties for incorrect filing. Always verify your specific contract terms with a professional before deciding on your tax classification.
The terms explained
- Composite Supply
- A package of two or more goods or services that are naturally bundled together and supplied in the ordinary course of business, taxed as a single unit.
- EPC Contract
- A common type of contract in construction where one company handles the Engineering, Procurement, and Construction of a project.
- Free Issue Equipment
- Materials or equipment provided by the project owner to the contractor at no cost, which the contractor then uses to complete the work.
The ruling in detail
Authority for Advance Ruling
M/s Giriraj Renewables Private Ltd.
Advance Ruling No. KAR ADRG 01 / 2018 dated 21st March, 2018 · Karnataka
Questions before the authority
- Whether supply of turnkey Engineering, Procurement & Construction (EPC) Contract for construction of 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 CGST 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 setting up solar photovoltaic plants for developers. The applicant sought a ruling on whether their turnkey contracts constitute a composite supply with the solar power generating system as the principal supply, thereby attracting a 5% GST rate. The applicant also inquired if this concessional rate extends to sub-contractors.
Ruling
| Question | What the authority ruled |
|---|---|
| Whether the EPC contract is a composite supply | No The major component (PV modules) is procured by the owner, not the applicant. |
| Whether the principal supply is Solar Power Generating System | Not relevant The question is not relevant due to the answer to the first question. |
| Whether concessional 5% rate is available to sub-contractors | Depends on the specific nature of supply Sub-contractor supplies are viewed as individual supplies, not based on the main contractor. |
The Authority ruled that the contract does not constitute a composite supply because the major component, the PV modules, is procured directly by the owner and not supplied by the applicant. Consequently, the question regarding the principal supply is irrelevant. Regarding sub-contractors, the Authority held that their supplies must be viewed as individual transactions subject to the appropriate GST rate based on the specific nature of their supply.
Reasoning
The Authority examined the draft contract and found that the owner procures the PV modules via High Sea Sale and provides them as 'Free Issue Equipment' to the applicant. Because the applicant does not supply the major component (constituting 60-70% of the value), the **essential condition of natural bundling** for a composite supply is not met. The Authority relied on Section 2(30) of the CGST Act, 2017, which defines composite supply, and concluded that the applicant's claim of a principal supply is factually unsupported by the contract terms.
Provisions relied on
- Section 2(30) of the CGST Act, 2017
- Section 8 of the CGST Act, 2017
- Notification no. 1/2017-Integrated Tax (Rate)
For the practitioner
This ruling serves as a warning that the **contractual structure of supply** is paramount in determining whether a transaction qualifies as a composite supply. Practitioners should note that if a client does not supply the major components of a project, they cannot claim the benefit of a principal supply classification. It does not provide a blanket exemption for sub-contractors, who must instead justify their own tax liability based on their specific scope of work.
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/01-giriraj_renewables-aar-order.pdf
Legibility of the scan, as read: high.
Prepared 16-10-2026.
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