Turnkey Solar Power Plant Contracts Attract 18% GST as Services
Rajasthan AAR ruled that turnkey solar power plant contracts are works contract services taxable at 18% GST, not goods at 5%.
- Ruling
- ADVANCE RULING NO.RAJ/AAR/2018-19/08 dated 01.07.2018
- Dated
- 01 Jul 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
- Company asked if turnkey solar power plant contracts are goods or services.
- Rajasthan AAR ruled turnkey solar plant setup is a works contract service.
- The full contract value is taxed at 18% GST under SAC 9954.
- Solar plants count as immovable property due to civil foundation works.
In short
RFE Solar Pvt Ltd asked the Rajasthan Authority for Advance Ruling (AAR) about the correct GST rate for turnkey engineering, procurement, and construction (EPC) contracts for solar power plants under order Raj/AAR/2018-19/08. The company argued that the plant components are movable goods, which should attract the concessional 5% GST rate. The tax authority ruled that because the project involves civil foundations, long-term installation, and structural integration, it creates immovable property. Consequently, the entire agreement is classified as a works contract service subject to 18% GST.
What has changed
How it worked before
Before this ruling, many renewable energy companies assumed turnkey solar power projects could be treated primarily as a supply of goods, applying a 5% GST rate to the entire contract.
What has changed
The authority held that single-price turnkey solar contracts are works contracts for immovable property, making the full project value subject to 18% GST under SAC 9954. Businesses cannot treat a complete EPC solar project as a concessional supply of goods at 5%.
Who this affects
Solar energy developers, EPC contractors, and infrastructure companies executing composite contracts for solar power generation.
An example
SunTech Developers contracts a single vendor to design, supply equipment, construct civil foundations, and set up a 10 MW solar plant under one price. SunTech wants to pay 5% GST, treating the project as a supply of solar devices. Based on this ruling, tax authorities would treat the deal as a works contract for immovable property and demand 18% GST on the entire contract value. To avoid this, SunTech would need to evaluate whether unbundling procurement and civil installation into separate contracts is legally viable.
What you should do
Review existing single-price EPC solar contracts to assess tax exposure. Remember that an advance ruling applies strictly to the applicant and their tax authority, so other businesses should consult a professional or apply for their own ruling before altering their tax structure.
If you do nothing
If a business charges 5% GST on a turnkey solar contract, tax officers may reclassify the contract as an 18% works contract service during an audit. The business would have to pay the 13% tax shortfall out of pocket, along with heavy interest and penalties.
The terms explained
- Works Contract
- A agreement that combines civil construction, assembly, or installation work with the supply of goods on an immovable property.
- Immovable Property
- Land or structures permanently attached to the earth that cannot be moved without causing substantial physical damage.
- EPC Contract
- An Engineering, Procurement, and Construction contract where a single vendor delivers a complete, fully operational project.
- SAC 9954
- A Service Accounting Code used in GST to classify construction and works contract services.
The ruling in detail
Authority for Advance Ruling
M/S RFE SOLAR PRIVATE LIMITED
ADVANCE RULING NO.RAJ/AAR/2018-19/08 dated 01.07.2018 · Rajasthan
Questions before the authority
- Whether contract for Erection, Procurement and Commissioning of Solar Power Plant shall be classifiable as Supply of Goods or Supply of Services under the provisions of the Central Goods and Services Tax Act 2017 and Rajasthan State Goods and Services Tax Act 2017?
- If answer to the above question is supply of goods, then under which HSN Classification the said supply of solar power plant would fall and what shall be the rate of tax on it in accordance with the Notification No 01/2017-Central Tax (Rate),dt. 28-06-2017?
- If the answer to the question 1 above is supply of service, then under which HSN Classification the said supply of solar power plant would classify and what shall be the rate of tax in accordance with the notification No 11/2017-Central Tax (Rate) ,dt. 28-06-2017
Facts
The applicant entered into a turnkey engineering, procurement, and construction (EPC) contract to set up a solar power plant along with power evacuation infrastructure in Karnataka. The scope of work encompasses site development, design, engineering, civil construction foundations, cable trenching, supply of equipment and components, erection, testing, and commissioning. The applicant contended that the plant components remain movable property and sought to qualify the supply primarily as goods under the concessional 5% GST rate applicable to solar power generating systems.
Ruling
| Question | What the authority ruled |
|---|---|
| Classification of EPC contract for Solar Power Plant as goods or services | Works Contract under Section 2(119) (Supply of Services) Excludes the contract from the concessional 5% goods rate under Entry 234 of Notification No. 1/2017-Central Tax (Rate). |
| SAC and tax rate applicable to the EPC contract as a supply of service | SAC 9954, taxable at 18% (9% CGST + 9% SGST or 18% IGST) Taxable under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. |
The Authority held that a turnkey EPC contract for setting up a solar power plant results in an **immovable property** and qualifies as a supply of services under the definition of a works contract. Consequently, the contract does not qualify as a supply of goods under Entry 234 of Schedule I of Notification No. 1/2017-Central Tax (Rate). The entire transaction falls under **Works Contract Services (SAC 9954)** taxable at the rate of 18%.
Reasoning
The Authority analyzed the nature of the solar power plant, noting that it has an operational design life of at least 25 years and involves substantial civil construction works such as foundations, inverter rooms, and transmission systems that cannot be dismantled without significant damage. Applying judicial tests of permanency established by the Supreme Court, the plant was determined to be an immovable property rather than a movable chattel. Since the contract involves the transfer of property in goods during the construction, erection, and commissioning of an immovable property, it squarely satisfies the definition of a **works contract** under Section 2(119) of the CGST Act, 2017, deemed as a service under Schedule II, thereby precluding classification as supply of goods.
Provisions relied on
- Section 2(119) of the CGST Act, 2017
- Section 2(30) of the CGST Act, 2017
- Section 2(52) of the CGST Act, 2017
- Section 2(90) of the CGST Act, 2017
- Section 2(102) of the CGST Act, 2017
- Schedule II, Item 6(a) of the CGST Act, 2017
- Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017
- Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017
- Notification No. 1/2017-Integrated Tax (Rate) dated 28.06.2017
- Section 3(26) of the General Clauses Act, 1897
For the practitioner
This ruling establishes that comprehensive, single-price EPC contracts for solar power plants are treated as **works contracts for immovable property** taxed at 18% under SAC 9954, rather than supplies of renewable energy devices at 5%. It does not resolve situations where the procurement of goods and erection/commissioning services are structured under separate, unbundled contracts.
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/raj.08.2018-19_dtd_01.07.18-rfespl.pdf
Legibility of the scan, as read: high.
Prepared 20-10-2026.
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