The bench of the West Bengal Authority for Advance Ruling (AAR) ruled that in the case of rooftop solar Engineering, Procurement, and Construction (EPC) contracts classified as works contracts, the valuation for Goods and Services Tax must follow the mandatory 70:30 split between supply of goods and supply of services.
The Applicant, Sunshell Power, engaged in executing Engineering, Procurement, and Construction (EPC) contracts for rooftop solar power generation systems. The applicant entered into a contract with a unit of the Indian Railways to supply solar plant components and provide installation, commissioning, and testing services.
The applicant sought a ruling on the applicable valuation mechanism and tax rate for the contract. The question before the Authority was whether the prescribed 70:30 split, introduced through Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018, would apply to the gross project consideration.
Represented by Shubham Khaitan, the applicant submitted that the EPC contract involves supply of goods and services in a bundled manner and that the deeming explanation introduced through Notification No. 24/2018-Central Tax (Rate) specifically provides that when solar power generating system goods are supplied along with installation and commissioning services, the value of goods must be taken as 70% of the total contract value, and the remaining 30% must be treated as value of services. The applicant therefore argued that the valuation should not be based on actual segregation but on the statutory deeming formula.
The Revenue Authorities submitted that the EPC project constituted a works contract but emphasized that the tax base must be the gross contract value, without allowing any deduction or apportionment based on internal cost records or invoicing structures. It was contended that Entry 201A of Notification No. 1/2017-Central Tax (Rate) and Entry 38 of Notification No. 11/2017-Central Tax (Rate), when read together with the explanation inserted through Notification No. 24/2018, mandate the 70:30 ratio as a deemed valuation rule and not an optional one.
The bench comprising Dr. Tanisha Dutta, Joint Commissioner and Jaydip Kumar Chakrabarti, Senior Joint Commissioner observed that once the supply is classified as a works contract, the entire EPC supply is treated as a supply of service, but the rate must be determined in accordance with the explanation appended to Entry 201A and Entry 38 of the relevant rate notifications.
Therefore, the Authority ruled that 70% of the gross contract value must be treated as supply of solar power generating system goods, taxable at 12% under GST, and 30% of the gross contract value must be treated as installation/commissioning services, taxable at 18% under GST.
The Authority clarified that the taxable value for computing the 70:30 split is the entire gross consideration, not the value of materials or services as segregated by the contractor.