# GST on Solar Projects: Why Only 8.9% Applies, Not 18%

# Introduction

Many businesses working in solar EPC (Engineering, Procurement, and Construction) projects often face a critical question:

# Should GST be paid at 18% on the entire project value?

# Or does the law allow a lower effective rate?

A recent ruling by the Andhra Pradesh High Court has clarified this confusion and confirmed that GST on solar power generating systems should be calculated using the 70:30 valuation rule, resulting in an effective rate of 8.9%.

Let’s break this down in a simple and practical way.


@ What Was the Issue?

In this case, a solar company:

  • Supplied solar panels (goods)
  • Provided installation and related services

# The company treated it as a composite supply and applied GST as per the 70:30 rule.

However, the GST department argued:

  • Separate invoices were issued for goods and services
  • Therefore, the entire supply should be taxed at 18%

This led to a major tax demand and litigation.


@ Understanding the 70:30 GST Rule

Under GST notifications, solar power generating systems follow a deemed valuation mechanism:

  • 70% of total value = Goods → GST @ 5%
  • 30% of total value = Services → GST @ 18%

# Example Calculation

If total contract value = ₹100:

  • Goods: ₹70 × 5% = ₹3.5
  • Services: ₹30 × 18% = ₹5.4

# Total GST = ₹8.9 (Effective Rate = 8.9%)


$ What Did the Court Decide?

The Andhra Pradesh High Court gave a clear and important ruling:

✔️ 1. 70:30 Rule is Mandatory

The valuation mechanism prescribed in GST notifications must be followed.

✔️ 2. Separate Invoices Do Not Matter

Even if goods and services are billed separately, the supply remains composite in nature.

✔️ 3. Legal Fiction Must Be Applied

The law assumes (deems) that:

  • 70% is goods
  • 30% is services

# This applies regardless of actual billing structure.

✔️ 4. 18% on Entire Value is Incorrect

The department cannot arbitrarily apply 18% on the full contract value.


# Key Takeaways for Businesses

# If You Are in Solar EPC or Turnkey Projects:

  • Always apply the 70:30 GST rule
  • Don’t worry if invoices are separate
  • Ensure proper documentation of composite contracts

# If You Receive a GST Notice:

  • Check if the department has wrongly applied 18%
  • Refer to this judgment for defense
  • Use the 70:30 rule as a legal backing

# Practical Impact

This judgment is a big relief for:

  • Solar project contractors
  • EPC companies
  • Renewable energy businesses

???? It ensures that businesses are not overburdened with unnecessary GST liability.


# Common Mistakes to Avoid

# Applying 18% GST on full project value

# Ignoring composite supply concept

# Assuming separate invoices mean separate taxation

$ Conclusion

The law is now clear:

???? Solar power generating systems are taxable using the 70:30 rule

???? Resulting in an effective GST rate of 8.9%

The court has reinforced that substance of the contract matters more than the format of invoicing.


# Final Thought

???? “If you don’t apply the 70:30 rule correctly, you may end up paying double GST.”