Rajasthan AAAR holds that 70:30 deemed valuation is applicable for supply, design,
installation, commissioning and testing of solar-based well pumping systems
Facts
• The appellant is engaged in providing comprehensive water services to Public Health Engineering Department (PHED), a unit of the Rajasthan Government.
• The scope of work includes designing, supply, installation, commissioning, operations and maintenance (O&M) of solar energy based bore well pumping systems for a period of seven years.
• The appellant would quote a single price to the PHED, covering all the above activities, including it’s site visits, packaging, forwarding, spare parts, insurance, taxes and duties.
• The time of supply related to the contract undertaken by the appellant which was after 31 December 2018, although the tender relating to such supply was dated 14 November 2018.
Question before the Appellate Authority for Advance Rulings (AAAR)
The Authority for Advance Rulings (AAR) held that the activities performed by the appellant for PHED was in the nature of works contract.
• It was classifiable under HSN Code 9954, and taxable at 12% (CGST 6%, SGST 6%), as it supplied to a Government Authority.
• The appellant approached the AAAR, as the AAR had not considered the impact of Central Tax notification no. 24/
2018 and the supply of services specified in S. No. 38 of Central Tax (Rate) notification no. 27/ 2018.
• As per the aforesaid notifications, supplier of renewable energy devices along with other goods and services would be subject to tax as follows:
Nature of supply
Central Tax (Rate) notification no.
HSN S. No. Deemed Valuation Rate
Goods 24/ 2018 dated 31 December 2018
amending 1/2017 dated 28 June 2017
84 or 85 – specified renewable energy devices
234 70% of gross consideration 5%
Services 27/2018 dated 31 December 2018
amending 11/2017 dated 28 June 2017
9954 or 9983 or 9987
38 30% of gross consideration shall be deemed as value of services
18%
• Thus, in effect, the renewable energy devices project was subject to 8.9% GST (i.e. 70% of 5% plus 30% of 18%) and not 12% GST.
AAAR’s order1:
• The standard solar energy based bore well water pumping system comprised of SPV panels, structures, storage tank, controller, pipes and cables.
• The appellant was also adding a de-fluoridation unit (DFU) and understanding the installation, commissioning, operation and maintenance of the system.
• Thus, the appellant is supplying solar power based devices along with other goods (DFU) and undertaking
installation services; thus, they would be eligible for the benefit of deemed valuation of goods and services under the Central Tax (Rate) notification no. 24/ 2018 (i.e. 70% of value taxed at 5% and balance 30% taxed at 18%).
PwC comments
Although the AAAR order does not give detailed reasoning on whether the contract qualifies as a works contract, it has prima facie held that post introduction of deemed valuation, so long as the supply fulfils the requirement, it would fall under this entry, and be taxable under deemed valuation principles.
• In the context of this ruling, not treating the contract as a works contract, based on the introduction of new valuation provision, could provide better clarity to other similar renewable energy projects.
• Interestingly, the scope of work also includes the O&M of the solar-based devices for seven years, and the AAAR ruling has extended the applicability of the notifications including this entire period of seven years of O&M.
• If the above interpretation of the AAAR ruling is accepted, this could also provide better clarity to other similar renewable energy projects, which have similarly extended O&M periods.
Importantly, some renewable energy associations have challenged the appropriateness of the 70:30 deemed valuation before the Delhi High Court, and the matter is before the Fitment Committee for re-consideration.
1AAAR Order No. RAJ/ AAAR/ APP/ 09/ 2018-19 dated 1 March 2019
If your interest lies in a specific area or subject, do advise us so we can send you only the relevant alerts. For any additional information, please reach out to your PwC relationship manager or write in to
With Best Regards PwC TRS Team
About PwC
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 158 countries with over 250,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
In India, PwC has offices in these cities: Ahmedabad, Bengaluru, Bhopal, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai, Pune and Raipur. For more information about PwC India's service offerings, visit www.pwc.com/in
PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.
©2019 PwC. All rights reserved
Follow us on Facebook, Linkedin, Twitter and YouTube.
© 2019 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company in India having Corporate Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of
PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.
Our Tax & Regulatory Services Direct Tax Indirect Tax Transfer Pricing Regulatory M & A Tax Controversy and Dispute Resolution Financial Services
NOTE : If you wish to unsubscribe receiving communications, please send in a blank email as reply to this mail with subject line
"Unsubscribe".
