Facts of the Case:
In this case, the petitioner was in the business of supplying Solar Power Generating Systems (SPGS) and solar power-based devices along with allied services such as design, installation, testing, commissioning and maintenance, challenged an assessment order passed under Sections 74 and 74(9) of the CGST Act, 2017. The petitioner had been discharging GST liability by applying the concessional valuation mechanism prescribed under Entry 234 of Notification No. 1/2017-Central Tax (Rate) and Entry 38 of Notification No. 11/2017-Central Tax (Rate), as amended by Notification No. 24/2018.
Under the amended notifications, a deeming fiction was created whereby, in composite supplies relating to solar power generating systems, 70% of the gross consideration was deemed to be the value of goods taxable at 5%, while the remaining 30% was treated as value of taxable services liable at 18%, resulting in an effective tax incidence of 8.9%.
Despite the petitioner consistently adopting this mechanism and filing returns accordingly, the department issued a show cause notice under Section 74 alleging short payment of tax and proposing levy of GST at 18% on the entire contract value. The department contended that the petitioner had issued separate invoices for supply of goods and services and, therefore, the benefit of the 70:30 mechanism was unavailable.
Aggrieved by the assessment order, the petitioner approached the High Court contending that the supplies were executed under composite EPC contracts for solar power generating systems and squarely covered by the statutory notifications and the Division Bench ruling in Sterling and Wilson Pvt. Ltd.
Issue:
Whether supply of Solar Power Generating Systems under EPC/composite contracts, where separate invoices are issued for goods and services, would still qualify for the statutory 70:30 GST valuation mechanism prescribed under Notifications No. 1/2017 and 11/2017, thereby attracting effective GST of 8.9%, or whether the entire transaction could be taxed at 18%.
Held That:
The High Court allowed the writ petition and set aside the assessment order to the extent of differential tax demand. The Court held that the conjoint reading of Entry 234 of Notification No. 1/2017 and Entry 38 of Notification No. 11/2017 clearly creates a legal fiction prescribing a mandatory 70:30 valuation mechanism for supplies relating to solar power generating systems.
Accordingly, 70% of the gross consideration is deemed to represent the value of goods taxable at 5%, while 30% represents taxable services liable at 18%.
The Court rejected the department’s contention that issuance of separate invoices for goods and services disentitled the petitioner from availing the benefit of the notifications. It held that the notifications themselves contemplate supply of goods “along with” supply of services and other goods, and therefore separate invoicing does not alter the character of the transaction where supplies are made pursuant to a composite contractual arrangement. The Court further observed that even assuming separate supplies existed, the department failed to undertake any proper exercise to determine the value attributable to goods and services separately and arbitrarily levied 18% GST on the entire turnover. Such an approach was contrary to the notifications and unsustainable in law.
The Court also relied upon the earlier Division Bench judgment in Sterling and Wilson Pvt. Ltd. vs. Joint Commissioner, which had recognized supply of solar power generating systems as a composite supply. Consequently, the impugned assessment order was quashed to the extent it levied differential tax at higher rates.
Case Name: Tata Power Renewable Energies Limited, (Formerly, Tata Power Solar Systems Limited) Versus Union Of India, State Of Andhra Pradesh, The Deputy Commissioner St, Special Circle Kadapa dated 29.04.2026
