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THE INSIGHT

GST rate on Waste to Energy Plant/Devices executed on EPC basis
By K Kumaresan, Business Advisor
Oct 22, 2019

MANY manufacturers in the country execute "Waste to Energy Plants/Devices" on EPC basis. The concessional rate of GST @ 5% is not allowed on the entire contract value as on date. The Gist of events on this matter is enumerated below.

1. As per Notification No. 1/2017-Integrated Tax (rate) read with Schedule I, the rate of GST applicable for the following goods is 5%.

Chapter Heading Description
84 or 85 or 94

Following renewable energy devises and parts for their manufacture.
a) Bio gas plant
b) Solar power based devices
c) Solar generating system
d) Wind mill and wind operated electricity generator
e) Waste to energy plants/devises
f) Solar lantern/Solar lamp
g) Ocean Waves/tidal wave energy devices/plants
h)…………………

By the above notification, the concessional rate of GST @5% is applicable only on supply of Waste to energy Plants/devices as "Goods". However, in the case on contract executed on EPC basis supply covers both "Supply of goods and Services" together. In such cases, Advance Ruling has been delivered stating the concessional rate of GST is not applicable and full GST@18% is applicable.

2. Later, due to these different interpretations, the GST Authorities issued Notification No. 24/2018- Central Tax (rate) dated 31st December, 2018 amending Notification No. 1/2017 – Central Tax (Rate) dated 28th June, 2017 and Notification No. 27/2018-Central Tax (Rate) dated 31st December, 2018 amending Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017 along with clarificatory Circular No. 80/54/2018- GST dated 31st December, 2018. The changes brought by the above Notifications are as under:

3. Notification No. 27/2018-Central Tax (Rate) dated 31st December, 2018 amending Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017

Sr,No chapter Description of service Rate-% Condition
38 9954 or 9983 or 9987

Services by way of construction or engineering or installation or other technical services, provided in relation of setting up of following,-

(a) Bio-gas plant
(b) Solar Power based devices
(c) Solar Generating System
(d) Wind Mills, Wind operated Electricity Generator (WOEG)
(e) Waste to energy plants/devices
(f) Ocean waves, tidal waves energy devices/plants

Explanation: This entry shall be read in conjunction with serial No. 234 of Schedule I of the Notification No. 1/2017-Central Tax (Rate) dated 28th June, 2017

9%  

4. Notification No. 24/2018-Central Tax (rate) dated 31st December, 2018 amending Notification No. 1/2017 – Central Tax (Rate) dated 28th June, 2017

Sr.No. Chapter Description of Goods Rate-% Condition
234 84,85 or 94

Following renewable energy devices & parts for their manufacture, -

(a) Bio-gas plant
(b) Solar power based devices
(c) Solar power generating system
(d) Wind mills, Wind Operated Electricity Generator (WOEG)
(e) Waste to energy plants/devices
(f) Solar lantern/solar lamp
(g) Ocean waves/tidal waves energy devices/plants 235. 8601 Rail locomotives powered from an external source of electricity

Explanation: If the goods specified in this entry are supplied, by a supplier along with supplies of other goods and services, one of which being a taxable services specified in the entry at Sr. No. 38 of the table mentioned in Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017, the value of supply of goods for the purposes of this entry shall be deemed as 70% of the gross consideration charged for all such supplies, and the remaining 30% of the gross consideration shall be deemed as value of the said taxable service.

2.5%  

5. The clarificatory Circular No.80/54/2018–GST dated 31st December, 2018 is as under:

Applicability of GST on supply of Waste to Energy Plant:

11.1. Representations have been received regarding applicable GST rate on the goods used in the setting up of Waste to Energy plants (WTEP) in term of Sr. No. 234 of Schedule I of Notification No 1/2017-Central Tax (Rates) dated 28th June, 2018. The said entry 234 prescribes 5% rate on the following renewable energy devices & parts for their manufacture:

(a) Bio-gas plant

(b) Solar power based devices

(c) Solar power generating system

(d)Wind mills, Wind Operated Electricity Generator (WOEG)

(e) Waste to energy plants/devices

(f) Solar lantern/solar lamp

(g) Ocean waves/tidal waves energy devices/plant

(h)Photo voltaic cells, whether or not assembled in modules or made up into panels

11.2 The notification specifically applies only the goods falling under chapters 84, 85 and 94 of the Tariff. Therefore, this concession would be available only to such machinery, equipment etc., which fall under Chapter 84, 85 and 94 and used in the initial setting up of renewable energy plants and devices including WTEP. This entry does not cover goods falling under other chapters, say a transport vehicle falling under Chapter 87 that may be used for movement of waste to WTEP.

11.3 Another related doubt raised is as to how would a supplier satisfy himself that goods falling under Chapter 84, 85 and 94, say a turbine or a boiler, required in a WTEP, would be used in the WTEP. In this context it is clarified that GST is to be self-assessed by a taxpayer. Therefore, he needs to satisfy himself with the requisite document from a buyer such as supply contracts/order for WTEP from the concerned authorities before supplying goods claiming concession under said entry 234.

6. With the above amendment on 70% of the Gross contract amount the applicable GST is 5% and on 30% of the contract value is 18%.

7. As per the news item in "The Economic Times, New Delhi, dated 6th May, 2019, against the Writ petition filed by Solar Power Association in the Delhi High Court challenging the Tax structure on the valuation with 70:30 and it should be 90:10. Accordingly as per the press release dated 21st June, 2019, the GST Council directed that "the issue related to valuation of goods and services in a Solar Power Generating system and wind turbine is to place before next fitment Committee. The recommendation of the Fitment Committee would be placed before the next GST council meeting".

8. The issue raised by Solar Power Association is equally true in the case of "Waste to Energy Plants/Devices also.

9. Therefore it is requested that necessary Notifications/Clarificatory circular is issued stating that in respect of all goods with services referred above, the value bifurcation should be 90% as supply of goods attracting GST @5% and 10% as supply of services attracting GST@18% or alternatively entire value will attract GST@5% to develop these non-conventional plants/Equipment/Devices.

[The views expressed are strictly personal.]