With effect from Friday (1st Oct 2021), the Finance Ministry has announced a 12% goods and services tax (GST) rate for solar photovoltaic (PV) modules and other renewable energy equipment. In addition, the announcement specifies an 18% GST rate for ten different minerals ores, and concentrates. All of them are responses to the GST Council’s suggestions, intending to end the inverted duty structure anomaly.
However, experts say this will affect consumers.
Renewable energy devices and parts for their manufacture, such as biogas plants, solar power based devices, solar power generators, windmills, wind operated electricity generators (WOEG), waste to energy plants and devices, solar lanterns and solar lamps, ocean waves/tidal wave energy devices and plants, and photovoltaic cells, whether assembled in modules or made up into panels, will be subject to GST at a rate of 12%, as opposed to the current rate of 5%.
It has also been stated that the current 70:30 ratio would be maintained. Previously, 70% of the gross value of the contract was regarded for the provision of products, attracting a 5% rate – which will now be increased to 12%.
Tushar Aggarwal, Founder Partner of Tattvam Advisors, said that the decision to hike the GST rate to 12% from 5% on renewable energy parts and devices, including EPC contracts of renewable energy projects such as solar power, windmills, bio-gas plants, etc. to the extent of goods, will negatively affect growth and development in the renewable energy sector.
“Instead of providing the mechanism to allow refund of unutilized credit on input services and capital goods, the government has increased the GST rate on output supplies which will put the additional burden in the hands of consumers. Further, the rate change will create transitional issues for ongoing renewable energy projects,” he said.
Inverted rate structure
The Fitment Committee considered this problem (part of GST Council, comprising of tax officials from the Centre and States). Following a thorough study, the committee concluded that the 5% tax on renewable equipment has resulted in an inverted rate structure for these goods, as the majority of their inputs are subject to an 18% charge. For certain equipment, the GST rate inversion must be corrected. While a zero rate on solar energy also produces an inversion for solar power, the committee stated that correcting the inversion of renewable equipment will at the very least encourage local manufacture of these goods.
As a result, it suggested a 12% GST rate, which was approved by the GST Council at its meeting on September 17th, following which the Ministry announced the adjustments.
Ores And Concentrates
For ores and concentrates of Iron, Manganese, Copper, Nickel, Cobalt, Aluminium, Lead, Zinc, Tin, and Chromium, the notification set an 18 percent tariff. These ores are stated to be utilized in the manufacture of metals that are subject to an 18% GST charge. However, although ore and concentrate are subject to a 5% GST, their input services, such as royalties, are subject to an 18% GST. As a result, it was concluded that ore/concentrate had a large inverted duty structure that requires rectification.
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