Rates on 10 ores and concentrates raised to 18%
The Finance Ministry has notified 12 per cent rate of goods & services tax (GST) on solar photo-voltaic (PV) module and other renewal energy equipment with effect from Friday. The notification also prescribes 18 per cent GST rate for 10 types of minerals ores and concentrate. All these are follow-ups to recommendations by the GST Council and aims to end the anomaly of inverted duty structure.
According to the notification, renewable energy devices and parts for their manufacture such as bio-gas plants, solar power based devices, solar power generator, wind mills, wind operated electricity generator (WOEG), waste to energy plants and devices,solar lanterns and solar lamps, ocean waves/tidal wave energy devices and plants, and photo voltaic cells, whether or not assembled in modules or made up into panels, will attract GST at the rate of 12 per cent against 5 per cent.
It has also been clarified that the existing regime of 70:30 ratio will continue. Under the existing regime, 70 per cent of the gross value of the contract was considered for the supply of goods, attracting a 5 per cent rate – which will now be 12 per cent.
Tushar Aggarwal, Founder Partner of Tattvam Advisors, said that the decision to hike the GST rate to 12 per cent from 5 per cent 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 unutilised credit on input services and capital goods, the government has increased the GST rate on output supplies which will put 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
This issue was discussed in the Fitment Committee (part of GST Council, comprising of tax officials from the Centre and States). After detailed examination, the committee felt that the 5 per cent rate on renewable equipment has created an inverted rate structure for these items as most of their inputs attract 18 per cent rate. There is need to correct inversion in GST rate for these equipments. While a NIL rate on solar energy causes an inversion for solar power as well, the committee noted that correction of inversion of renewable equipment would at least help domestic manufacturing of these items.
Accordingly it recommended GST at the rate of 12 per cent, which was accepted by GST Council in its meeting on September 17 after which the Ministry notified the changes.
Ores and concentrates
The notification also prescribed rate of 18 per cent for ores and concentrate of Iron, Manganese, Copper, Nickel, Cobalt, Aluminium, Lead, Zinc, Tin and Chromium. It was said that these ores are used in the production of metals which attract GST rate of 18 per cent. However, while ore/concentrate attract GST at the rate of 5 per cent, their input services like royalty attract GST at the rate of 18 per cent. Thus, it was said that ore/ concentrate suffers a significant inverted duty structure and there is need for correction.