The Andhra Pradesh High Court ruled that contracts for solar power generating systems must adhere to the statutory 70:30 GST mechanism. This decision came in the case of Tata Power Renewable Energies Limited versus the Union of India and others. Tata Power was engaged in supplying solar power systems and associated services under composite contracts, applying a GST framework where 70% of the contract value was taxed at 5% and the remaining 30% at 18%, resulting in an effective tax rate of 8.9%. However, the tax department issued a show cause notice, alleging tax evasion and demanded 18% GST on the entire contract value due to separate invoicing.
The High Court examined whether the GST department could deny the statutory 70:30 taxation mechanism based on separate invoicing. The Court noted that previous judgments recognized these contracts as composite supplies involving both goods and services. The GST notifications provided a legal framework for the 70:30 taxation method, and separate invoicing did not equate to separate transactions. The Court criticized the tax department for misunderstanding the notifications and for not conducting a proper assessment of the taxable value of goods and services separately.
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The Court concluded that the assessment order was an unjustified attempt to raise revenue without proper analysis. It ruled in favor of Tata Power, affirming their entitlement to the concessional GST rate under the statutory formula and set aside the differential tax demand. The judgment reinforces the application of the statutory GST mechanism in similar contracts, regardless of invoicing practices.
Order Date - 29 April 2026
Parties: Tata Power Renewable Energies Limited Vs Union of India & Others
Facts -
- Tata Power Renewable Eneries Limited was engaged in supplying solar power generating systems along with design, installation, testing, commissioning, and maintenance services under composite contracts.
- The company followed the GST framework under Notifications No. 1/2017 and 11/2017, paying 5% GST on 70% of the contract value and 18% GST on the remaining 30%, resulting in an effective tax rate of 8.9%.
- The tax department later issued a show cause notice alleging tax evasion and claimed that since separate invoices were raised for goods and services, the petitioner was liable to pay 18% GST on the entire supply value.
- An assessment order dated 06.03.2025 imposed a tax demand of over ₹9.19 crore along with equal penalty and interest, which led the petitioner to approach the High Court challenging the legality of the order.
Issue -
- Whether the GST department could deny the statutory 70:30 taxation mechanism for solar power generating systems merely because separate invoices were issued?
Order -
- The Court observed that earlier judgments had already recognized supply of solar power generating systems as a composite supply involving both goods and services. It noted that the GST notifications themselves created a legal framework where 70% of the value would be treated as goods taxable at 5% and 30% as services taxable at 18%.
- The Bench held that the department misunderstood the notifications by treating separate invoicing as proof of separate and independent transactions. The Court clarified that even when invoices are separately raised, supplies made under a single overarching contract for solar power systems would still qualify for the 70:30 mechanism.
- The Court further pointed out that the assessing authority failed to conduct any proper exercise to determine the actual taxable value of goods and services separately. Instead, it arbitrarily imposed 18% GST on the entire turnover without legal justification or factual analysis.
- Criticizing the assessment order, the Court remarked that the order appeared to be a mere attempt to raise revenue without proper application of mind. It ultimately concluded that the petitioner was rightly entitled to pay GST under the concessional statutory formula and therefore set aside the differential tax demand.
