Impact of GST on Renewable Energy Generators

Summarized below could be the key issues that would impact the Renewable Energy Generators:

1.      Removal of exemptions:

(i)                 Benefits available on procurement of goods & services utilize for generation of renewable energy viz., incentives like tax holiday; exemptions to capital goods, inputs & services; concessional excise & custom duties (whether part of the capital cost or operation and maintenance costs), may come to an end in the new GST regime.

(ii)               Under GST, the concessional rate of tax for inter-state purchases may no longer be available.

(iii)             Taxes paid on procurements would continue to be non-creditable for the energy sector and hence, forming part of costs.

(iv)             It may be noted that BCD is not proposed to be subsumed in the GST, therefore, it may be likely that the concession on BCD would continue to remain.

2.      Increase in tax rates:

GST aims to provide a single rate of tax for goods and services not exceeding 20%. In as much as 20% is substantially higher than rates currently applicable on procurement of goods and services in the renewable energy sector. Following taxes would be chargeable on supply of goods & services

                                i.            Within State: Central GST (CGST) & State GST (SGST).

                              ii.            Inter-State: Inter-State GST (IGST) + addl. 1 % to be collected by the origin state ( applicable for 2 years) on Sale of Goods. And in case of supply (including provision of services other than sale of goods) only IGST would be applicable.

                            iii.            On Import: BCD + IGST. Here, it may be possible that the concession on BCD would continue to remain.

                            iv.            On Import of services: IGST

3.      Removal of statutory forms:

Another factor is the removal of statutory forms. For example, Form C issued to the Vendors for availing concessional CST rate of 2 % would be done away with and this could increase the Inter-state Sale of Goods, where upto 20% of would be applicable. However, GST has a provisions for exemptions by State Governments and so renewable energy may be a fit case for exemption.

Also, levy of taxes on consumption or sale of electricity is proposed to be kept outside GST. However, the State Governments still have the power to the tax the same. There is an ambiguity on this issue.

The Table below compares the Current regime with proposed GST which may impact the Capital Cost & O&M in the Solar & Wind Project (Grid Connected):

Solar PV Project (Grid Connected)

Category	%	Procurement pattern assumed	Current regime	GST	Comments
Capital cost
PV Modules	54.86%	Entirely imported	No customs duty is applicable as full exemption is available from BCD, ACD as well as SAD	BCD exemption could continue. However, there would be additional IGST of 20%	Removal of exemptions - Increase in cost
Land cost	4.13%	On lease	Service tax applicable at 14.5%	CGST and SGST would be applicable at 20%	Rate under GST would be higher than current rate – Increase in cost
Civil and General Works	8.25%	Only installation services procured 50% within the State and 50% from outside the state	Service tax applicable at 14.5%	 Inter-State – IGST applicable at 20%  Intra-State - CGST and SGST would be applicable at 20%	Rate under GST would be higher than current rate – Increase in cost
Mounting structures	8.25%	Procured on inter-State basis	 Excise duty – Exempt  CST - Applicable at 2% (against Form C)	IGST would be applicable at 20%. Further, additional tax at 1% would also be applicable	Removal of benefit against statutory forms would increase tax rate - Increase in cost
Power conditioning unit	7.43%	Procured within the State	 Excise duty – Exempt  VAT - Applicable at concessional rate provided by State (as highlighted above)	CGST and SGST would be applicable at 20%	Rate under GST would be higher than current rate due to removal of exemptions/ concessions – Increase in cost
Evacuation Cost up to Inter-connection unit	9.08%	Considered as goods – Procured 50% from within the State and 50% from outside the State	 Excise duty - Exempt  CST applicable at 2% for inter-State procurements  VAT applicable at concessional rate provided by State for intra-State procurements	 Inter-State – IGST applicable at 20% plus additional tax of 1%  Intra-State - CGST and SGST would be applicable at 20%	Rate under GST would be higher than current rate due to removal of exemptions/ concessions – Increase in cost
Preliminary and Pre-operative expenses including IDC and contingency	8.01%	Considered as services – Procured 50% from within the State and 50% from outside the State	Service tax applicable at 14.5%	 Inter-State – IGST applicable at 20%  Intra-State - CGST and SGST would be applicable at 20%	Rate under GST would be higher than current rate – Increase in cost
Operation and maintenance
O&M	100%	Assumed as works contract – from within the State	 VAT - Applicable as per valuation and rate provided by State  Service tax – Applicable at 14.5% on 70% of the value	CGST and SGST would be applicable at 20%	Impact to be analyzed based on current rate applicable for each State

Impact on Wind Power Projects (Grid Connected)

Category	%	Procurement pattern assumed	Current regime	GST	Comments
Capital cost
Wind operated electricity generator, its components and parts thereof including rotor and wind turbine controller	69.14%	30% parts are imported, 35% are procured within the State and 35% are procured on inter-State basis	Import - Customs duty is applicable at 5.15% (BCD of 5% and 3% cess) - ACD and SAD are exempt  Intra-State procurements – Excise duty is exempt. VAT is applicable at concessional rate provided by State (as highlighted above)  Inter-State procurements – Excise duty is exempt. CST is applicable at 2% against Form C	 Import - BCD exemption could continue. However, there would be additional IGST of 20%  Intra-State procurements – CGST and SGST would be applicable at 20%  Inter-State procurements – IGST would be applicable at 20% along with additional tax of 1%	Removal of exemptions and increase in tax rate would increase costs
Transformer	2.06%	Procured within the State	Excise duty is applicable at 12.5% VAT is applicable at concessional rate provided by State (as highlighted above)	Intra-State procurements – CGST and SGST would be applicable at 20%	Increase in tax rate would increase costs
Transportation	5.15%	50% procured within the State and 50% procured on inter-State basis	Service tax applicable at 4.35% (30% of 14.5%)	 Inter-State – IGST applicable at 6% (30% of 20%) Intra-State - CGST and SGST would be applicable at 3% each i.e. total 6% (30% of 20%)	Increase in tax rate would increase costs – Further, impact would be there if abatement is removed/ changed
Services	23.66%	50% procured within the State and 50% procured on inter-State basis	Service tax applicable at 14.5%	 Inter-State – IGST applicable 20%  Intra-State - CGST and SGST would be applicable total 20%	Increase in tax rate would increase costs
Operation and maintenance
O&M	100%	Assumed as works contract - from within the State	 VAT - Applicable as per valuation and rate provided by State  Service tax – Applicable at 14.5% on 70% of the value	CGST and SGST would be applicable at 20%	Impact for each State to be analyzed based on current rate applicable for