Solar EPC: 70:30 Tax Split Cannot Be Applied Retrospectively Using a GST Circular.

The Dispute: The 70:30 Split Controversy

The Conflict: The petitioner, a Solar EPC provider, treated their contracts as a Composite Supply of a “Solar Power Generating System” taxable at 5% (the rate for solar equipment during 2018).

The Revenue’s Stand: The Assessing Officer applied a later amendment (Notification 24/2018) which mandated a 70:30 split:
- 70% of the contract value is treated as Goods (taxable at 5%).
- 30% of the contract value is treated as Services (taxable at 18%).
The Retroactivity Issue: The Revenue used Circular 163/19/2021 to apply this 70:30 ratio to the petitioner’s turnover from March 2018 to December 2018, even though the law only changed on January 1, 2019.

The Judicial Verdict: Circulars Cannot Rewrite the Law

The High Court set aside the assessment and remanded the case, emphasizing that tax liability depends on the nature of the supply, not just a mathematical formula in a circular.

1. The “Optional” Nature of the Circular

The Court clarified that Circular 163/19/2021 did not make the 70:30 split mandatory for the past. It merely allowed taxpayers an option to use that ratio for past disputes to settle them. The Revenue cannot force this “Explanation” retrospectively if the taxpayer claims their supply was purely composite under the old law.

2. Failure to Examine the “Composite Supply” (Section 8)

The Court criticized the Assessing Officer for failing to perform the basic test required by Section 8:

The Test: Was the solar installation a single “Composite Supply” where the goods and services were naturally bundled?
Immovable vs. Movable: The AO failed to determine if the installation resulted in Immovable Property (Works Contract) or was simply the sale of Movable Goods with minor installation services. This distinction is vital for deciding the tax rate.

3. The Timeline Barrier

Since the “Explanation” (the 70:30 rule) officially came into effect on 01.01.2019, any turnover prior to that must be assessed based on the law as it stood then. The court held that the 2nd Respondent’s view on the circular’s retrospective effect was legally incorrect.

Strategic Takeaways for Solar EPC Firms in 2026

Pre-2019 Documentation: If you have pending assessments for 2017-18 or 2018-19, do not blindly accept the 70:30 ratio. If your contract was a single “turnkey” supply of a system, you can argue for the 5% rate on the entire value under the original Section 8 principles.
The “Works Contract” Trap: Be careful with how you define your project. If the system is permanently fixed to the earth, the Revenue may try to classify it as a Works Contract (Section 2(119)), which usually carries a higher tax rate than solar goods.
Circulars are for Guidance, Not Tax Levying: This case reaffirms that a Circular cannot override a Notification or the Act. A Circular that “clarifies” a retrospective tax increase is generally unconstitutional.
Keep “Vires” Open: The Court kept the question of the Vires (legal validity) of the 70:30 split open. This means industry bodies can still challenge whether the government has the power to “deem” a specific ratio (70:30) in a contract that might actually have a different value split.

HIGH COURT OF ANDHRA PRADESH

Mytrah Energy India (P.) Ltd.

Union of India^*

R RAGHUNANDAN RAO and T.C.D. SEKHAR, JJ.

WRIT PETITION NO. 4725 of 2023

APRIL 15, 2026

Sai Sundeep Manchikalapudi, Adv. for the Petitioner. Suresh Kumar Routhu, Sr. SC for the Respondent.

ORDER

R. Raghunandan Rao, J.- Heard Sri Avinash Desai, Sri Rishab Prasad learned counsel appearing for the petitioner, the learned Deputy Solicitor General of India, Sri Suresh Kumar Routhu and the learned Government Pleader for Commercial Taxes, appearing for the respondents.

2. The petitioner is in the business of manufacturing and installing Solar Panels and Solar Power Generating Systems. The 2^nd respondent initiated proceedings for assessing turnover of the petitioner for the period from March, 2018 to April, 2019. At that stage, the petitioner had approached this Court, by way of this Writ Petition, contending that the 2^nd respondent lacked jurisdiction. During the pendency of the Writ Petition, the 2^nd respondent passed an order of assessment, dated 11.07.2024. The petitioner had thereupon amended the prayer in the Writ Petition to include a challenge to the order, dated 11.07.2024.

3. The 2^nd respondent sought to tax the petitioner, at the rate of 5% for 70% of the turnover and at the rate of 18% for 30% of the turnover, based upon the explanation added to Notification No.24/18 with effect from 01.01.2019. The petitioner sought to dispute the proposed levy on the ground that the supply of goods and services made by the petitioner in the process of selling Solar Panels or Installing Solar Power Generating Systems has always been composite supply of services and goods, as defined under Section 2(30) of the GST Act, and that such supply should be taxed, in accordance with the provisions of Section 8 of the GST Act.

4. The 2^nd respondent took the stand that even in case of such composite supplies, the explanation added to Sl. No.234 of Notification No.1 of 2017, introduced a legal fiction, whereby the value of the supply was to be deemed as supply of goods to the extent of 70% of the consideration and supply of services for the remaining 30% of the consideration.

5. The GST Act does not provide for any rate of tax on the supply of goods or services. The said rate of tax is stipulated under various notifications, issued under the GST Act. One of the first notifications issued for fixing rate of tax, on supply of goods, has been Notification No.1/2017-Central Tax (Rate), dated 28.06.2017. In this notification, Sl.No.234 provided for a rate of tax on non-conventional power systems. The said entry reads as follows:

234. Following renewable energy devices & parts for their manufacture

(a) Bio-gas plant

(b) Solar power based devices

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

(e) Waste to energy plants/devices

(f) Solar lantern/solar lamp

(9) Ocean waves/tidal waves energy devices/plants

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

321 [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 service specified in the entry at S. No. 38 of the Table mentioned in the notification No. 11/2017-Central Tax (Rate), dated 28th June, 2017 (G.S.R. 690(E)], the value of supply of goods for the purposes of this entry shall be deemed as seventy per cent. of the gross consideration charged for all such supplies, and the remaining thirty per cent. of the gross consideration charged shall be deemed as value of the said taxable service.]”

6. In the case of works contracts, resulting in formation of an immovable property, the rate of tax was fixed at 18%.

7. Various manufacturers and suppliers of solar equipment, including solar power generating systems, contended that the supplies made by them of solar power generating systems or any of the goods mentioned in Sl.No.234, would have to be treated as ‘supply of movable property’, and that the rate of tax payable by such suppliers would be 5% on the supply of services and goods in view of Section 8 of the GST Act, which stipulates that the rate of tax in the case of a composite supply of services and goods, would have to be the rate applicable to the majority of the turnover.

8. This Court, by an order, dated 10.01.2025, in W.P.No.20096 of 2020 in the case of Sterling and Wilson (P.) Ltd. v. Joint Commissioner GSTL 402 (Andhra Pradesh)/2025 SCC Online AP 63 : (2025) 140 GSTR 383, Siemens Gamesa Renewable Power (P.) Ltd. v. Asstt. Commissioner ST [Writ Petition No. 4799 of 2022, dated 3-12-2025]/2025:APHC:56076 and Arka Green Power (P.) Ltd. v. State of Andhra Pradesh [Writ Petition No. 11989 of 2022, dated 24-12-2025]/2025:APHC:59797 had held that the installation of a solar power generating system, would be a composite supply of movable goods and services. On the basis of such finding, this Court had held that the rate of tax applicable for such supplies would be 5%, as stipulated in Sl.No.234 of Notification No.1 of 2017.

9. In a parallel development, a large number of suppliers of goods mentioned in Sl.No.234, has approached the State for relief, inasmuch as the tax component was placing a burden on the suppliers. The GST Council, after considering the said representation had inserted an explanation to Sl.No.234, by way of Notification No.24 of 2018. The said explanation reads as follows:

“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 service specified in the entry at S. No. 38 of the Table mentioned in the notification No. 11/2017-Central Tax (Rate), dated 28th June, 2017 [G.S.R. 690(E)], the value of supply of goods for the purposes of this entry shall be deemed as seventy per cent. of the gross consideration charged for all such supplies, and the remaining thirty per cent. of the gross consideration charged shall be deemed as value of the said taxable service.”

10. In the present case, the petitioner contended that, the supplies made by the petitioner should be treated as a composite supply which should be taxed at 5%. While considering this objection, the 2^nd respondent took the view that the Explanation to Sl.No.234 had created a legal fiction, on account of which even composite supplies should be taxed at the rate of 5% for 70% of the value of supply and 18% for 30% of the value of supply. This view was contested by the petitioner on two grounds. Firstly, no such legal fiction arises inasmuch as the explanation was only added to aid the suppliers of the goods mentioned in Sl.No.234, and the same cannot be treated as a mandatory provision which would straitjacket suppliers into paying a tax which was not payable. The petitioner had also raised a second objection, that the said explanation even if applicable, would be applicable only from 01.01.2019 and the major part of the turnover of the petitioner relates to a period prior to 01.01.2019.

11. The 2^nd respondent rejected both these contentions and held that a subsequent Circular No.163/19/2021-GST, dated 06.10.2021, had clarified that the explanation can be extended prior to 01.01.2019.

12. A reading of Circular No. 163/19/2021-GST dated 06.10.2021 would show that the said circular only extended the applicability of the explanation at the option of the tax payer, and not as an absolute retrospective application of the explanation, which was brought into effect from 01.01.2019.

13. It is clear from the order of assessment, that the 2^nd respondent has not gone into the question of whether the supplies made by the petitioner had resulted in immovable property coming into existence, or whether the supply was for the installation of movable goods due to which the provisions of Section 8 read with the rate of tax stipulated under Sl.No.234 of Notification No.1 of 2017, would be applicable. It is also clear that the 2^nd respondent has not gone into the question as to the turnover of the petitioner which had occurred before 01.01.2019. As already held above, the view of the 2^nd respondent, that the Circular No. 163/19/2021-GST, dated 06.10.2021 would give retrospective effect to the explanation is incorrect.

14. For all the aforesaid reasons, it would be appropriate that the present order of assessment, dated 11.07.2024, is set aside and the matter is remanded back to the 2^nd respondent for passing a fresh order of assessment, after going in to the question of whether the supplies made by the petitioner are works contracts resulting in immovable property, or whether supplies of goods and services in relation to movable property. The 2^nd respondent would also have to go into the question of whether the explanation, added in Sl.No.234 of Notification No.1 of 2017, is a mandatory deeming fiction which results in higher taxation on the petitioner. Needless to say, the question of whether the explanation, added by Notification No.24/2018, is ultra vires Section 8 of the GST Act is left open for future consideration.

15. Accordingly, this Writ Petition is disposed of. There shall be no order as to costs.

As a sequel, pending miscellaneous petitions, if any, shall stand closed.