While devices and parts comprise 70% of taxable value in solar power generating systems, services (taxed at 18%) make up the balance value.

The parliamentary standing committee on energy said the ministry of new and renewable energy (MNRE) should immediately pursue the issue of applicable GST with the finance ministry for necessary clarification. After the introduction of the new tax regime, solar power generating system effectively pay a 9% tax even after renewable energy devices and spare parts been kept in 5% GST slab.

While devices and parts comprise 70% of taxable value in solar power generating systems, services (taxed at 18%) make up the balance value.

“Such a situation will lead to increase in generation cost and pose a threat to the viability of the ongoing projects, ultimately hampering the target achievement,” the panel said, adding that MNRE should ensure that “the effective rate of GST on solar power generating systems remain as close to 5% as possible”.

Before GST, goods required for setting up of solar power generating systems were exempt from paying central excise duty and attracted a concessional rate of 5% basic customs duty. Further, solar modules, which constitute more than 50% of the system cost, did not attract any duty.

The committee also reprimanded MNRE for repeatedly failing to utilise the allocated funds in spite of high-capacity addition targets. It said the ministry have been repeatedly citing similar reasons for under-utilisation of funds every year and “so it may be construed that the ministry did not take any corrective action to solve the problems”.