Advance Ruling on GST Classification of Solar DC Cables: Apar Industries Ltd. Case Analysis

Introduction

The Authority for Advance Rulings (AAR) received an application from M/s Apar Industries Limited seeking clarity on the Goods and Services Tax (GST) applicability for their Solar DC Cables. Apar Industries, a manufacturer and supplier of various power cables, intended to use these cables as integral components in Solar Power Generating Systems. The core issue revolved around whether these cables qualified for the concessional GST rate of 5% under Schedule-I, Entry No. 234 of Notification No. 1/2017-Integrated Tax (Rate).

Summary of the Judgment

Apar Industries Limited submitted an application requesting an advance ruling to determine the applicability of a 5% GST rate on their Solar DC Cables when supplied to Solar Power Generating Projects. They argued that their products fell under Chapter 85, Sub-heading 8544 of the Customs Tariff Act and that these cables were essential parts of the solar systems, thereby attracting the concessional GST rate as per the specified notification. Despite presenting purchase orders from prominent clients like Adani Green Energy Limited, the AAR dismissed the application. The primary reason for dismissal was the absence of crucial documents such as contracts, tenders, and technical specifications, which were essential to substantiate the claims made by the applicant.

Analysis

Precedents Cited

Apar Industries referenced several advance rulings to bolster their case:

Order No. 07/2018-19 dated 28.08.2018 by AAR Uttarakhand in the case of Eapro Global Limited, Roorkee.
Order No. 15/2018-19 dated 23.01.2019 by AAR Uttarakhand in the case of Premier Solar Systems (P) Ltd., Dehradun.
Order No. Giriraj Renewables (P) Ltd. - AAAR(146) AAR Karnataka (215).

However, the AAR clarified that decisions from other advance ruling authorities are only binding on the applicants who sought them and the concerned officers. Therefore, these precedents could not be directly relied upon by Apar Industries to influence their current application.

Legal Reasoning

The AAR's legal reasoning centered on the necessity of substantiating claims with adequate documentation. According to GST law, for a product to qualify for a concessional rate under any specific entry, the supplier must provide concrete evidence that the goods meet the described criteria. In this case:

The product must fall under the specified chapter and sub-heading (Chapter 85, Sub-heading 8544).
The goods must be used as parts in the manufacture of Solar Power Generating Systems.

Apar Industries failed to provide essential documents such as the technical specifications, contracts, and tenders that explicitly link their Solar DC Cables to the intended solar projects. Without these, the AAR could not ascertain the true nature of the supply, especially considering the possibility of bundled services like installation and transportation, which could alter the GST liability.

Moreover, the AAR referred to Circular No. 80/54/2018-GST dated 31.12.2018, emphasizing that suppliers must independently verify the end-use of goods to claim any concessional rates. The absence of binding contracts or tenders meant that the AAR couldn't confirm whether the cables were solely intended for solar projects or had alternative uses.

Impact

The ruling underscores the stringent requirements for claiming concessional GST rates under specific notifications. Suppliers aiming to benefit from reduced tax rates must ensure comprehensive documentation linking their products to the requisite end-use. This decision serves as a cautionary tale for manufacturers and suppliers to maintain meticulous records and provide all necessary evidence when seeking advance rulings. It also highlights the AAR's role in preventing misuse of concessional rates by ensuring that claims are substantiated with concrete evidence.

Additionally, this judgment may influence future applications by emphasizing the importance of clarity in the nature of supplies, especially when goods and services are bundled. It may encourage suppliers to seek legal counsel in structuring their contracts to clearly delineate between goods and associated services, thereby ensuring appropriate tax classification.

Complex Concepts Simplified

Advance Ruling Authority (AAR)

AAR is an independent authority established under the GST framework to provide binding decisions on tax-related uncertainties. Businesses can seek an advance ruling to clarify tax liabilities before engaging in transactions, ensuring compliance and avoiding disputes.

GST Classification under Schedule-I, Entry 234

Under the GST regime, goods are classified into various chapters and sub-headings. Schedule-I, Entry 234 specifically lists renewable energy devices and their parts, such as solar power systems, which attract a concessional GST rate of 5%. For a product to qualify under this entry, it must be recognized as a part of the listed renewable energy systems.

Integrated Goods and Services Tax (IGST)

IGST is applicable on inter-state supplies of goods and services. It subsumes the previous Central Excise Duty and Service Tax, ensuring seamless taxation across state boundaries within India.

Chapter Heading 85, Sub-heading 8544

This classification pertains to insulated wires and cables, including co-axial and optical fibre cables. Products falling under Sub-heading 8544 are recognized for their specific technical characteristics and use cases.

Conclusion

The Apar Industries Ltd. case serves as a critical example of the meticulous documentation required to claim concessional GST rates. While the company's intention to classify their Solar DC Cables under a lower tax bracket aligned with the provisions of Notification No. 1/2017-Integrated Tax (Rate), the lack of substantive evidence led to the non-determination of their tax liability. This judgment reinforces the principle that compliance with procedural requirements is as crucial as meeting the substantive criteria for tax benefits. Businesses must ensure that all necessary contracts, technical specifications, and related documents are in place and submitted when seeking advance rulings to substantiate their claims effectively.