Andhra Pradesh High Court Sets Aside GST Order Against Mytrah Energy Over Failure To Examine Nature of Supply

The Andhra Pradesh High Court has set aside a GST assessment order against Mytrah Energy India Pvt. Ltd., holding that the assessing authority failed to properly examine the nature of the transaction and wrongly applied a notification retrospectively.

The Division Bench of Justice R. Raghunandan Rao and Justice T.C.D. Sekhar held that the assessment order was unsustainable for failure to examine the nature of supply and accordingly remanded the matter for fresh adjudication.

The petitioner, engaged in the business of manufacturing and installing solar panels and solar power generating systems, was subjected to GST assessment proceedings for the period March 2018 to April 2019.

The dispute arose from the classification and taxation of supplies made by the petitioner, particularly whether such supplies constituted a “composite supply” under Section 2(30) read with Section 8 of the CGST Act, 2017.

The tax department sought to levy GST by applying the explanation inserted to Sl. No. 234 of Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017 through Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018.

By relying on this explanation, the department treated 70% of the total consideration as value of goods taxable at 5% and the remaining 30% as value of services taxable at 18%. The department also relied on Circular No. 163/19/2021-GST dated 06.10.2021 to justify the application of this methodology even for the period prior to January 1, 2019. 

Challenging this approach, the petitioner contended that the supply of solar power generating systems is a composite supply involving goods and services, which should be taxed at a single rate of 5% in terms of Section 8 of the CGST Act.

It was argued that the explanation introduced by Notification No. 24/2018 merely provides an optional mechanism and cannot override the statutory provisions governing composite supply.

The petitioner further submitted that the explanation cannot be applied retrospectively, especially for transactions undertaken prior to its effective date, i.e., January 1, 2019.

On the other hand, the tax authorities argued that the explanation inserted by Notification No. 24/2018 creates a binding legal fiction mandating bifurcation of value between goods and services, even in cases of composite supply. It was further contended that the circular issued by the GST Council clarified the applicability of this explanation, including for prior periods.

The bench noted that "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 Court further observed that the reliance placed on Circular No. 163/19/2021-GST to give retrospective effect to the explanation was misplaced. It clarified that the circular merely permits optional application and does not mandate retrospective enforcement of the explanation inserted through Notification No. 24/2018.

The bench stated that " 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."

Observing that the assessing authority had also failed to examine the turnover relating to the period prior to 01.01.2019, the Court concluded that the assessment order suffered from serious legal infirmities.

Accordingly, the High Court set aside the assessment order dated July 11, 2024 and remanded the matter to the assessing authority for fresh consideration.

The authority has been directed to re-examine the nature of the supply, applicability of Section 8 of the CGST Act, and the relevance of the notifications and circulars after giving due opportunity to the petitioner.

Importantly, the Court left open the larger issue regarding the validity and mandatory nature of the explanation inserted by Notification No. 24/2018, including whether it is ultra vires Section 8 of the CGST Act, for adjudication in appropriate future proceedings.

For Petitioner: Advocate, Sai Sundeep Manchikalapudi

For Respondent: Senior SC, Suresh Kumar Routhu, For CBIC