GST: Solar Power Generating System Not an Immovable Property, Says AP High Court
By: Admin
Date: January 16, 2025
Category: GST Case Update
Reading Time: 4 Min
In a landmark decision for renewable energy companies, the Andhra Pradesh High Court has ruled that the supply of a Solar Power Generating System (SPGS) does not qualify as a works contract but as a composite supply under GST. As a result, companies supplying SPGS will attract a 5% GST rate instead of 18%.
Key Court Observations
1. SPGS Not Classified as Immovable Property
The court emphasized that the SPGS is not embedded in the earth, a key criterion for being classified as immovable property. Since it lacks permanent embedment, the supply of SPGS qualifies as a composite supply under GST.
“The supply of the Solar Power Generating Station is a composite supply and does not amount to a works contract,” stated Justices R. Raghunandan Rao and Maheswara Rao Kuncheam in their ruling dated January 10, 2025.
2. Composite Supply Defined Under GST
According to GST provisions, a composite supply involves multiple taxable supplies that are naturally bundled together, with one treated as the principal supply. Consequently, the GST rate of the principal supply applies to the entire transaction.
3. Works Contract Classification Rejected
Sterling and Wilson Private Limited, the petitioner, challenged the GST Department’s classification of SPGS as a works contract. The court clarified that while the civil foundation is embedded in the earth, the solar modules and SPGS are not permanently attached for beneficial use of the foundation. Thus, SPGS does not fall under the definition of a works contract as per Section 2(119) of the GST Act.
Implications of the Ruling
Tax Rate Reduction
Taxpayers supplying SPGS before January 1, 2019, can now argue for the lower GST rate of 5% on the entire supply value.
Input Tax Credit (ITC) Eligibility
The court’s recognition of SPGS as movable property enables taxpayers setting up solar power plants for captive use to claim ITC.
Expert Insights
A tax expert explained the broader impact of this ruling:
“The ruling benefits taxpayers on two fronts. First, it confirms the lower GST rate of 5% for SPGS supply. Second, it enables taxpayers to claim ITC for solar power plants used for captive consumption. Taxpayers should reassess their positions in light of this judgment.”
Conclusion
This judgment provides significant relief and clarity to businesses involved in supplying and installing solar power systems. Additionally, it sets a precedent for interpreting GST classifications in the renewable energy sector, paving the way for smoother trade and compliance.
