In an important ruling for new and renewable energy companies, Andhra Pradesh High Court has held that the supply of solar power generating system (SPGS) does not qualify as works contract rather it is a composite supply for levying GST. This means companies will have to pay 5 per cent GST and not 18 per cent.
“It must be held that the property in question is not embedded in the earth to bring it within the meaning of immoveable property. Once it is held not to be embedded, the question of whether it is a permanent embedment or not, would not arise. In this view of the matter, it must be held that the supply of the Solar generating Power Station, is a composite supply, it would not amount to a works contract,” a division bench of Justices R Raghunandan Rao and Maheswara Rao Kuncheam said in a ruling pronounced dated January 10.
Under GST, a composite supply would mean a supply made. by a taxable person to a recipient consisting of two or. more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and. supplied in conjunction with each other in the ordinary. One of the supplies is taken as principal supply and GST rate for that would be applied for whole supply.
The petitioner Sterling and Wilson Private Limited moved to the Court as GST Department termed the supply as Work Contract and raised demand. After going through all the arguments made and facts presented, the bench observed that the solar power plant is not trees or shrubs, which are rooted in earth or a structure embedded in the earth. The property, which is attached to a structure embedded in the earth, would also become immoveable property only when such attachment is for the permanent beneficial enjoyment of the structure, which is embedded in the earth.
In this case, the civil foundation is embedded in the earth. However, the solar modules and the Solar Power Generating System have not been attached to the civil structure for the purpose of better enjoyment or beneficial enjoyment of the civil foundation. On the contrary, the civil foundation has been embedded on earth for better permanent and beneficial enjoyment of the Solar Power Generating Station. “Applying the aforesaid test, it must be held that the property in question, viz., the Solar Power Generating System would not answer the description of immoveable property. The transaction in question would not fall within the meaning of works contract, as defined under Section 2(119) of the GST Act,” the Court observed and set aside the order passed by the tax authority.
Commenting in the ruling, An tax expert, found decision is favorable on two key fronts. Firstly, it benefits taxpayers by allowing them to contend lower rate of 5 per cent on entire value of supply of solar power generating system (SPGS), prior to January 1, 2019. Secondly, taxpayers setting up solar power plants for captive consumption can argue for availability of input tax credit based on High Court’s finding that SPGS is not an immovable property. Thus, “taxpayers may reassess their tax position on these matters in light of this High Court ruling,” he said.
