Applicability of GST Rate on Solar Power Generation System

Are you Still confused about Applicability of GST Rate on Solar Power Generation System ? – Let’s Read this Blog

CASE STUDY – SOLAR POWER GENERATING SYSTEM

A solar power generation system, generally, has been understood to include a solar panel/module (array), controller, batteries, inverters and lighting load. The electric power produced in the solar panel (consisting of an array of solar modules) is first supplied to the solar inverter which in turn charges the battery bank or supplies directly to the low voltage DC equipment such as laptops and LED lighting system. The inverter converts the stored DC power to high voltage AC for running larger electrical equipment such as washing machines, televisions and kitchen appliances. Typically, the solar power generating system is mounted on a superstructure attached to the land. The question that arises for consideration in such a scenarios is whether such solar power generating system mounted on a superstructure attached to the land may be qualified as an immovable property. This distinction is necessary because, while, solar power generating systems have been subjected to GST at 5%, it needs to be analyzed whether such solar power generating system would be treated as goods or the construction of such system would qualify as a works contract of immovable property and thereby be treated as a supply of services leviable to GST at 18%. Guiding principles for determination of immovable property which have evolved over time:

1. The mere fact of a system being attached to the earth does not lead to the conclusion that the property is so attached that, by the very fact of its attachment, it becomes an immovable property. Such

• attachment of a system must be seen in the backdrop of the degree or intendment of the attachment and the object or intention behind the attachment.
• The degree and the intendment of the attachment – A system so attached to the earth, that it cannot be removed without structural damage would lend credence to the conclusion that such attachment is intended to be annexed in perpetuity to the land. Thus, where the outside portions of the spray paint booth structure were embedded to the earth and could not have been dismantled without damaging the system so the system was held to be an immovable property. Further, where a solar fence system had been grouted into the earth, then it was held to be forming part of an immovable property.
• The object or intention behind the attachment – If a system is attached so as to permanently benefit from the land to which it is so attached, then it would be treated to be an immovable property. Thus, a petrol tank resting on its own weight and without being fixed to the earth by nuts and bolts has been held to be an immovable property since it was erected with an intention of permanency. The main exceptions to the above test of immovable properties are as follows:-
• When the attachment is such that it can be dismantled without damage to the system itself and is for the beneficial enjoyment of the system and not the land to which it is attached, then such attachment has been held to be goods. Thus, an engine mounted on a cement base attached to the earth was held to be goods.
• If the system is embedded in the earth for operational efficiency and is capable of being sold or shifted without dismantling, but is actually dismantled into its components/parts for ease of transportation then it would still be held to be a goods. Similarly, an X-ray equipment comprising of tube stand, X-ray generators, high voltage cables, etc. even though fixed to the earth has been held to be a goods.

Thus, whether in a particular case, a solar power generating system amounts to being an immovable property or not would need to be tested on the anvil of the aforementioned tests and their exceptions.

In the advance ruling in case of Giriraj Renewables Pvt. Ltd.; Karnataka AAR (2018 VIL 36 AAR dated 21.03.2018), the applicants, seeking to contend that a solar power plant is not an immovable property, submitted that:

• The solar power plants supplied by the Applicant is commissioned and installed only for the purpose of better functioning of the plant and are capable of being removed and transferred from one place to another. Hence, the fact that the plant is firmly but not permanently attached to the land means that the same is not an immovable property.
• The contract envisaged shifting/transferring the plant to another location in certain circumstances. Reliance was also placed on a Chartered Engineer Certificate which clearly provided that solar power plant, if required, can be shifted to another location and is highly movable.

Unfortunately, the Karnataka Authority for Advance Ruling completely sidestepped the above arguments and did not document any finding dealing with the foregoing. In my Opinion the above are strong arguments and are likely to succeed before a High Court.