ITC available on installing of roof top solar system under section 17(5) of the CGST/GGST Act.

Advance Ruling No. GUJ/GAAR/R/2024/01 dated 05.01.2024 in M/s. Unique Welding Products Pvt. Ltd.

Brief Facts:

1. M/s. Unique Welding Products Pvt. Ltd. (Registered Person) is engaged in the business of manufacturing and sale of welding wires.
2. The applicant supplies its products & services after discharging GST 18%. The applicant has entered into an interconnection agreement with power distribution licensee (Madhya Gujarat Vij Company Ltd) for captive use of power generated by Roof Top Solar System and have recently installed a roof top solar system with a capacity of 440 KW (AC) on the factory roof for power generation. The applicant further states that the generated power is solely and captively used for manufacturing welding wires within the same premises.
3. The applicant further submits that their business of manufacturing and sale of welding wires from their manufacturing plant in Anand, constitutes ‘business’ as per section 2(17) of the CGST Act, 2017; that in terms of section 16(1), ibid, they are eligible for the benefit of ITC [input tax credit] on any supply of good or services which are used or intended to be used in the course of furtherance of business.
4. Further relying on sections 2(63), 2(59), 16 and 17 of the CGST Act, 2017, the applicant submits that they are eligible for ITC on the inputs, input services & capital goods used for erection, commissioning and installation of roof top solar power plant.

Question:

1. Whether the applicant is eligible to take ITC as ‘inputs/capital goods’ or `input services’ on the purchased roof top solar system with installation & commissioning in terms of sections 16 & 17 of the CGST/GGST/IGST Act?
2. Whether the roof top solar system with installation and commissioning constitute plant and machinery of the applicant which are used in the business of manufacturing welding wires and hence not blockedinput tax credit under section 17(5) of the CGST/GGST/ IGST Act?

Findings & Arguments: The relevant extract of Section 2 and Section 16 & 17 are described below:

1. Section 2(17) “Business” includes

(a) Any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) Any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

(c) Any activity or transaction in the nature of sub clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

(d) Supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;

(e) Provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;

(f) Admission, for a consideration, of persons to any premises;

(g) Services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

(h) Activities of a race club including by way of totalizator or a license to book maker or activities of a licensed book maker in such club; and

(i) Any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;

2. Section 2(59)”input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business;
3. Section 2(60) “input service” means any service used or intended to be used by a supplier in the course or furtherance of business;
4. Section 2(63) “input tax credit” means the credit of input tax;
5. Section 16 Eligibility and Conditions for taking Input Tax Credit:

(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and, in the manner, specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37

(b) he has received the goods or services or both.

Explanation. – For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services

• Where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
• Where the services are provided by the supplier to any person on the direction of and on account of such registered person;

(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted;

(c) subject to the provisions of [ section 41], the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39:

Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed :

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.

6. Section 17 Apportionment of credit and blocked credits:

(1) Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.

(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

(3) The value of exempt supply under sub section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

Explanation- For the purposes of this sub section, the expression “value of exempt supply” shall not include the value of activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule;

(5) Notwithstanding anything contained in sub section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely

(c) Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation -For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;

(6) The Government may prescribe the manner in which the credit referred to in sub-sections (1) and (2) may be attributed.

Explanation- For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes

• land, building or any other civil structures;
• telecommunication towers; and
• pipelines laid outside the factory premises. For ease of understanding it would be prudent to reproduce the relevant extracts from the letter dated 17.03.2023 of Additional Chief Engineer (RA&C), Madhya Gujarat Vij Company Limited, Vadodara addressed ro Superintending Engineer, Circle Office, MGVCL, granting approval to the applicant, consumer No. 15453, for grid connectivity of Solar Roof Top Photo Voltaic systems as per the provisions of the Gujarat Solar Power Policy-2O21

“With reference to above subject it is to state that application of M/s. Unique Welding Products P Ltd for installation of 440.00 KW (AC) Solar Roof Top Photo Voltaic System has been registered by GEDA. Now regarding the connectivity with MGVCL network for injection of Solar Energy from 440.00 KW Solar Power Plant, consumer M/ s. Unique Welding Products P Ltd. bearing consumer no. 15453 has paid connectivity charges of Rs. 50000 and executed a connectivity agreement with MGVCL. The connectivity has been granted for a period of 25 years. Accordingly, the connectivity agreement has been executed for 25 years and it shall be in force for the period of 25 years only. The Solar Power Generator (SPG) shall consume electricity generated from the roof top solar PV system at the same premise and the energy set off shall be allowed between 7:00 to 18:00 hrs of the same day ie. The generated solar energy during the day shall be consumed by the consumer during 7:00 to 18:00 hrs of the same day. If consumer is not able to consume all the generated electricity in the same relevant provisions defined in the Gujarat Solar Policy 2021 shall be applicable to surplus energy.

As is already mentioned, the applicant has submitted that they will be installing a Roof Solar Plant on its factory roof to generate electricity which will be solely and captively used for manufacture of welding wires within the same premise.

It is therefore, clear that the roof solar plant, affixed on the roof of the building is not embedded to earth. Accordingly, it is not an immovable property but a plant and machinery, which is utilized to generate electricity which is further solely and captively used in the manufacture of welding wires. The applicant is engaged in the business of supply of welding wires on payment of GST at the applicable rates. The applicant has further stated that they have capitalized the roof solar plant in their books of accounts. The Roof Solar plant, as is evident is not permanently fastened to the building. Thus, it qualifies as a plant and machinery and is not an immovable property, hence, it is not covered under blocked credit as mentioned in 17(5)(d) of the CGST Act, 2017. Therefore, we hold that the applicant is eligible for input tax on roof solar plant.

Ruling:

1. The applicant is eligible to avail ITC on roof top solar system with installation & commissioning under the CGST/GGST Act.
2. The roof top solar system with installation and commissioning constitute plant and machinery of the applicant and hence is not blocked ITC under section 17(5) of the CGST/GGST Act.

Comment:

1. Based on this ruling, all entities who have installed or are planning to install roof top solar systems should reassess their classification from immovable property to Plant & Machinery if the solar system is not permanently fastened to a building.
2. All entities whose business with roof top solar system that qualify as ‘Plant & Machinery’ can claim ITC under CGST Act. For this, entity must ensure that their roof top solar systems are properly documented and capitalized in financial records to support ITC eligibility. This is a significant financial consideration for entities using solar energy solutions.
3. Entities planning future installations of roof top solar systems should structure their projects with this ruling in mind, ensuring that the systems can be classified as ‘Plant & Machinery’ for GST Purpose.