AP HC: 5% GST Applies to the Supply of Solar Power Stations as a Composite Supply, Not a Works Contract

It was mentioned by the Andhra Pradesh High Court that the supply of solar-generating power stations is a composite supply and does not constitute a works contract. Additionally, since it is considered a movable asset, it is subject to a 5% GST.

The Division Bench of Justices R Raghunandan Rao and Maheswara Rao Kuncheam noted that “a ‘works contract’ is also a composite supply. However, there could be a ‘composite supply’, which does not fall within the ambit of ‘works contract’….. The distinction between a ‘works contract’ and a ‘composite supply’ would be whether the end product handed over to the contractee is moveable or immovable property.”

The applicant/taxpayer, in this case, is in the business of setting up Solar Power Plants and has been filing GST at a 5% rate of its turnover. As the GST rate on the inputs gathered via the businesses exceeded the GST rate of the finished goods, the taxpayer invoking provisions of Section 54 of the A.P. Goods and Services Tax Act, 2017, claimed a refund for the period January 2018 to March 2018.

The same application was rejected and became the point of starting a new inquiry, for tax assessment. The Assessing Authority issued a show cause notice, offering to evaluate the taxpayer turnover at the rate of 18%, on the foundation that the transactions performed by the taxpayer are Works Contract, as described u/s 2(119) of the GST Act.

The taxpayer objected to it based on the foundation that the activities of the taxpayer shall required to be considered as composite supply as cited u/s 2(30) of the GST Act, drawing GST at a 5% rate on the turnover. The same opinion was rejected and the assessing authority computed the applicant’s turnover at an 18% rate.

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The taxpayer dissatisfied with the order has proceeded with a plea to the Joint Commissioner. The plea was rejected by the Joint Commissioner to the extent of the assessment of tax and interest liable to get paid on the stated tax.

The bench noted that “the solar power plant is not trees or shrubs, which are rooted in earth or a structure embedded in the earth. The appellate authority also accepts that the solar power module is attached to the civil foundation, which is embedded in the earth.

The property, which is attached to a structure embedded in the earth, would also become immovable 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.”

The solar modules and the Solar Power Generating System have not been attached to the civil structure for better enjoyment or beneficial enjoyment of the civil foundation. Opposite to that the civil foundation has been embedded on earth for better permanent and beneficial enjoyment of the Solar Power Generating Station, the bench said.

The bench directed to the matter of Commissioner of Central Excise, Ahmedabad v. Solid and Correct Engineering Works, [2010 AIR SCW 2514] and carried that the property in question is not embedded in the earth to bring it within the sense of immovable property. Once it is carried not to be embedded, the question of whether it is a permanent embedment or not, shall not originate.

Also, the bench mentioned that the supply of the Solar generating Power Station is a composite supply, it would not amount to a works contract.

The bench in the aforesaid view has permitted the plea.