Rooftop Solar Systems Not ‘Works Contracts’: Rajasthan GST Appellate Authority Quashes Rs. 3.05 Crore Demand [READ ORDER]

The Rajasthan Appellate Authority, State Tax, Jodhpur, has set aside a GST demand of over ₹3.05 crore raised against a solar power company, holding that rooftop Solar Power Generating Systems (SPGS) cannot be treated as “immovable property” and therefore do not qualify as “works contract services” liable to GST at 18%. The appellate authority also quashed the demand relating to IGST on ocean freight under the reverse charge mechanism (RCM), relying on the Supreme Court’s landmark decision in Union of India v. Mohit Minerals Pvt. Ltd.. The appeal was filed by M/s Azure Power India Private Limited against an Order-in-Original dated 2 May 2022 passed by the Deputy Commissioner, State Tax, Circle-Nagaur. The adjudicating authority had raised a total demand of ₹3.05 crore comprising tax, interest and penalty for FY 2018-19. The demand included GST allegedly short-paid on Engineering, Procurement and Construction (EPC) contracts relating to solar power projects and IGST liability on ocean freight under reverse charge. Department Treated Solar EPC Contracts as Works Contracts The dispute arose after the department examined the company’s solar EPC contracts executed during FY 2018-19. According to the department, the contracts involved activities such as construction of foundations, installation of solar panels, transformers, power houses and transmission infrastructure. Since both goods and services were supplied together, the authorities viewed the transactions as composite supplies in the nature of works contracts. The department argued that the principal supply was not merely the supply of solar equipment but involved substantial construction and installation activities leading to the creation of immovable property. Consequently, it classified the services under SAC 9954 as “Works Contract Services” taxable at 18%, instead of the concessional 5% GST rate applied by the taxpayer for solar power generating systems. Based on this interpretation, the authorities alleged short payment of GST and proceeded to confirm the demand along with interest and penalty. Ocean Freight Demand Also Raised Under Reverse Charge Apart from the classification dispute, the department also demanded IGST on ocean freight under the reverse charge mechanism. It relied on Notifications No. 8/2017 and 10/2017 issued under the IGST Act, under which importers were treated as recipients of transportation services provided by foreign shipping lines in CIF (Cost, Insurance and Freight) imports. According to the department, the appellant imported goods with a CIF value exceeding ₹226.90 crore and was therefore liable to pay IGST on deemed ocean freight value calculated at 10% of the CIF value. Since no tax had been paid on such freight under RCM, a separate demand was raised. Taxpayer Argued Rooftop Solar Systems Are Movable Property Before the appellate authority, the company contended that rooftop solar power generating systems are not immovable property. It argued that the systems consist mainly of solar modules, mounting structures and inverters, all of which are assembled using nuts and bolts and can be dismantled and relocated without causing damage either to the system or to the rooftop on which they are installed. The appellant emphasized that the mounting structures are intended merely to provide operational efficiency, proper inclination and stability to the solar panels. The structures do not become part of the building permanently and can be removed and reinstalled elsewhere. Therefore, the essential requirement for classification as a works contract—namely the existence of immovable property—was absent. To support its arguments, the company relied on several judicial precedents, including Solid and Correct Engineering Works, Sirpur Paper Mills, Vodafone Mobile Services, and Bharti Airtel Ltd., all of which examined the distinction between movable and immovable property in the context of machinery and installations. Appellate Authority Applies Supreme Court Tests on Movability The appellate authority examined the principles laid down by the Supreme Court in Bharti Airtel Ltd. v. Commissioner of Central Excise, Pune, where the Court summarized several tests for determining whether an asset is movable or immovable. These include the nature of annexation, object of annexation, intention of the parties, functionality, permanence and marketability. Applying these principles, the authority observed that the rooftop solar systems were mounted primarily for stability, safety and operational efficiency. The systems could be dismantled, shifted and reinstalled elsewhere without substantial damage either to the equipment or the building structure. Therefore, the attachment to the rooftop was merely incidental and temporary rather than permanent. The authority further held that the SPGS retained its independent commercial identity even after installation. The equipment could continue functioning after relocation and remained marketable in its assembled or dismantled form. Accordingly, the systems retained the character of movable property. Reliance on Andhra Pradesh High Court Judgment The appellate authority also placed substantial reliance on the Andhra Pradesh High Court’s decision in Sterling & Wilson (P) Ltd. v. Commissioner, which held that Solar Power Generating Systems do not qualify as immovable property merely because supporting structures are embedded or attached for operational purposes. The High Court had clarified that where a solar power system can be dismantled and relocated without altering its essential character, it cannot be treated as immovable property. The appellate authority found the facts of the present case substantially similar and held that the reasoning of the High Court applied squarely to the rooftop solar projects undertaken by the appellant. As a result, the authority concluded that the solar projects could not be classified as works contract services under Section 2(119) of the CGST Act and therefore continued to qualify for the concessional GST treatment applicable to solar power generating systems. Ocean Freight Demand Held Unsustainable After Mohit Minerals On the issue of ocean freight, the appellate authority noted that the controversy had already been conclusively settled by the Supreme Court in Union of India v. Mohit Minerals Pvt. Ltd.. The Supreme Court had upheld the Gujarat High Court’s decision striking down the levy of IGST on ocean freight under reverse charge in CIF import transactions. The authority observed that in CIF imports, the importer is not the recipient of transportation services provided by the foreign shipping line. Further, the value of ocean freight is already included in the assessable value of imported goods on which IGST is paid at the time of import. Levying a separate IGST on ocean freight would therefore amount to double taxation and would violate the GST principle of composite supply. Since the Supreme Court’s ruling is binding under Article 141 of the Constitution, the appellate authority held that the demand of IGST on ocean freight could not survive. Appeal Allowed, Entire Demand Quashed After examining both issues, the Appellate Authority held that the department’s conclusions were legally unsustainable. It found that rooftop Solar Power Generating Systems remained movable property and therefore could not be taxed as works contract services. It also held that the ocean freight demand stood invalidated by the Supreme Court’s decision in Mohit Minerals. Accordingly, the appellate authority set aside the adjudication order in its entirety and allowed the appeal. The consequential demands of tax, interest and penalty amounting to ₹3.05 crore were quashed. Case Title: M/s Azure Power India Private Limited v. Deputy Commissioner, State Tax, Circle-NagaurAuthority: Appellate Authority, State Tax, JodhpurOrder-in-Appeal No.: 41/GST/JDR/26-27Date: 21 May 2026 Click Here To Read Order Read More: Arbitration Award Passed During Pending Suit Can’t Defeat Property Owner’s Claim: Supreme Court

Rooftop Solar Systems Not ‘Works Contracts’: Rajasthan GST Appellate Authority Quashes Rs. 3.05 Crore Demand [READ ORDER]

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