Supply Of Solar Generating Power Station Is A Composite Supply, Attracts 5% GST: Andhra Pradesh High Court

Date:

The Amaravati Bench of Andhra Pradesh High Court has held that 5% GST is payable on the supply of the Solar generating Power Station, which is a composite supply and it would not amount to a works contract.

The bench of Justice R Raghunandan Rao and Justice Maheswara Rao Kuncheam has observed that the property in question, viz., the Solar Power Generating System would not answer the description of immovable 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 bench relied on the decision of the Supreme Court in the case of Excise, Ahmedabad v. Solid and Correct Engineering Works things attached to the earth would be immovable property. However, Section 3 of the Transfer of Property Act clarifies that this term would apply to trees and shrubs; buildings or goods embedded in the earth; and things, which are attached to what is embedded in the earth, for the permanent beneficial enjoyment of the structure embedded in the earth.

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 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 bench held that 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.

Background

The petitioner/asseessee is in the business of setting up of Solar Power Plants, had been paying  5% GST of its turnover. As the rate of GST on the inputs, obtained by the petitioner, was higher than the GST rate of finished goods, the petitioner, invoking the provisions of Section 54 of the A.P. Goods and Services Tax Act, 2017, claimed refund of a sum of Rs.8,65,63,538, for the period January, 2018 to March, 2018.

The refund application was rejected and became the starting point of a fresh enquiry, for assessment of tax, for the period 30.11.2017 to 30.09.2018. The Assessing Authority issued a show cause notice proposing to assess the turnover of the petitioner at 18% GST, on the ground that the transactions undertaken by the petitioner are Works Contract, as defined under Section 2(119) of the GST Act. 

The petitioner objected on the ground that the activities of the petitioner would have to be treated as composite supply, as defined under Section 2(30) of the GST Act, attracting 5% GST on the turnover. This contention of the petitioner was rejected and the Assessing Authority assessed the turnover of the petitioner at 18% GST.

The petitioner moved an appeal before the Joint Commissioner. The Joint Commissioner, after hearing the petitioner, by her order rejected the appeal to the extent of the assessment of tax and interest payable on the tax. However, the penalty was levied under Section 74 of the GST Act by the Assessing Authority was set aside and penalty was levied under the provision of Section 73 of the CGST Act.

Arguments

The petitioner contended that the transactions of the petitioner would amount to composite supply of services, falling under Section 2(30) of the CGST Act, had erred in holding that the transactions would also fall under the ambit of works contract, as defined under Section 2(110) of the CGST Act. 

The petitioner contended that the Appellate Authority, taking into account various extraneous factors, had come to the conclusion that the supply of goods, by the petitioner, was a part of construction of immovable property. The finding is clearly not based on any facts and on misinterpretation of the provisions of the Transfer of Property Act.

The department contended that the terms of the contract executed between the petitioner and his customers and the final shape of the project, after completion of execution of the project would make it amply clear that the goods in the nature of Solar modules etc., supplied by the petitioner, in the course of the composite supply of goods, results in an immovable structure and consequently it would have to be treated as falling under the heading ‘works contract’, as defined in Section 2(119) of the CGST Act.

Conclusion

The court allowed the writ petition.

Read More: CESTAT Quashes Service Tax Demand On Corporate Guarantees Raised After 5 Years 

Case Details 

Case Title: Sterling And Wilson Private Limited Versus The Joint Commissioner and Others

Case No.: Writ Petition No: 20096/2020

Date: 10/01/2025

Counsel For Petitioner: N. Govind Reddy

Counsel For Respondent: Government Pleader

Mariya Paliwala
Mariya Paliwalahttps://jurishour.in/
Mariya is the Senior Editor at JurisHour. She has 5+ years of experience on covering tax litigation stories from the Supreme Court, High Courts and various tribunals including CESTAT, ITAT, NCLAT, NCLT, etc. Mariya graduated from MLSU Law College, Udaipur (Raj.) with B.A.LL.B. and also holds an LL.M. She started as a freelance tax reporter in the leading online legal news companies like LiveLaw & Taxscan.

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