AAR Kerala Ruling: Rooftop Solar Plant Eligible for Full ITC When Used for Business
Background:
Grand Centre Mall installed a rooftop solar plant—comprising panels, inverters, and consumables—firmly affixed to the roof and parking structures. The mall approached the Authority for Advance Ruling (AAR), Kerala, seeking clarity on the eligibility to claim Input Tax Credit (ITC) under the CGST Act.
Relevant Legal Provisions:
- Section 16(1): Allows ITC on goods and services used in the course or furtherance of business.
- Explanation to Section 17(6): Defines “plant and machinery” as equipment fixed to earth by foundation or structural support.
- Section 17(5)(c) & (d): Restricts ITC on immovable property not qualifying as plant and machinery.
- Section 17(2): Requires ITC reversal for inputs used in making exempt supplies. Electrical energy is exempt under Notification No. 2/2017-CT (Rate), Sl. No. 104, HSN 2716.
Key Observations & Findings:
- Fixed to Earth Test Met:
The solar plant is structurally affixed to the rooftop and parking areas, satisfying the condition of being “fixed to earth by foundation or structural support.” - Capital Goods & Plant and Machinery:
The solar equipment qualifies as both capital goods and plant & machinery, and is therefore not subject to the ITC restrictions under Section 17(5)(c)/(d). - No Exempt Supply Triggered:
The power generated is used internally for taxable common area maintenance (CAM) services—such as lighting, HVAC, lifts, and CCTV. Since no power is invoiced or supplied to tenants, it does not constitute an exempt supply under Section 17(2), and ITC reversal is not required. - Full ITC Allowed:
The applicant is eligible to claim full ITC on the procurement and installation of the rooftop solar plant, subject to general conditions under Section 16 (e.g., possession of valid tax invoices, receipt of goods/services, and timely GST return filing).
Practical Takeaways:
- Structurally affixed rooftop solar installations used for business purposes can be treated as plant and machinery, making them eligible for full ITC.
- To retain full ITC without reversal, ensure that generated electricity is used solely for internal, taxable purposes and is not billed or supplied to others.
- Maintain comprehensive documentation—installation certificates, asset registers, tax invoices, and consumption logs—to substantiate business use and ITC claims.
- Regularly review tenant utility and billing structures to ensure there’s no inadvertent creation of an exempt supply scenario.
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