2022 (10) TMI 303 - AAR - GST

Input Tax Credit - blocked credit - solar power panels procured and installed - Section 17(5) (c) and (d) of CGST/TNGST Act, 2017 - HELD THAT - Various documents perused and discussed reveal that the applicant procured electricity from TNEB, which includes electricity generated by Solar Power Panels installed at additional place of business and wheeled by TNEB for captive use at the principal place of business of the applicant. The applicant has paid for the net units consumed after deducting energy units generated by Solar Power Plant. However, the applicant has recovered amount through separate invoice, for the gross energy units consumed by the tenants in the building at the rate charged by TNEB, which implies that the energy generated by Solar Power Plant are sold by the applicant to the tenants on their own account. In the instant case as discussed in para 8.5.3 supra, 92184 gross units were consumed and billed by applicant to the tenants. After adjusting 86904 captive generated units by Solar Power Plant and wheeled by TNEB against wheeling charges, the applicant has paid to TNEB for 5280 units supplied by TNEB. The applicant has sold 86904 units of power to the tenants of the building through invoices. Electrical Energy is goods classified under HSN 2706 and exempted by Notification No.02/2017 CT(R) dated 28.06.2017 vide SI. No. 104. Therefore, electrical energy generated by Solar Panel installed by the applicant is exempted goods supplied to tenants and consequently input tax paid on the Solar Panels are ineligible as credit of input tax on Capital Goods used exclusively for supply of exempted supply are not eligible under Section 17(2) read with Rule 43(a) - The Maintenance Agreement provides for upfront payment of expenses by applicant to third parties for various supplies, such as electricity, water, etc and reimbursement of the same proportionately from tenants upon furnishing Bills. Therefore, payment of GST on the electricity charges and other expenses collected from the tenants needs to be examined in the light of Rule 33 dealing with value of services in case of pure agent. The applicant is not eligible for claim of Input Tax Credit, as per Section 17(2) of the CGST /TNGST Act read with Rule 43(a) of CGST / TNGST Rules 2017, on the Goods/Services used in installation of Solar Power Panels, which are considered as Plant and Machinery.

Summary

Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on solar power panels under Section 17(5)(c) and (d) of CGST/TNGST Act, 2017.

Detailed Analysis:

Issue 1: Eligibility of Input Tax Credit (ITC) on Solar Power Panels under Section 17(5)(c) and (d) of CGST/TNGST Act, 2017

The applicant, a partnership firm engaged in maintaining an immovable property, sought an advance ruling on whether ITC on solar power panels procured and installed is blocked under Section 17(5)(c) and (d) of CGST/TNGST Act, 2017.

Applicant's Submission:
- The applicant argued that solar panels do not qualify as immovable property since they are not attached to the earth.
- They contended that solar panels should be classified as 'plant and machinery' as per the definition provided in the CGST Act, thus making them eligible for ITC.
- The applicant emphasized that the power generated from these panels is used for electrical consumption within the leased premises and not sold externally.

Authority's Analysis:
- The authority examined various documents, including lease deeds and maintenance agreements, to understand the nature and scope of the supply.
- It was noted that the applicant procured electricity from TNEB, which included electricity generated by the solar panels installed at their additional place of business.
- The applicant paid for net consumption after deducting solar-generated units but billed tenants for the gross consumption, implying the sale of solar-generated power to tenants.
- The authority highlighted that electrical energy is classified under HSN 2706 and is exempt from GST as per Notification No.02/2017 CT(R).

Legal Provisions Considered:
- Section 17(2) of CGST/TNGST Act: ITC is restricted to the extent attributable to taxable supplies.
- Section 17(5)(c) and (d) of CGST/TNGST Act: ITC is not available for works contract services or goods/services received for construction of immovable property except for plant and machinery.

Authority's Conclusion:
- The solar panels, while classified as 'plant and machinery,' are used for generating exempted electrical energy supplied to tenants.
- Since the generated electrical energy is an exempt supply, the ITC on solar panels is ineligible under Section 17(2) read with Rule 43(a).
- The authority refrained from commenting on the taxability of output supplies and the value of services provided by the applicant as a pure agent.

Ruling:
- The applicant is not eligible to claim ITC on goods/services used in the installation of solar power panels as per Section 17(2) of the CGST/TNGST Act read with Rule 43(a) of CGST/TNGST Rules 2017.

This comprehensive analysis addresses the eligibility of ITC on solar power panels, considering the relevant legal provisions and the specific circumstances of the applicant's business activities.