2025 (1) TMI 663 - HC - GST

Classification of supply - transactions undertaken by the petitioner in setting up Solar Power Generating Systems - to be classified as composite supply or works contract under the GST Act? - rate of GST - HELD THAT - In the present case, 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 immoveable 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. However, 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. The property in question, viz., the Solar Power Generating System would not answer the description of immoveable 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 appellate authority relied upon the judgment of the Hon ble Supreme Court in Duncans Industries Limited vs. State of Uttar Pradesh and Ors. 1999 (12) TMI 857 - SUPREME COURT , wherein the Hon ble Supreme Court had taken the view that any property embedded in the earth with an intention of keeping the same embedded permanently, would have to be treated as immoveable property. This view was taken by the Hon ble Supreme Court, on the finding of the High Court that the plant and machinery, in that case, was embedded in the earth. The Hon ble Supreme Court also held that the earlier judgment in Sirpur Paper Mills Limited v. The Collector of Central Excise 1997 (12) TMI 109 - SUPREME COURT would not be applicable as the facts are different. Conclusion - The supply of the Solar generating Power Station, is a composite supply, it would not amount to a works contract. Petition allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the transactions undertaken by the petitioner in setting up Solar Power Plants should be classified as a "composite supply" or a "works contract" under the GST Act.
Whether the Solar Power Generating System constitutes immovable property, thereby falling under the definition of "works contract" as per Section 2(119) of the GST Act.
What is the applicable GST rate for the transactions in question?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Transactions

Relevant Legal Framework and Precedents: The GST Act defines "composite supply" under Section 2(30) and "works contract" under Section 2(119). The determination of whether a transaction is a composite supply or a works contract affects the applicable GST rate.
Court's Interpretation and Reasoning: The court analyzed the definitions and noted that a works contract is a type of composite supply involving immovable property. The distinction hinges on whether the end product is movable or immovable.
Key Evidence and Findings: The petitioner argued that the Solar Power Generating System is movable, while the respondents contended it is immovable. The appellate authority classified it as immovable due to its installation nature.
Application of Law to Facts: The court examined whether the Solar Power Generating System is permanently attached to the earth. The court applied precedents from the Supreme Court to assess the nature of the property.
Treatment of Competing Arguments: The petitioner relied on various Supreme Court decisions to argue the system is movable. The respondents cited judgments supporting the immovable classification.
Conclusions: The court concluded that the Solar Power Generating System is not immovable property and thus does not constitute a works contract. It is a composite supply subject to a lower GST rate.

Issue 2: Nature of the Solar Power Generating System

Relevant Legal Framework and Precedents: The court referred to the definitions of "movable" and "immovable" property under the General Clauses Act and the Transfer of Property Act.
Court's Interpretation and Reasoning: The court applied the Supreme Court's guidelines to determine the nature of the property, focusing on whether the system is permanently attached to the earth.
Key Evidence and Findings: The court considered the installation process and the system's components, which are bolted and not permanently embedded.
Application of Law to Facts: The court found that the system's attachment does not meet the criteria for immovable property, as it can be dismantled and relocated.
Treatment of Competing Arguments: The court distinguished the present case from precedents cited by the respondents, where the property was permanently embedded.
Conclusions: The court held that the Solar Power Generating System is movable property, not subject to classification as a works contract.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "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."
Core Principles Established: The classification of property as movable or immovable depends on the nature of attachment to the earth and the intent of permanence. A composite supply does not automatically become a works contract unless it results in immovable property.
Final Determinations on Each Issue: The court determined that the Solar Power Generating System is a composite supply, not a works contract, and is subject to a GST rate of 5%.

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