Eligibility for Input Tax Credit on Solar Panels in Power Generation Business under GST Act

The applicant is eligible for a proportionate claim of Input Tax Credit (ITC) for procurement of capital goods in the power generation business under the GST Act. Solar panels and installation costs can be classified as capital goods for both taxable and exempt purposes, allowing the applicant to claim ITC as per the relevant rules. The common credit should be apportioned based on the total turnover of all business verticals, including the new power generation business.

---

---

Issues Involved:
1. Eligibility for proportionate claim of input tax credit (ITC) for procurement of capital goods in the power generation business.
2. Classification of solar panels and installation costs as capital goods for both taxable and exempt purposes.
3. Apportionment of common credit based on the total turnover of the registered person.

Detailed Analysis:

1. Eligibility for Proportionate Claim of ITC:
The applicant is engaged in the business of edible oil and is starting a new business vertical in renewable energy generation and distribution. They sought an advance ruling on whether they can claim proportionate ITC for procurement of capital goods for the power generation business. The authority verified that the supply of Renewable Energy Certificates (REC) is taxable under GST, while the supply of electricity is exempt. As the applicant generates both taxable and exempt supplies, they are eligible for proportionate ITC as per Section 17(2) of the CGST Act, which restricts credit to the extent attributable to taxable supplies.

2. Classification of Solar Panels and Installation Costs:
The applicant requested clarification on whether solar panels and installation costs can be considered as capital goods used for both taxable and exempt purposes, thereby allowing them to claim ITC as prescribed in Rule 43 of the CGST Act. The authority noted that the applicant provided a list of capital goods and services but did not furnish documentary proof of capitalization in their books of accounts. It was clarified that, subject to capitalization, the applicant is eligible to claim ITC on such goods as capital goods, and the provisions of Rule 43 would apply to determine the eligible credit. For inputs and input services, Rule 42 would be applicable.

3. Apportionment of Common Credit:
The applicant sought clarification on whether they could apportion the common credit using the total turnover of the registered person, including both the edible oil business and the new power generation business. The authority confirmed that under Rule 42 and Rule 43, the 'total turnover' of the registered person for the tax period should include the turnover of both business verticals. Therefore, the total turnover should be considered for apportioning the common credit.

Conclusion:
The applicant is eligible for a proportionate claim of ITC as per Section 17(2) of the CGST/TNGST Act read with Rule 42/Rule 43 of the CGST/TNGST Rules on the goods/services used in the installation of the renewable power generation plant under the REC Scheme. The solar panels and installation costs can be considered capital goods subject to capitalization, and the common credit should be apportioned based on the total turnover of all business verticals.

---