Solar power plant on rooftop qualifies as plant and machinery under Section 17(5), input tax credit allowed despite immovable property restriction.

The AAR Rajasthan ruled that a solar power generating plant installed on the applicant's rooftop qualifies as plant and machinery under Section 17(5) explanation of the CGST Act, despite being constructed on immovable property. The Authority held that while the installation involves construction work that would normally attract blocked credit under Section 17(5)(d), the solar plant itself constitutes machinery used for business purposes. Therefore, the applicant is entitled to input tax credit on inputs, capital goods, and services related to setting up the solar power plant for captive consumption, as the restriction on immovable property does not apply to plant and machinery.

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Issues Involved:
1. Admissibility of input tax credit of tax paid or deemed to have been paid.
2. Eligibility of input tax credit on capital goods and inputs constituting plant and machinery used in the business of manufacturing PP/HDPE Woven Sacks.

Issue-Wise Detailed Analysis:

1. Admissibility of Input Tax Credit:

The applicant, a manufacturer of PP/HDPE Woven Sacks, is installing a 620+ kW rooftop Solar Power Generating Plant for captive consumption of electricity. The applicant seeks to avail input tax credit (ITC) on the inputs and capital goods used in setting up the solar plant under Section 16 and 17 of the CGST/RGST Act, 2017.

The applicant argues that the solar plant qualifies as "Plant and Machinery" as per the Explanation to Section 17 of the CGST Act and has been capitalized under the "Plant and Machinery" head in their books of accounts. They contend that they meet the conditions of Section 16, which include possession of a tax invoice, receipt of goods/services, payment of tax to the government, and furnishing of returns.

The jurisdictional officer supports the applicant's claim, stating that the solar plant is for captive consumption in manufacturing taxable supplies, and the related credits are not blocked under Section 17(5) of the Act. However, the officer notes that the applicant has not provided documentary proof of capitalization in their books of accounts.

2. Eligibility of Input Tax Credit on Capital Goods and Inputs:

The applicant contends that the solar equipment qualifies as "Plant and Machinery" and is used in the business of manufacturing PP/HDPE Woven Sacks. They argue that the solar plant meets the criteria for ITC under Section 17 of the CGST/RGST Act, 2017, as it is used for generating electricity solely for captive use in manufacturing taxable goods.

The authority examines the relevant statutory provisions, including Section 16(1) and (2) and Section 17(5) of the CGST Act. Section 16(1) entitles a registered person to ITC on goods or services used in the course or furtherance of business, subject to conditions in Section 16(2). Section 17(5) restricts ITC on goods or services used for construction of immovable property, except for "Plant and Machinery."

The authority notes that the solar plant, being fastened to the roof of the building, constitutes construction of immovable property. However, the plant qualifies as "Plant and Machinery" under the Explanation to Section 17(5), which includes apparatus, equipment, and machinery fixed to earth by foundation or structural support, excluding land, building, and civil structures.

The authority concludes that the solar plant qualifies as "Plant and Machinery" and is not covered under blocked credit as per Section 17(5)(d). Therefore, the applicant is eligible for ITC on inputs, capital goods, and services related to setting up the solar plant for captive consumption.

Ruling:

The applicant is eligible to take input tax credit as 'inputs/capital goods' or 'input services' of the items enlisted in Annexure-B of the application in terms of Section 16 and 17 of the CGST/RGST/IGST Act. The capital goods and inputs constitute plant and machinery of the applicant used in the business of manufacturing PP/HDPE Woven Sacks and are not blocked input tax credit under Section 17(5) of the CGST/RGST/IGST Act.

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