2022 (10) TMI 303 - AAR - GST

Solar panels used exclusively for supplying exempted electrical energy to tenants ineligible for input tax credit under Section 17(2)

The AAR Tamil Nadu ruled that the applicant cannot claim input tax credit on solar power panels and related installation services. The applicant procured ... Input tax credit - blocked credits under Section 17(5)(c) and (d) - plant and machinery - supply of exempted goods (electrical energy) - apportionment of credit where supplies are partly for taxable and partly for exempt supplies (Section 17(2)) - reversal of credit in respect of capital goods used exclusively for exempt supplies (Rule 43(a))Input tax credit - supply of exempted goods (electrical energy) - apportionment of credit where supplies are partly for taxable and partly for exempt supplies (Section 17(2)) - reversal of credit in respect of capital goods used exclusively for exempt supplies (Rule 43(a)) - blocked credits under Section 17(5)(c) and (d) - Eligibility to claim input tax credit on solar power panels and related installation where the electricity generated is wheeled and the applicant recovers gross units from tenants. - HELD THAT: - The Authority examined the contractual and documentary matrix and factual position showing that solar energy generated at the applicant's additional place of business was wheeled through TANGEDCO and the applicant invoiced tenants for gross energy units consumed. Electrical energy is classified under HSN 2706 and is exempted by the governing notification. Because the electricity so generated and supplied to tenants constitutes exempt supplies, the capital goods (solar panels) and related services used exclusively for that exempt supply cannot attract input tax credit. Consequently Section 17(2) (restriction of credit attributable to taxable supplies) read with Rule 43(a) (non creditability of input tax in respect of capital goods used exclusively for effecting exempt supplies) renders the input tax credit ineligible. Having reached this conclusion on ineligibility under Section 17(2) read with Rule 43(a), it was unnecessary to decide the question whether the solar panels fall within the prohibition in Section 17(5)(c)/(d). The Authority therefore denied the claim for credit on the goods/services used in installation of the solar panels. [Paras 10, 11]Input tax credit on solar panels and their installation is not admissible under Section 17(2) read with Rule 43(a) because the electricity generated is an exempt supply.Final Conclusion: The Advance Ruling holds that the applicant is not entitled to claim input tax credit on the solar power panels and related installation, the credit being ineligible under Section 17(2) read with Rule 43(a) since the electricity generated is treated as exempt supply; consequently the question of blocked credit under Section 17(5)(c)/(d) need not be adjudicated. 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, 2017The 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.