Intended use and integral parts test secured concessional GST for solar inverters as renewable energy system components.

Solar inverters supplied for use in solar power projects were treated as integral parts of solar power generating systems, so they qualified for the concessional GST rate under Entry 234 of Schedule I to Notification No. 1/2017-CT(R). The court applied the intended-use test and noted that actual physical incorporation need not be proved where the goods are supplied for that specific purpose. It also applied the statutory concept of manufacture to recognise assembly into a new product with distinct name, character and use. The demand applying 18% GST was therefore unsustainable, and the impugned orders and proceedings were substantially quashed.

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Issues: Whether solar inverters supplied by the petitioner were classifiable as renewable energy devices or parts of solar power generating systems eligible for GST at 5% under Entry 234 of Schedule I to Notification No. 1/2017-CT(R) dated 28.06.2017, and whether the contrary demand at 18% could stand.

Analysis: The solar inverters were found to function only as part of a solar power arrangement by converting direct current from solar panels into alternating current, and the records showed that the supplies were made for use in solar power projects and for manufacture of solar power based devices and solar power generating systems. The Notification extended concessional treatment not only to complete systems but also to renewable energy devices and parts for their manufacture. The definition of manufacture under Section 2(72) of the Central Goods and Services Tax Act, 2017 was applied to hold that assembly of such components into a new product with a distinct name, character and use was sufficient. The Court also applied the principle that where goods are supplied for a specified purpose, the relevant test is intended use rather than proof of actual use, and treated the inverters as integral parts of the solar power generating system.

Conclusion: The petitioner's solar inverters were held to be eligible for the concessional GST rate under the relevant entry, and the orders confirming tax at 18% were held unsustainable.

Final Conclusion: The impugned orders and proceedings were substantially quashed, and the petitions were disposed of with the petitioner succeeding on the core classification and rate issue, while liberty was left open only for the remaining unadjudicated demands.

Ratio Decidendi: Where goods are supplied as integral parts of a solar power generating system and are intended for that specific use, they fall within the concessional entry for renewable energy devices and parts, and actual physical incorporation need not be proved as a condition for exemption or concessional taxation.

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