ITC ON SOLAR PLANT - GST CENTRAL AUDIT TEAM WANT TO REVERSED AND CHARGE INTEREST

[RAVI MUNDRA]

We installed a solar power system at our manufacturing plant in the 2020-21 financial year. During a recent GST audit, the department has raised an objection and is demanding a reversal of Input Tax Credit (ITC) claimed on this solar installation. What potential grounds might the GST department be citing for this ITC reversal, and what would be the best course of action/solution to defend our ITC claim or minimize any potential liability?

 

AI Summary

Manufacturer defends solar power system ITC claim under Section 17 against department's immovable property argument A manufacturer installed a solar power system at their plant in 2020-21 and claimed Input Tax Credit (ITC). During a GST audit, the department demanded ITC reversal, citing Section 17(5)(d) of CGST Act 2017, which restricts ITC on goods used for constructing immovable property. The department argued solar installations constitute immovable property, making ITC ineligible. Legal experts advised that solar systems qualify as 'plant and machinery' under Section 17's explanation when used for captive power generation supporting taxable manufacturing activities. The Solex Energy Ltd. v. State of Gujarat case supports this position. To defend the claim, the manufacturer should provide evidence showing the system is capitalized as plant and machinery, including vendor invoices, CA certifications, asset registers, and consumption data linking power generation to manufacturing. The department also referenced a Tamil Nadu AAR ruling denying ITC where electricity supply is exempt from GST. However, multiple AAR decisions provide varying interpretations based on specific facts and circumstances, offering persuasive value for defense strategies.