GST ITC on Solar Power Plants – Sections & Case Law

GST ITC on Solar Power Plants – Sections, Notifications & Case Laws

solar installation is not automatically treated as “building & installation.” : ITC eligibility depends on whether the solar system is considered “immovable property” or “plant and machinery.” Following are the Latest GST Position (Based on AARs & GST Law):

Basic Eligibility of ITC (Section 16 of CGST Act)

The Input Tax Credit (ITC) on Solar Power Plants under GST is a debated issue because it involves three important provisions:

1. Section 16 : Eligibility of ITC  : As per Section 16(1) of the CGST Act, 2017, a registered person can claim ITC on goods or services used in the course or furtherance of business, subject to prescribed conditions.  Thus, if a solar plant is installed for business operations (manufacturing, commercial use, etc.), ITC may be claimed.
2. Blocked Credit Provision Blocked Credits (immovable property) : Section 17(5)(c) and 17(5)(d) : ITC is blocked for Construction of immovable property & Works contract services used for construction of immovable property on own account. However, the Explanation to Section 17 provides an important exception: Plant & Machinery includes apparatus, equipment, and machinery fixed to earth by foundation or structural support. But excludes land, building, pipelines outside factory and telecom towers. If the solar plant qualifies as plant & machinery, ITC is not blocked under Section 17(5).
3. Section 17(2) : ITC restriction for exempt supplies

The eligibility depends mainly on how the solar plant is used and whether it qualifies as plant & machinery or immovable property.

ITC is blocked if solar installation is treated as immovable property : U/s 17(5)(d) of CGST Act, ITC is not allowed on goods/services used in construction of immovable property. Some AAR rulings have held that installation of a solar power plant results in creation of immovable property and therefore ITC is blocked. AAR–Rajasthan & others denied ITC as they considered the solar plant immovable property and covered under the ITC restriction.  The classification of solar installations has evolved through multiple Authority for Advance Ruling (AAR) decisions, shifting between being viewed as "moveable goods" versus "immovable property" (works contracts). 

Current Classification: Works Contract vs. Composite Supply 

• Works Contract (Standard Classification): Most AARs (e.g., Maharashtra and Rajasthan) rule that turnkey EPC contracts for solar plants are "works contracts" under Section 2(119) of the CGST Act because they result in immovable property.
• Tax Treatment (Deemed 70:30 Ratio): Following a 2019 amendment (Notification No. 24/2018), solar projects are treated as a composite supply where 70% of the value is deemed as goods (taxed at 12%). And 30% of the value is deemed as services (taxed at 18%). 

When ITC on Solar Plant May Be Blocked / Restricted: 

• Construction of Immovable Property: If the solar plant b comes part of civil structure or building construction, ITC may be blocked under Section 17(5)(d). Example: Solar plant embedded into building structure permanently.
• Electricity is an Exempt Supply: Electricity is exempt from GST under Notification No. 02/2017 – Central Tax (Rate) HSN 2716 – Electrical Energy so Therefore If solar power plant is used exclusively for supply of electricity, ITC is not allowed due to:
• Section 17(2) – ITC not allowed for exempt supplies.  In such case ITC must be reversed, Rule 42 & 43 apply.

ITC allowed when solar plant qualifies as “plant and machinery” : Several AARs and judicial views hold that solar generating systems are not civil structures but plant & machinery, especially when They can be dismantled / moved, They are used for business operations. They are not part of the building foundation Example: Gujarat AAR held that rooftop solar systems qualify as plant & machinery, not immovable property, allowing ITC.  Another ruling confirmed that rooftop solar used for captive power is eligible for ITC as inputs, capital goods, and input services.

The "Plant & Machinery" Distinction for ITC : While installation might be a "works contract," it is often not treated as a standard "building" for Input Tax Credit (ITC) purposes. 

• ITC Eligibility: Many rulings (e.g., Rajasthan AAR) allow ITC on rooftop solar plants by classifying them as "plant and machinery" rather than "building or civil structures."
• The Exception: Under Section 17(5)(d), ITC is blocked for the construction of "immovable property," but this restriction specifically excludes plant and machinery.
• Conflicting Rulings: Some authorities (e.g., Tamil Nadu AAR) have still denied ITC, arguing the entire system is immovable property used for exempt supplies (like electricity), though this remains a point of high-level litigation. 

GST authorities often challenge ITC but defendable : Audit teams may demand reversal claiming “immovable property,” but decisions support eligibility if The asset is capitalized as plant & machinery, No ITC is taken on civil foundation works The system is detachable/modular, So, is it covered under “Building & Installation”?

No. Solar installation is treated separately. It is not classified as building, and installation activity alone does not make it a building-related immovable property. Its classification depends on whether the final asset is movable plant & machinery or immovable property.

As per Section 16(1) of the CGST Act, 2017, a registered person is entitled to ITC on goods or services used in the course or furtherance of business, subject to prescribed conditions. Therefore, if a solar plant is installed for business purposes, ITC can be claimed.

Blocked Credit Provision – Section 17(5) : The main dispute regarding solar plants arises under Section 17(5)(c) & 17(5)(d).

Section 17(5)(d) : ITC not available for Goods or services used for construction of an immovable property (other than plant & machinery) on own account. Explanation to the section: Plant & Machinery includes apparatus, equipment, machinery fixed to earth by foundation or structural support But excludes land, building, telecom towers, pipelines outside factory. Thus, if a solar plant qualifies as plant & machinery, ITC is NOT blocked.

When ITC on Solar Plant is Allowed: If Solar Plant Qualifies as Plant & Machinery. ITC is allowed on Solar panels, Inverters, Mounting structures, Installation & commissioning services and EPC contracts.  Because the solar power plant is treated as capital goods / plant & machinery used in business. So Key Conditions Used in course of business, Capitalised in books of accounts, Not used for exempt supply and GST component not claimed as depreciation under Income Tax.

Exemption on Electricity Supply : Electricity is exempt from GST under Notification No. 02/2017 – Central Tax (Rate) : Entry 104  Electrical Energy (HSN 2716) : Since electricity supply is exempt, ITC may be restricted under Section 17(2). If solar electricity is sold as a supply, ITC may not be allowed.

Important Advance Rulings : Important Case Laws on ITC for Solar Power Plants

• KLF Nirmal Industries Pvt Ltd : Tamil Nadu AAR (2021) : Facts : Company installed 265 KW rooftop solar plant. Ruling: Held Solar power plant qualifies as plant & machinery, ITC available on design, engineering, supply and installation of solar plant. So  ITC allowed on EPC contract, design, engineering and installation services.  Principle: Solar plants are capital goods used in business, so ITC is available.
• Gujarat AAR – Unique Welding Products Pvt Ltd (2024) : Held Rooftop solar plant is plant & machinery, Not an immovable property and ITC allowed on solar power plant used for captive consumption.
• Kerala AAR (2025) : Held Solar plant used for common facilities of a mall, Electricity used internally for taxable CAM services  and ITC allowed since not used for exempt supply.
• Grand Centre Mall : Kerala AAR (2025) : Facts : Mall installed a 500 KW rooftop solar plant, Electricity used for common facilities, CAM charges recovered with GST. Ruling : Solar plant qualifies as plant & machinery, Used for taxable CAM services and ITC allowed under Section 16 and not blocked under Section 17(5).  Principle: Solar plants used for taxable business activities are eligible for ITC.
• Unique Welding Products Pvt Ltd :  Gujarat AAR (2024) : Facts : Rooftop solar plant installed in factory. Electricity used in manufacturing. Ruling : Solar plant is not immovable property. Treated as plant & machinery. & ITC allowed on solar plant installation. This case clarified that fixing panels on roof does not automatically make them immovable property.
• AES Engineering Solar Pvt Ltd : Maharashtra AAR (2024)  : Facts : Company generated electricity and sold it. Ruling  : Electricity supply is exempt from GST. & Therefore ITC on solar plant not allowed. Principle: If the output supply is exempt electricity, ITC must be reversed under Section 17(2).
• VBC Associates : Tamil Nadu AAAR (2022) : Facts Solar panels installed for electricity generation. Ruling : ITC denied due to exempt electricity supply and Rule 43 reversal provisions.

To safely claim ITC, ensure Solar system is capitalized as Plant & Machinery, not building. Civil work components (pedestals, foundations) are segregated ITC not claimed on them. Maintain documentation showing system is modular / detachable. used for taxable business operations. Keep AAR references and technical drawings ready in case of audit.

Key Summary of AAR Positions & Practical Position

Solar power plant ITC is generally NOT blocked under GST because It qualifies as Plant & Machinery, Exception to Section 17(5)(d) applies and But ITC may be restricted if Used for exempt electricity supply, constructed as immovable property and Used partly for exempt activities

To claim ITC on solar plants Plant should be capitalised as plant & machinery.Used in course or furtherance of business. Electricity should not be an exempt outward supply, or proportionate reversal required. And GST components should not be claimed as depreciation under Income Tax.

• Solar plants used for manufacturing, commercial buildings, malls, factories then ITC allowed.
• Solar plants used only for selling electricity then ITC not available.

Under GST law ITC on Solar Power Plants is generally allowed because they qualify as plant & machinery. Blocked credit under Section 17(5) usually does not apply. However, ITC becomes restricted if electricity generated is an exempt supply under Notification 02/2017. However ITC may be restricted under Section 17(2) if used for exempt electricity supply.  Therefore, eligibility depends mainly on the end use of electricity generated.

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