The Gujarat Authority for Advanced Ruling has said rooftop solar power systems constitute plant and machinery and, therefore, are eligible for input tax credit under the Goods and Services Tax (GST) Act.

The rationale behind the ruling was that since rooftop solar projects are affixed to the roofs of buildings with nuts and bolts and are not embedded in the earth, they are not immovable and thus can be considered plant and machinery.

The input tax credit cannot be availed for goods and services for the construction of an immovable property like an office building.

An input tax credit allows an entity to offset the GST liability on the supply of goods or services from the GST paid on the purchase of goods or services used by a business for captive power generation.

The petitioner, Unique Welding Products Ltd – a manufacturer and seller of welding products, installed a 440 kW rooftop solar system on the roof of its factory for captive use of power to manufacture welding wires in the same building.

The petitioner also entered into an interconnection agreement with power distributer Madhya Gujarat Vij Company.

It raised two issues in May last year: firstly, whether input tax credit for a rooftop solar project comes under “input capital/goods” or “input services” as per sections 16 and 17 of the GST Act.

Secondly, whether the rooftop solar project qualifies as plant and machinery and thereby does not fall under the category of blocked input tax credit as per Section 7(5).

The Gujarat Authority of Advanced Ruling, after two hearings in August and November last year, concluded in January this year that rooftop solar is indeed eligible for input tax credits.

Gujarat saw the highest installations of rooftop solar in the third quarter (Q3) of 2023, accounting for 26.7% of the total installed rooftop solar capacity in the country, according to the Q3 2023 Mercom India Rooftop Solar Market Report.

In October last year, Gujarat unveiled its renewable energy policy focusing on leveraging the state’s potential of 36 GW of solar and 143 GW of wind capacity to enable a cost-effective and reliable power supply.

The policy will be in force until September 30, 2028, and will encompass renewable energy projects, including ground-mounted solar, rooftop solar, floating solar, canal-top solar, wind, rooftop wind, and wind-solar hybrid ventures.