Solar Power Generating Systems Held to Be Moveable Property Under GST: A New Legal Principle

Introduction

This commentary examines the judgment delivered by the Hon’ble Andhra Pradesh High Court in the matter of Sterling And Wilson Private Limited v. The Joint Commissioner and Others, dated January 10, 2025. The petitioner, Sterling and Wilson Private Limited, is involved in setting up solar power plants and had been classifying its supplies as taxable at 5% under the Goods and Services Tax (“GST”). However, the assessing authority reclassified these transactions as “works contract,” attracting a higher GST rate of 18%. The ensuing dispute led the court to analyze whether solar power generating systems constitute immovable property (works contract) or moveable property eligible for a lower GST rate.

The key issue at the heart of this case is the correct classification of solar power plants for GST purposes, determining whether they fall under “composite supply,” taxed at 5%, or “works contract,” taxed at 18%. The petitioner challenged the orders of the lower authorities, which imposed higher taxation, interest, and penalty. The judgment provides important clarity on the legal test for distinguishing moveable from immovable property in the context of GST.

Summary of the Judgment

The Court held that the petitioner’s solar power generating systems do not qualify as immovable property and therefore cannot be classified as a “works contract.” Instead, these systems are considered a “composite supply” of goods and services, subject to a lower rate of 5% GST. The deciding factor turns on the intentions and the manner in which the solar modules and related structures are fixed to the ground. Because the installations are not permanently integrated into the land for its beneficial enjoyment, they remain moveable property under the GST framework. Multiple precedents from the Hon’ble Supreme Court, dealing with the definition of immovable property, were discussed to reinforce this conclusion.

Consequently, the Court set aside the impugned appellate order that had upheld the 18% GST classification and reinstated the petitioner’s claim to the lower tax rate. The Court’s ruling expressly clarified that, under similar circumstances, solar power modules, if not permanently embedded in the earth, remain outside the ambit of works contract.

Analysis

Precedents Cited

• Sirpur Paper Mills Limited v. The Collector of Central Excise (1998) 1 SCC 400: The Court noted that the Supreme Court in Sirpur Paper Mills held that merely affixing machinery to a foundation for operational efficiency does not make it immovable property, unless there is permanency in that affixation and an intention to remain attached to the earth indefinitely.

• Commissioner of Central Excise, Ahmedabad v. Solid and Correct Engineering Works (2010) 5 SCC 122: This decision laid down comprehensive guidelines for distinguishing moveable from immovable property. The Supreme Court emphasized that the determination hinges on whether dismantling is possible without significant demolition and whether the fixture is intended to be permanent.

• Duncan Industries Limited v. State of Uttar Pradesh (2000) 1 SCC 633: Although this case supported the notion that property permanently embedded in the earth is immovable, the Court distinguished it based on the specific facts: in Duncan, the machinery was indisputably intended to be a permanent fixture.

• T.T.G. Industries Ltd., Madras v. Collector of Central Excise, Raipur (2004) 4 SCC 751: Reiterated that if a piece of machinery or structure can only be removed by demolishing a part of the land or structure, it is immovable property. The Court in the present matter contrasted this principle, finding that the petitioner’s solar power modules are not permanently embedded.

Legal Reasoning

The Andhra Pradesh High Court meticulously dissected both statutory definitions and judicial precedent to conclude that the underlying transactions do not amount to a works contract. The Court reasoned as follows:

1. Composite Supply vs. Works Contract: Section 2(30) of the GST Act explains “composite supply.” Meanwhile, Section 2(119) defines “works contract” as a supply involving construction or immovable property. The Court recognized that all works contracts are composite supplies; however, not all composite supplies automatically become works contracts.
2. Immovability Test: Since “works contract” requires the final output to be “immovable property,” the core question focused on whether solar power generating equipment is permanently attached to or embedded in the earth. Drawing upon the established tests set out by the Hon’ble Supreme Court, the Court concluded that a device affixed to a foundation only for operational stability does not necessarily become permanently attached.
3. Substance over Form: The fact that the solar modules could be removed and reinstalled without substantial damage lent credence to viewing them as moveable. The Court further noted that the civil foundation is embedded in the earth solely to enable the solar modules to function effectively, not vice versa. Therefore, the principal object is the modular system, not an immovable structure.

Ultimately, the Court distinguished the petitioner’s circumstances from decisions where sites were judged immoveable because they were permanently embedded without any realistic possibility of relocation.

Impact on Future Cases and Legal Landscape

The present decision by the Andhra Pradesh High Court will likely serve as persuasive precedent in disputes concerning the classification of solar power infrastructure under GST. It clarifies that the underlying question remains fact-driven:

• If the installation’s purpose and manner of attachment indicate permanency and immovability, the supply likely qualifies as a “works contract.”
• If it can be easily dismantled and redeployed, and the affixation is mainly to maintain operational stability rather than intended to merge with or enhance the beneficial enjoyment of the land permanently, then it is classified as “moveable” and subject to a lower GST rate.

Tax practitioners and businesses engaged in installing machinery or structures should evaluate their contractual and operational arrangements more carefully. This judgment underscores that the GST rate depends on whether the property remains moveable or whether it has been permanently embedded in the ground.

Complex Concepts Simplified

• Composite Supply: A situation where a supplier provides multiple supplies of goods or services naturally bundled together. The key characteristic is that they are provided in conjunction under a single contract, and the taxation is based on the “principal supply.”

• Works Contract: Under GST, a works contract requires construction, erection, or installation of immovable property involving a transfer of property in goods. This usually triggers a higher tax rate.

• Immovable vs. Moveable Property: According to the Transfer of Property Act, 1882, and clarifications from the Supreme Court, property is considered immovable when it is permanently attached or embedded in the earth. If machinery or a structure is merely bolted down for stability, it remains moveable, provided it can be unfastened without permanently damaging or demolishing land or structures.

• Intention of Permanency: Courts carefully examine whether, at the time of the property’s installation, the parties intended for it to remain indefinitely in the same location. Such an inquiry helps to classify property as immoveable or moveable in specific contexts.

Conclusion

The judgment of the Andhra Pradesh High Court in Sterling And Wilson Private Limited v. The Joint Commissioner and Others marks an important development in clarifying how to determine whether a structure or system is moveable or immovable for GST purposes. By focusing on the nature of attachment, degree of permanence, and the intention behind the installation, the Court solidified the principle that certain solar power generating systems—when not permanently embedded—should be treated as composite supplies of goods and services.

This decision has extensive implications for businesses and entrepreneurs engaged in designing, procuring, and installing solar power systems, as well as those dealing in other types of machinery. It underscores the need to evaluate carefully whether their apparatus is genuinely removable or intentionally made an inseparable part of the land. Moving forward, stakeholders in the renewable energy sector, tax practitioners, and government authorities can rely on this ruling to navigate classification disputes more confidently.