PPA for rooftop solar constitutes a pure supply of exempt electricity, absolving the asset owner from construction tax or local GST registration.

PPA for rooftop solar constitutes a pure supply of exempt electricity, absolving the asset owner from construction tax or local GST registration.

Issue

Whether the construction and operation of a rooftop solar plant on a client’s premises under a Power Purchase Agreement (PPA) triggers a separate GST liability for construction services, and whether an out-of-state asset owner is required to obtain local GST registration to supply tax-exempt electrical energy.

Facts

• The Arrangement: The applicant, a GST-registered entity in Tamil Nadu, signed a 25-year PPA with an off-taker (client) to install and operate a captive rooftop solar plant at the off-taker’s factory premises located in West Bengal.

• Roles & Capital Outlay: The applicant was solely responsible for the engineering, procurement, construction, commissioning, operations, maintenance (O&M), and approvals. The applicant bore all capital expenditures, capitalised the plant in its own books, and retained absolute ownership of the asset.

• Off-taker Contribution: The off-taker provided the rooftop space free of cost, ensured site access, security, utilities, and handled necessary meter upgrades.

• The Billing Mechanism: Monthly invoices were raised by the applicant based on the metered electricity units delivered to the busbar via a DISCOM meter. The applicant was neither a traditional transmission nor a distribution company.

Decision

• No Tax Liability on Construction Services: Held in favour of assessee. The construction, erection, and commissioning of the solar plant were executed by the applicant for its own asset creation, using space provided rent-free by the client. Since the asset was never transferred or built “for” the off-taker during the term, the transaction cannot be treated as a taxable supply of construction or engineering services to the client.

• Supply Limited to Electrical Energy: Held in favour of assessee. The true essence of the PPA transaction between the parties is restricted solely to the generation and supply of electrical energy.

• Electricity Enjoys Nil-Rate GST: Held in favour of assessee. Electrical energy is classified as “goods” under Tariff Heading No. 2716 00 00 and attracts a Nil rate of GST under Notification No. 02/2017-Central Tax (Rate).

• Local GST Registration Not Required: Held in favour of assessee. Although GST is a destination-based consumption tax normally requiring registration where the asset is situated, Section 23 explicitly exempts any person engaged exclusively in the business of supplying tax-exempt goods or services. Because the applicant only supplies exempt electrical energy in West Bengal and makes no other taxable supply there, it is not required to obtain a local GST registration, nor is it liable to collect or pay tax.

Key Takeaways

• Captive Solar Model is Protected: In Renewable Energy OPEX/RESCO models, where a solar developer builds a plant on a customer’s roof to sell power, the tax department cannot dissect the contract to levy GST on the upfront “construction value.”

• Exempt Supplies Shield Against Registration: A corporate entity registered in one state does not need to rush to establish a physical GST registration footprint in a new state just because its operating assets are situated there, provided the localized output is entirely restricted to GST-exempt commodities like electricity.