Can You Claim ITC on Solar Power Used in Malls? Yes, Says AAR
This was clarified by the Gujarat Authority for Advance Ruling (AAR) in a recent case involving a Vadodara-based mall operator.
This blog breaks down the legal background, expert interpretation, and how businesses like malls can benefit from clean energy without losing out on GST credit.
What Was the Case About?
Applicant: L&T Emporium Private Limited (Mall Operator)
Verdict: YES – AAR Gujarat (Order No. GUJ/GAAR/R/2024/14, dated 10 May 2024) ruled that the mall can claim full ITC on the rooftop solar setup.
Legal Basis for Allowing ITC
Here’s how the ruling aligns with the law:
| Provision | Relevance |
|---|---|
| Section 16(1) of CGST Act | Allows ITC on goods/services used in the course or furtherance of business |
| Section 17(5)(c) & (d) | Blocks ITC on works contract and construction of immovable property unless used for business |
| Explanation to Section 17 | ‘Plant and machinery’ includes structures used for generating electricity |
| AAR Observation | Electricity used in common areas qualifies as furtherance of business |
Interpretation: Since electricity generated from the rooftop solar system was directly used for maintenance of the mall’s common areas (e.g., lifts, lobbies, lighting), it supports business operations and ITC is allowed.
How ITC on Solar Power Plant Applies to Malls
✅ Eligible Use-Cases for ITC:
- Lighting, air-conditioning, escalators in common areas
- Security systems, fire alarms
- Lifts and water pumps
- Shared washroom facilities
❌ Ineligible Use-Cases (Caution):
- Solar power used for personal residences within the premises
- Separate electricity supply to tenants (considered outward supply)
Step-by-Step: Claiming ITC on Rooftop Solar
- Ensure Proper Invoice from Supplier
GST invoice must be in the mall’s name with GSTIN - Classify Under Capital Goods
Account the solar plant as ‘plant and machinery’ under GST - Use in Business Premises Only
- Avoid Common ITC Pitfalls
- Don’t capitalize it under ‘immovable property’
- Maintain electricity usage records if questioned by department
Expert Tip:
“Solar energy investments are long-term cost savers. With proper GST planning, malls can recover 18% GST as ITC on such capital goods. Just ensure consumption stays within business use and keep invoices clean.”
– CA V. Dinesh, Indirect Tax Advisor
Government Push for Solar: Double Benefit
- Capital Subsidies are often available under MNRE schemes
- ITC on GST now clarified – added financial edge
- Net Metering can further reduce power bills
FAQs
Q1. Can residential societies claim ITC on solar plants?
Only if the plant is used for providing taxable outward services like paid common maintenance.
Q2. What if solar power is also used by tenants?
It may be considered an outward supply of electricity, attracting GST, unless part of bundled rent or CAM.
Q3. Will ITC be reversed if solar power is used for exempt activities?
Yes. If partly used for exempted services, proportionate reversal under Rule 42 may apply.
Conclusion
ITC on solar power plant installed for common area maintenance in malls is now a confirmed yes, thanks to the Gujarat AAR. This is a significant win for commercial complexes opting for green energy.
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Summary:
Electricity used for lifts, lighting, and CAM qualifies as business use, making the GST credit claimable.