Practical Roadmap for Industries, Commercial Buildings, CAM Structures, Leasing Models and Business Owners (Part 2)
By CA Surekha S. Ahuja
"A successful GST Input Tax Credit claim is not created when a notice is received. It is created when the solar project is planned, structured, documented and operated correctly from the beginning."
In Part 1A of this series, we discussed the legal foundation governing GST Input Tax Credit (ITC) on rooftop solar power plants and examined the importance of Sections 16 and 17 of the CGST Act.
The key principle emerging from the discussion was:
The GST treatment of a rooftop solar power plant depends not merely on the installation of solar equipment, but on the purpose for which the electricity generated is used and its connection with taxable business activities.
However, for businesses, the practical question begins after understanding the law:
How should a taxpayer structure the solar project so that the ITC claim is commercially and legally sustainable?
A rooftop solar project may involve significant investment and substantial GST outflow on:
- Solar modules;
- Inverters;
- Transformers;
- Mounting structures;
- Electrical equipment;
- Engineering, procurement and construction (EPC) services;
- Installation and commissioning activities.
A well-planned structure can preserve valuable ITC, whereas poor documentation or an inappropriate business arrangement may result in avoidable disputes.
This article provides a practical roadmap for industries, commercial property owners, landlords and business operators.
Start With the Business Model: Who Will Consume the Solar Power?
Before installing the solar plant, management should answer the most important question:
Who will ultimately consume the electricity generated from the solar plant?
The GST position can vary significantly depending upon the answer.
Model 1: Manufacturing Unit – Captive Consumption
This is generally one of the strongest factual situations.
Example: A manufacturing company installs rooftop solar panels on its factory premises. The electricity generated is used for:
- Production machinery;
- Factory operations;
- Processing activities;
- Storage facilities;
- Other manufacturing support functions.
The business chain is clear:
Solar Plant → Electricity Generation → Manufacturing Activity → Taxable Goods → GST-Paid Supply
Professional View
Where solar power directly supports the manufacture of taxable goods, the business nexus is generally easier to establish.
The taxpayer should maintain evidence demonstrating that the solar power contributes to taxable manufacturing operations.
Commercial Buildings: The CAM and Renting Strategy
For commercial properties, the analysis requires greater planning.
The strongest position generally arises where the solar power plant supports facilities maintained by the landlord as part of taxable renting services.
Examples:
- Common area lighting;
- Lifts and escalators;
- Fire safety systems;
- Security systems;
- Water pumps;
- Common HVAC systems;
- Parking facilities;
- Other shared amenities.
The commercial linkage can be demonstrated as:
Solar Plant → Common Facilities → Maintenance of Commercial Property → Taxable Renting/CAM Services
Why CAM Documentation Becomes Critical
For commercial properties, GST officers often examine the relationship between:
- Lease agreements;
- CAM agreements;
- Electricity arrangements;
- Tenant billing.
A properly drafted CAM structure should clearly establish:
- The landlord is providing taxable maintenance and facility services;
- Common facilities are maintained by the landlord;
- Solar power supports those common facilities;
- The arrangement is not merely a separate supply of electricity.
Practical CAM Precautions
Avoid vague descriptions such as:
"Electricity reimbursement"
or
"Solar electricity charges"
without explaining the underlying service.
Such wording may create questions regarding whether the landlord is making an independent supply of electricity.
Preferable Documentation Approach
CAM agreements should clearly identify services such as:
- Maintenance of common areas;
- Operation of lifts;
- Security services;
- Common electricity consumption;
- Facility management.
The commercial substance should reflect taxable facility management services.
Tenant Electricity Arrangement: A Critical Decision Point
Commercial property owners should carefully evaluate:
Stronger position:
- Tenants obtain electricity directly from the distribution company;
- Solar power is consumed for landlord-controlled common facilities;
- Rent and CAM charges are subject to GST.
Higher complexity:
- Landlord generates solar electricity;
- Electricity is separately supplied or recovered from tenants.
The second arrangement requires careful GST evaluation.
Build the Plant and Machinery Position Properly
A rooftop location alone should not determine the character of the asset. The taxpayer should maintain evidence that the solar installation functions as an independent electricity generation system. Important documents include:
- EPC agreement;
- Technical specifications;
- Single-line electrical diagram;
- Layout drawings;
- Commissioning certificate;
- Photographs;
- Equipment details.
The objective is to demonstrate the commercial and technical identity of the solar plant.
Accounting and GST Records Must Tell the Same Story
A frequent weakness during audits is inconsistency.
For example:
EPC Contract: "Solar Power Generation System"
Fixed Asset Register: "Building Improvement"
Such inconsistencies invite unnecessary questions. The description should be aligned across:
- Agreements;
- Invoices;
- Fixed asset register;
- Financial statements;
- GST records.
Create a Solar ITC Defence File
Large projects should maintain a dedicated documentation file.
| Document | Purpose |
|---|---|
| EPC Agreement | Establish nature of project |
| Tax invoices | Evidence of GST payment |
| Technical drawings | Support Plant and Machinery position |
| Commissioning report | Evidence of completion |
| Electricity generation reports | Establish actual use |
| Meter records | Demonstrate consumption |
| Lease agreements | Establish renting activity |
| CAM agreements | Establish taxable services |
| Internal approval note | Explain business purpose |
| Photographs | Physical evidence |
Pre-Implementation GST Review for High-Value Projects
For projects involving substantial GST amounts, businesses should consider reviewing:
- Ownership structure;
- EPC contract;
- Electricity flow;
- Tenant arrangements;
- CAM structure;
- Accounting treatment.
A preventive review is generally more valuable than defending a dispute later.
Practical Decision Matrix
| Solar Usage Model | ITC Position | Key Consideration |
|---|---|---|
| Manufacturing captive consumption | Strong | Direct link with taxable production |
| Warehouse/logistics operations | Strong | Business use needs documentation |
| Commercial common facilities | Strong with proper CAM structure | Taxable renting linkage |
| Separate electricity supply to tenants | Complex | Requires detailed analysis |
| Mixed taxable and exempt usage | Requires review | Possible reversal implications |
| Third-party supply | Higher complexity | Nature of outward supply |
Comprehensive FAQs
Can ITC be claimed on the complete rooftop solar project?
The analysis is not restricted only to solar panels. It may cover eligible goods and services forming part of the solar project, subject to GST conditions and applicable restrictions.
Is captive consumption by manufacturers the safest model?
Captive consumption for taxable manufacturing generally provides a strong factual basis because the nexus between input and taxable output is direct.
Can commercial landlords claim ITC on rooftop solar plants?
Yes, where the solar power supports taxable renting activities and common facilities, subject to fulfilment of GST conditions and proper documentation.
Can ITC be claimed where tenants consume electricity?
The facts are critical.
The arrangement should be examined carefully, particularly where electricity is separately supplied or recovered from tenants.
Can a tenant claim ITC on a solar plant installed on rented premises?
It depends upon:
- Ownership;
- Control;
- Business use;
- Contractual rights;
- Nature of installation.
What if solar power is partly used for taxable and exempt activities?
The taxpayer should evaluate proportionate reversal requirements and maintain proper records.
What if excess electricity is exported to the grid?
The GST implications depend upon the arrangement and nature of the transaction.
Separate analysis may be required.
Can ITC be claimed under a RESCO/OPEX solar model?
The analysis differs because ownership of the plant and nature of services received become relevant.
Is technical documentation really important?
Yes. During scrutiny, technical evidence often becomes as important as legal arguments.
Should businesses obtain a GST opinion before installation?
For large projects, a documented GST position note is advisable.
Final Professional Checklist
Before claiming ITC, ensure:
✓ Business use is established.
✓ Electricity flow is documented.
✓ EPC agreement is reviewed.
✓ Plant and Machinery position is supported.
✓ CAM agreements are aligned.
✓ Tenant arrangements are analysed.
✓ Accounting records are consistent.
✓ Generation and consumption records are maintained.
✓ GST position is documented.
Professional Conclusion
Rooftop solar projects represent a significant opportunity for businesses to reduce energy costs while supporting sustainability goals. However, from a GST perspective, the success of an ITC claim depends upon much more than payment of GST on solar equipment.
A sustainable ITC position requires alignment of:
Project Structure + Electricity Usage + Taxable Business Nexus + Documentation
For manufacturers, captive consumption of solar power for taxable production generally provides the clearest pathway.
For commercial property owners, properly structured renting and CAM arrangements can significantly strengthen the ITC position.
The most important lesson is:
GST planning should begin before the solar plant is installed. The strongest ITC claims are built through proactive structuring, not reactive litigation.
