Appellate Authority, State Tax, Jodhpur: In an appeal filed by Azure Power India (P) Ltd. challenging an adjudication order passed under Section 73, Central Goods and Services Tax Act, 2017 (CGST Act)/Rajasthan Goods and Services Tax Act, 2017 (RGST Act), Kisna Ram, Appellate Authority, State Tax, Jodhpur, held that Integrated Goods and Services Tax, 2016 (IGST) on ocean freight under reverse charge mechanism in cost, insurance and freight (CIF) contracts was not leviable.
The authority further held that rooftop solar power generating systems (SPGS) are movable property and therefore their supply and installation cannot be classified as “works contract service” under Section 2(119), CGST Act.
Background
The appellant was engaged in import of goods on CIF basis and in execution of contracts involving design, engineering, procurement, supply, installation, testing and commissioning of rooftop SPGS. During proceedings under Section 73 of the GST enactments, the adjudicating authority confirmed demand of IGST on ocean freight under reverse charge mechanism by relying upon Notifications No. 8/2017-Integrated Tax (Rate) and 10/2017-Integrated Tax (Rate).
The adjudicating authority also held that the rooftop solar projects executed by the appellant resulted in emergence of “immovable property” because solar modules and structures were installed on civil foundations attached to earth. Accordingly, the activity was classified as “works contract service” taxable at 18 per cent instead of concessional GST applicable to SPGS.
Aggrieved thereby, the appellant preferred an appeal before the appellate authority.
Issues
Whether IGST is leviable under reverse charge mechanism on ocean freight component in imports undertaken on CIF basis?
Whether rooftop SPGS constitute “immovable property” and are therefore classifiable as “works contract service” under Section 2(119), CGST Act?
Analysis, Law and Decision
The appellate authority observed that the issue relating to levy of IGST on ocean freight in CIF contracts was no longer res integra and stood conclusively settled by the Supreme Court in Union of India v. Mohit Minerals (P) Ltd., (2022) 10 SCC 700. Also noted that under a CIF contract, the transportation arrangement is entered into between the foreign exporter and the foreign shipping line and the importer is not the recipient of the transportation service.
The authority further noted that the ocean freight component already forms part of the assessable value of imported goods on which IGST is paid at the time of importation. Therefore, a separate levy of IGST on ocean freight under the reverse charge mechanism would amount to taxing a component of an already taxed composite supply and would be contrary to the scheme of Sections 2(30) and 8, CGST Act.
Accordingly, the authority held that the demand of IGST on ocean freight was legally unsustainable and liable to be set aside.
The appellate authority, on the issue of classification of SPGS, examined whether the rooftop solar projects executed by the appellant resulted in the creation of immovable property so as to qualify as a works contract under Section 2(119), CGST Act.
The authority found that the attachment of the SPGS to the rooftop was only for stability, safety and efficient functioning of the solar modules. Such attachment was not intended to permanently incorporate the system into the building or land.
Relying on Bharti Airtel Ltd. v. CCE, (2024) 19 SCC 1, the authority applied the tests of nature of annexation, object of annexation, intention of the parties, functionality, permanency and marketability for determining whether the SPGS was movable or immovable property.
The appellate authority, held that the SPGS retained its separate commercial identity even after installation. It could be dismantled and relocated without substantial damage and continued to remain marketable and reusable. The attachment to the rooftop was merely incidental to its efficient functioning.
The authority also relied upon Sterling & Wilson (P) Ltd. v. Commr., (2025) 140 GSTR 383, wherein it was held that SPGS are not immovable property merely because supporting structures are embedded in earth. The authority accepted the proposition that civil foundations are embedded for the beneficial enjoyment and functioning of the solar system and not vice versa. Since immovable property is a mandatory requirement for classification as a works contract under Section 2(119), the rooftop SPGS executed by the appellant could not be treated as works contract services.
The authority held that, the classification adopted by the adjudicating authority was erroneous and the appellant entitled to the concessional GST rate applicable to SPGS. Conclusively, the demands of IGST on ocean freight, differential GST, interest and penalty were set aside and the appeal was allowed.
[Azure Power India (P) Ltd. v. Commr. (SGST), Appeal No. 41/GST/JDR/26-27, decided on 21-5-2026]
Advocates who appeared in this case:
For the Appellant: Mannat Waraich, Advocate
