Is a Solar power project taxable at 5% as a composite supply, or at 18% as a works contract?

For years, solar EPC contracts were stuck in a GST grey area of 5% or 18%?

That uncertainty has now been put to rest. In Sterling and Wilson Private Limited vs. Joint Commissioner (2025) 1 TMI 663 (AP HC), the Andhra Pradesh High Court decisively ruled in favor of the taxpayer, holding that solar EPC contracts are composite supplies taxable at 5%, and not works contracts liable to 18% GST.

This piece unpacks the legal reasoning behind the judgment and explains why the ruling is a turning point for the solar and renewable energy sector.

[1] Key legal issue:

🔸 Whether the installation of a solar power plant results in its classification as immovable property and, consequently, as works contract services liable to 18% GST?

[2] Facts of the case:

🔸 Sterling & Wilson Pvt. Ltd., an Engineering, Procurement, and Construction (EPC) contractor, executed contracts for setting up solar power generating systems.

🔸 They applied 5% GST, treating the transaction as a composite supply with solar modules as the principal supply.

[3] Taxpayer’s main defense:

🔸 A solar project is a composite supply, with goods (solar modules) as the dominant element.

🔸 Solar systems are movable property, foundations are only for operational stability, not permanent enjoyment of land.

[4] Department’s claim and why it mattered:

🔸 Once installed, the solar plant is fixed to the earth and, accordingly, assumes the character of immovable property, thereby classifying the contract as a works contract taxable at 18%.

[5] What the High Court held:

The Division Bench ruled entirely in favor of the assessee, holding that:

1. Mere attachment to the earth for operational stability does not make an asset immovable.
2. The intention of attachment matters—not just physical fixing.
3. Solar power systems can be dismantled and relocated and are movable in nature.

Since the asset is movable in nature, the contract cannot be treated as a works contract.

[6] Why this judgment matters:

This ruling is a landmark clarification for the solar and renewable energy sector:

It confirms that Solar Engineering, Procurement, and Construction (EPC) contracts are not construction contracts and should not be taxed like real estate projects.

[7] Bottom line:

Solar power generating systems are movable assets, and their supply and installation constitute a composite supply under GST.

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