No ITC claim for Goods and Services used in Electricity Generation Due to GST Exemption on Electricity Supply: AAR [Read Order]

The Maharashtra Authority for Advance Ruling ( AAR) has ruled that no Input Tax Credit ( ITC ) can be claimed for goods and services used in electricity generation due to the GST exemption on the supply of electricity. In the case of AES Engineering Solar Private Limited, the AAR examined the applicability of GST on the intra-state and inter-state supply of electrical energy. The applicant sought clarification on whether GST was payable on the delivery of electrical energy based on their existing agreement.

Upon analysis of the agreement, it was found that the applicant's responsibilities include not only the production of electrical energy but also its delivery to the busbar of the end consumer through the DISCOM. Thus, the applicant is involved in the transmission and distribution of electrical energy in addition to its production.

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M/s. AES Engineering Solar Pvt Ltd operates a solar power plant located at Village Nagansur, Taluka Akkalkot, District Solapur, and Maharashtra. The applicant entered into a power purchase agreement with Philips Commodities India Private Limited ("buyer") on February 8, 2013, to sell electrical energy up to 2MW from its solar power plant.

The electrical energy generated by the applicant is delivered at the pooling sub-station of Swami Samarth Solar Green Energy LLP, after which the Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) takes over. MSEDCL delivers the electrical energy to the ultimate consumer, Kores India Limited, Chakan, Pune, through its transmission and distribution infrastructure. MSEDCL charges the End Consumer a "Transmission and Distribution charge" for the electricity supplied through Open Access.

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The AAR ruled that since the applicant only invoiced for the supply of electricity without including delivery (transmission) charges, the supply of electrical energy is exempt from GST under Entry No. 104 of Notification No. 2/2017-Central Tax (Rate) and Notification No. 2/2017-Integrated Tax (Rate), both dated June 28, 2017.

Additionally, the applicant inquired about the eligibility to claim and utilize input tax credit ( ITC ) for the CGST and SGST paid on the procurement of the solar power plant used for generating electricity. A two-member bench of the AAR, comprising Ajay Kumar V. Bonde and Priya Jadhav, ruled that since the supply of electricity is exempt from GST, the applicant is not entitled to claim ITC on their inward supplies of goods, services, or capital goods used in generating electricity. This decision aligns with Section 17 of the GST Act and Rules 42 and 43, which govern the calculation of ITC. As the output supply is tax-exempt, the applicant cannot avail ITC on related procurements.

To Read the full text of the Order CLICK HERE

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