18% GST on MSETCL’s Allocation of Spare Existing Asset to Dedicated Consumers for Specified Duration on Payment: AAR [Read Order]

The Maharashtra Authority for Advance Ruling (AAR) recently ruled that the Maharashtra State Electricity Transmission Company Limited (MSETCL) is liable to pay 18% Goods and Services Tax (GST) on consideration received by them for the temporary allocation of an existing transmission bay (a spare asset) to dedicated consumers during the period of when a new bay is being constructed.

MSETCL, a wholly-owned Government of Maharashtra entity and the state's leading electricity transmission utility, approached the AAR to clarify the taxability of several types of works undertaken for consumers on Outright Contract (ORC) basis, including the allocation of existing spare transmission assets to consumers on payment for limited durations. The primary query was whether such arrangements constituted a "supply" under the GST regime and the applicable rate and classification.

Chartered Accountant Arpit Jain, represented MSETCL while the Revenue was represented by Sudarshana J. Patil, Deputy Commissioner of SGST.

MSETCL’s representative clarified that the temporary allocation of the asset did not amount to a transfer of title or outright lease.

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The Revenue contended that the nature of the transaction indicated a taxable service falling under the scope of GST and that the charges recovered from the consumer constituted consideration for a supply.

The contention emphasized that the activity was not covered under the exemptions available for the transmission or distribution of electricity, particularly under Entry 25 or 25A of Notification No. 12/2017 – Central Tax (Rate).

The AAR Bench of D.P. Gojamgunde, Joint Commissioner of State Tax, and Priya Jadhav, Joint Commissioner of Central Tax observed that the activity in question was not transmission per se, nor incidental or ancillary to core service of electricity transmission.

The Bench ruled that permitting the use of a spare asset for a fixed duration against payment amounts to a supply of service akin to renting or temporary assignment of infrastructure and thus did not qualify for exemption under the cited notifications.

Based on these observations, the Bench concluded that the activity would be classified under SAC Heading 998339, which pertains to project management and engineering services, and ruled that the same attracted GST at the rate of 18% (9% CGST + 9% SGST).

Furthermore, the Bench clarified that the time of supply would be determined in accordance with Section 13 of the CGST Act, i.e., generally, the earlier of the receipt of payment or issuance of invoice.

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