MSETCL cannot Claim GST ITC on Refund of Excess Deposit received from End Users after Completion of Work: AAR [Read Order]

The AAR held that once the funds are returned and there is no outward taxable supply against such refunded amounts, the ITC cannot be retained by the Electricity company.

MSETCL, a state-owned transmission utility, sought clarification on whether it is entitled to claim or retain ITC on materials and services procured in the execution of certain infrastructure works where excess funds deposited by the end user are later refunded after completion and final reconciliation of all costs.

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The transmission utility collects advance deposits from entities such as industrial units or infrastructure developers seeking the construction or modification of electricity transmission assets for dedicated use. The deposit amounts are calculated on the basis of estimated costs and supervision charges, but sometimes lead to excess balances after the final billing is reconciled.

The applicant, represented by Chartered Accountant Arpit Jain submitted that the company is entitled to avail ITC on inputs and input services used in the course or furtherance of its business, which includes transmission-related construction work.

Meanwhile it was the contention of the Department, through Sudarshana J. Patil, that as long as the refunded deposit does not result in supply, it cannot be considered as consideration for any taxable output service. Hence, proportionate ITC attributable to the non-supply portion must be reversed in accordance with Section 16 and Rule 42 of the CGST Rules.

The AAR Bench comprising D.P. Gojamgunde, Joint Commissioner of State Tax, and Priya Jadhav, Joint Commissioner of Central Tax examined the submissions and noted that GST is a supply-based tax and credit of tax paid on inputs can only be retained if there is a corresponding taxable output supply.

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In the present instance, the excess amount refunded does not relate to any taxable supply, and thus cannot form part of the value of supply under Section 15 of the CGST Act. Therefore, the Bench ruled that ITC to the extent relatable to such refunded amount is not admissible.

Accordingly, AAR ruled that MSETCL cannot claim or retain ITC proportionate to the value of excess deposits refunded to end users after completion of the contracted work.

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