Steel Manufacturer not eligible for GST ITC on Goods/Services used Exclusively for Running Solar Power Plant: AAR [Read Order]

In a significant development for the renewable energy sector within India’s manufacturing industry, the Tamil Nadu Authority for Advance Ruling (AAR) has held that Kanishk Steel Industries Limited, a leading steel manufacturer, is not eligible to claim Input Tax Credit (ITC) on goods and services used exclusively for the operation and maintenance of its 10.2 MW solar power plant.

The authority ruled that such electricity generation, when supplied to the state grid and credited back for use in manufacturing, falls under "exempt supply," thereby blocking ITC entitlement under the CGST and TNGST Act.

Kanishk Steel, engaged in manufacturing steel at its Gummidipoondi facility, sought clarity on ITC claims as it replaced its windmills with a large-scale solar plant in Kayathar Taluk, Tuticorin District, Tamil Nadu. The entire solar capacity was dedicated to powering the company’s own steel production, with all generated electricity transferred to the Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) grid. Energy credits were set off against the company's factory consumption without any banking agreement for surplus electricity.

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The company argued that the solar plant, capitalized as “plant and machinery,” qualified for ITC on installation, maintenance, and operational costs, citing Section 16 of the GST Act and precedents from AARs in other states. It reasoned that all activities—including captive power generation—were in the course of business, thus meriting credit.

The two-member panel Shri Balakrishna S (CGST) and Shri B. Suseel Kumar (SGST) ruled against Kanishk Steel’s contentions.

It was noted that, electricity generation and supply to TANGEDCO is supplied under GST but attracts a “nil” rate of tax, classified as exempt supply (HSN 27160000). Thus, Goods and services used exclusively to provide exempt supplies are not eligible for ITC, as per Section 17(2) and related rules.

The absence of direct captive consumption (i.e., on-site use of electricity) makes the power plant’s output subject to ITC restrictions, even though credits are used for manufacturing. The plant, though capitalized as plant and machinery, does not override statutory restrictions on credits for exempt supplies.

While Kanishk Steel pointed to similar rulings from Tamil Nadu, Karnataka, and Rajasthan that favored ITC for captive solar plants, the AAR held these were factually distinct, primarily because, in those cases, “captive consumption” meant direct use without supply and re-credit via a third-party grid.

Unless solar power is consumed directly at the place of generation, and not supplied through third-party grids, ITC on related goods and services is blocked where the supply is classified as exempt.

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