2020 (2) TMI 549 - AAR - GST

Supply of services of transmission or distribution of electricity - Deposit Work undertaken by Applicant, integral part of said services or not - composite supply of services - ancillary services to the principal supply or not - exemption given under Entry No. 25 of the exemption notification - input tax credit. HELD THAT - For a supply to be consider as a composite supply, its constituent supplies should be so integrated with each other that one is not supplied in the ordinary course of business without or independent of the other. In other words they are naturally bundled. The concept of the Naturally Bundled , used in Section 2(30) of the CGST Act, 2017, lays emphasis on the fact that the different element in a composite supply are integral to the overall supply and if one of the element is removed the nature of supply will be affected. In view of the clarification issued under the Circular No. 34/8/2018-GST, dated 1-3-2018, issued vide F. No. 354/17/2018, it is observed that the deposit work undertaken by the applicant are not an integral part of the supply of services of transmission or distribution of electricity and the applicant is not eligible to avail the exemption from levy of GST under Entry No. 25 of Notification 12/2017-Central Tax (Rate), dated 28-6-2017 bearing description Transmission or distribution of electricity by an electricity transmission or distribution utility with respect to the non-tariff charges recovered from their customers. Input tax credit - HELD THAT - The immovable property created by the applicant does not falls under the category of plants and machinery therefore they are not eligible to claim Input Tax Credit.

Summary

Issues involved:
- Whether the Deposit Work is integral to the supply of transmission or distribution of electricity?
- Whether the Deposit Work is ancillary to the principal supply of transmission or distribution of electricity?
- Applicability of exemption under Entry No. 25 of the exemption notification for services of electricity transmission or distribution.
- Eligibility of Input Tax Credit (ITC) for undertaking Deposit Works.

Analysis:

The applicant, a registered GST assessee, sought clarification on various aspects related to Deposit Work undertaken in the transmission of electrical energy. The applicant, as the state transmission utility of Uttar Pradesh, performs Deposit Work to enhance infrastructure for transmission. The applicant applied for an Advance Ruling to determine the nature of Deposit Work in relation to transmission services and the eligibility for exemptions and Input Tax Credit (ITC).

During the submission, the applicant explained that the cost for Deposit Work is recovered directly from consumers who have availed the service, distinct from tariff charges. The applicant argued that Deposit Work is integral to the transmission service, falling under the exemption for transmission or distribution of electricity. They contended that Deposit Work and transmission services are naturally bundled, with transmission being the principal supply.

The Authority examined the concept of composite supply, emphasizing the integration of constituent supplies. It was observed that Deposit Work is not directly related to transmission and can occur independently. Referring to a Gujarat High Court decision and a GST circular, the Authority concluded that Deposit Work does not qualify for the exemption under Entry No. 25.

Regarding ITC eligibility, the applicant claimed that Deposit Work involves constructing immovable property qualifying as plant and machinery. However, the Authority referenced relevant GST sections and definitions to determine that the immovable property created does not meet the criteria for plant and machinery, thus disqualifying the applicant from claiming ITC.

In the final ruling, the Authority unanimously determined that Deposit Work is not integral or ancillary to the supply of transmission or distribution of electricity. The exemption under Entry No. 25 does not apply to the applicant, and they are not eligible to claim Input Tax Credit for Deposit Works involving infrastructure creation for electricity transmission.