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2024 (7) TMI 977 - AAR - GSTTaxability - Deposit Work undertaken by the Applicant and 6% supervision charges received for supervision and monitoring of deposit work - transmission or distribution of electricity - exemption under Entry 25 of N/N. 12/2017-CT (R) dated. 28.06.2027 issued under GST Laws - ancillary / incidental to the principal supply of transmission or distribution of electricity - ITC of GST paid to contractors on execution of said work and GST paid on materials and equipment supplied free of cost out of its stock - reversal of ITC u/s 17 (2) of CGST Act read with Rule 42 and 43 of CGST Rules. HELD THAT - As per provisions of Electricity Act 2003, the deposit work is either executed by the applicant or by the consumer. Both the applicant and the consumer have liberty to execute the deposit works of creation of electrical transmission infrastructure for transmission and distribution of electricity and therefore, the supplies of support services of transmission infrastructure and supplies of services of transmission and distribution of electricity are separable - the amount is recovered from the consumers as non-tariff charge. This shows that the services of transmission of electricity is independent of the deposit contribution works under taken by the Applicant and accordingly do not fulfill all conditions specified in section 2 (30) of the CGST/OGST Act for the purpose of treating both the supplies as composite supply. Thus, the exemption notified for 'transmission and distribution of electricity' cannot be extended to the deposit contribution works (support services) undertaken by the applicant on the pretext of those being a part of the composite supply, which is far from true. Rather those support services in form of deposit contribution works provided by the applicant are taxable supplies irrespective of the fact that whether the same are supplied by contractors or third parties. Thus, the exemption is limited to Transmission and distribution' of electricity only. The deposit works undertaken by the Applicant is supplying support services to electricity transmission distribution classified under SAC-998631. The applicable rate of tax is 9% in view of Entry SI No. 25 of the Notification No. 11/2017-CT dated 28.06.2017. Whether, the Applicant is eligible for ITC of GST paid to contractors on execution of deposit work and GST paid on materials and equipment supplied free of cost to the contractor? - HELD THAT - As per Section 16(1) of the Act, every registered person is entitled to take ITC charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business - In the instant case, it is seen that the works undertaken by the Applicant is for creation of the infrastructure which will be used for supplying supply of services of transmission or distribution of electricity for the furtherance of business. Therefore, ITC can be admissible to Plant and Machinery means apparatus, equipment and machinery fixed to the earth by foundation or structural support that are used for making outward supply of goods and services or both in accordance with the explanation provided under the third proviso to sub-section (5) of Section 17 of the CGST Act.
Issues Involved:
1. Taxability of "Deposit Work" and 6% supervision charges under GST. 2. Eligibility of Input Tax Credit (ITC) on GST paid for execution of deposit work and materials/equipment supplied. 3. Requirement of ITC reversal under section 17(2) of CGST Act read with Rule 42 and 43 of CGST Rules. Detailed Analysis: Issue 1: Taxability of "Deposit Work" and 6% Supervision Charges The Applicant sought a ruling on whether "Deposit Work" and the 6% supervision charges are integral to the supply of transmission or distribution of electricity and thus exempt under Entry 25 of Notification No. 12/2017-CT (R) dated 28.06.2017. Alternatively, whether these services form part of a composite supply under Section 2(30) of the CGST/OGST Acts, 2017, and should be treated as part of the principal supply, which is exempt from GST. Findings: - The Applicant is engaged in transmission and distribution of electricity, and also undertakes "Deposit Work" involving the creation of electrical infrastructure. - The "Deposit Work" is executed either by the Applicant or the consumer, and involves costs plus GST, with 6% supervision charges. - The main activity of transmission or distribution of electricity is exempt from GST under Entry 25 of Notification No. 12/2017-CT (R). - However, ancillary services such as "Deposit Work" and supervision charges are not naturally bundled with the principal supply of electricity and are executed upon specific consumer requests. - As per Circular No. 34/8/2018-GST, ancillary services like application fees, rental charges for metering equipment, testing fees, labor charges for shifting meters, and charges for duplicate bills are taxable. - The "Deposit Work" and supervision charges do not fulfill the criteria for composite supply under Section 2(30) of the CGST/OGST Acts and are thus taxable. Ruling: The "Deposit Work" and 6% supervision charges are not exempt under Entry 25 of Notification No. 12/2017-CT (R) and are taxable. Issue 2: Eligibility of ITC on GST Paid for Execution of Deposit Work and Materials/Equipment Supplied The Applicant sought clarification on whether ITC is available for GST paid to contractors for executing the deposit work and for materials/equipment supplied free of cost from its stock or procured from third-party vendors. Findings: - Section 16(1) of the CGST Act allows ITC on goods or services used in the course or furtherance of business. - The deposit work involves creating infrastructure for the supply of electricity, which is in furtherance of the Applicant's business. - ITC is admissible for apparatus, equipment, and machinery fixed to the earth by foundation or structural support used for making outward supply of goods/services, as per the explanation in Section 17(5) of the CGST Act. Ruling: ITC is admissible for apparatus, equipment, and machinery fixed to the earth by foundation or structural support used for making outward supply of goods/services. Issue 3: Requirement of ITC Reversal under Section 17(2) of CGST Act read with Rule 42 and 43 of CGST Rules The Applicant sought clarification on whether any part of the ITC needs to be reversed under section 17(2) of the CGST Act read with Rule 42 and 43 of CGST Rules. Findings: - Section 17(2) of the CGST Act requires reversal of ITC attributable to exempt supplies. - Rule 42 and 43 of the CGST Rules provide the mechanism for reversal of ITC. Ruling: Yes, ITC is required to be reversed under section 17(2) of CGST Act read with Rule 42 and 43 of CGST Rules. Conclusion: 1. The "Deposit Work" and 6% supervision charges are taxable and not exempt under Entry 25 of Notification No. 12/2017-CT (R). 2. ITC is admissible for apparatus, equipment, and machinery used in the deposit work. 3. ITC must be reversed as per section 17(2) of CGST Act read with Rule 42 and 43 of CGST Rules.
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