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2024 (11) TMI 975 - AAAR - GSTGovernmental Authority or Local Authority - Government of Karnataka holds 99.99% of equity in the Corporation - exemption from filing of Annual Return in Form GSTR9 and Form GSTR9C - input tax credit on the inward supply of goods and services, which are capitalized in the books of accounts - input tax credit on the inward supply of services against output taxable supplies of support and auxiliary services and other supply of taxable goods - input tax credit (on inputs, input services and capital goods) proportionately on the taxable output supply of support services and goods (scrap etc.) - eligibility to claim taxes paid under RCM, as input tax credit - levy of Additional Surcharge collected from Open Access Consumer - taxability of Wheeling and Banking Charges allowed by Commission (KERC) as 5% and 2% of the energy input into the distribution system by Open Access consumer. HELD THAT - The clause 8.5.4 of the Tariff Policy, 2016 notified by the Ministry of Power, Government of India provides that The additional surcharge for obligation to supply as per section 42(4) of the Act should become applicable only if it is conclusively demonstrated that the obligation of a licensee, in terms of existing power purchase commitments, has been and continues to be stranded, or there is an unavoidable obligation and incidence to bear fixed costs consequent to such a contract. The fixed costs related to network assets would be recovered through wheeling charges. As per National Electricity Policy, an additional surcharge be levied for meeting the fixed cost of the distribution licensee arising out of his obligation to supply in cases where consumers are allowed open access. As per Karnataka Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulation, 2004, the open access customer shall be liable to pay such additional surcharge as may be determined by the Commission from time to time. It is also noticed that Regulation 3 of KERC (Electricity Supply) Code, 2004 empowered the appellant to charge additional surcharge from their open access consumers. Thus, it is apparent that the appellant is collecting additional surcharge as per the Electricity Act; Tariff Policy; National Electricity Policy of Ministry of Power, Government of India and Karnataka Electricity Regulatory Commission (Terms and conditions for open Access) Regulation, 2004, KERC (Electricity Supply) Code, 2004 of Karnataka Electricity Regulatory Commission, Government of Karnataka from the open access customers, and therefore it forms part of tariff for the supply and distribution of electricity. It is found that collection of Additional Surcharge from OA consumers on the basis of quantum of energy wheeled from the private generators of OA consumers is only to meet the fixed cost of the appellant arising out of this obligation to supply. Such collection mechanism is backed by an Act and policies of Central Government as well State Government. In the instant case, the Appellant has entered into agreements with their customers, basically for supply of electricity - From the submissions of the appellant, there are no independent arrangement entered into by the appellant for tolerating an act against which the consideration is collected as Additional Surcharge. It is found that such amounts do not constitute payment (or consideration) for tolerating an act, rather these amounts are collected only to cover the fixed costs the appellant has to incur in terms of power purchase agreements they have entered into with power generating companies. The Additional Surcharge levied under Electricity Act from their customers who opted for sourcing electricity from open access, over and above the consideration charged towards supply and distribution of electricity should form part of taxable value, determined in terms of Section 15 of the CGST Act, 2017 - the supply of electricity as goods and/or distribution of electricity as service are covered under exemption either in terms of entry No. 104 of Notification No.02/2017 CT(R) dated 28.06.2017 applicable to goods and /or entry No.25 of the Notification No.12/2017-Central Tax(Rate) dated 28.06.2017 applicable to services.
Issues Involved:
1. Whether the appellant is considered a "Governmental Authority" or "Local Authority." 2. Exemption from filing Annual Returns in Form GSTR9 and Form GSTR9C. 3. Eligibility to claim input tax credit on inward supply of goods and services capitalized in books. 4. Eligibility to claim input tax credit on inward supply of services against output taxable supplies. 5. Eligibility to claim input tax credit proportionately on taxable output supply. 6. Eligibility to claim taxes paid under RCM as input tax credit. 7. Taxability of Additional Surcharge collected from Open Access Consumers under GST. 8. Taxability of "Wheeling and Banking Charges" under GST. Issue-wise Detailed Analysis: 1. Governmental Authority or Local Authority: - The Advance Ruling Authority determined that the appellant, a public sector company of the Government of Karnataka, cannot be considered either a "Governmental Authority" or "Local Authority." This decision was based on the ownership structure and the functions performed by the appellant. 2. Exemption from Filing Annual Returns: - The Authority ruled that the appellant is not exempt from filing Annual Returns in Form GSTR9 and Form GSTR9C under the second proviso to Section 44 of the CGST and KGST Acts, despite being fully owned by the Government of Karnataka and audited by the Comptroller and Auditor General of India. 3. Input Tax Credit on Capitalized Goods and Services: - The appellant is eligible to claim input tax credit on the inward supply of goods and services capitalized in the books of accounts if they are used or intended to be used in the course or furtherance of business. 4. Input Tax Credit on Inward Supply of Services: - The appellant is eligible to claim input tax credit on the inward supply of services against output taxable supplies of support and auxiliary services and other taxable goods, subject to section 17(2) of the CGST Act read with Rule 42 and 43 of CGST Rules. 5. Proportional Input Tax Credit: - The appellant is eligible to claim input tax credit proportionately on inputs, input services, and capital goods on the taxable output supply of support services and goods (scrap etc.), subject to section 17(2) of the CGST Act read with Rule 42 and 43 of CGST Rules. 6. Taxes Paid under RCM: - The appellant is eligible to claim taxes paid under the Reverse Charge Mechanism (RCM) as input tax credit, subject to section 17(2) of the CGST Act read with Rule 42 and 43 of CGST Rules. 7. Taxability of Additional Surcharge: - The Advance Ruling Authority initially held that the additional surcharge collected from Open Access Consumers is taxable under GST as it is considered a charge for tolerating an act. However, upon appeal, it was determined that the additional surcharge is not a consideration for tolerating an act but is collected to meet the fixed costs stranded due to the obligation to supply power. It was concluded that the additional surcharge forms part of the tariff for the supply and distribution of electricity and is therefore exempt from GST. 8. Taxability of Wheeling and Banking Charges: - The "Wheeling and Banking Charges" collected by the appellant are exempted from the payment of GST. Conclusion: The appellate authority set aside the ruling that the additional surcharge collected from Open Access Consumers is taxable under GST. It held that such surcharges are part of the tariff for the supply and distribution of electricity and are exempt from GST. The decision aligns with the provisions of the Electricity Act, Tariff Policy, National Electricity Policy, and various regulations, emphasizing that the additional surcharge is a mechanism to recover stranded fixed costs and not a consideration for tolerating an act.
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