2025 (3) TMI 469 - AAR - GST

Input tax credits - inputs/capital goods or input services - items used in Design engineering Installation of 10.2 MW of the Solar Power plant as per MNRE IEC standards wherein the generation of electricity from such solar plant is used for captive consumption - input Tax credit for inputs and services for running the solar plant - HELD THAT - The solar power generated shall not be consumed by the applicant directly at the place of generation of electricity which is different from the place of consumption. Hence the applicant is left with the only option to transfer/supply the electricity generated to TANGEDCO through grid which in turn is given as credits by TANGEDCO for the amount of electricity generated. Further they have informed that there is no banking agreement with TANGEDCO to store the surplus or deficit if any. In the absence of banking agreement with TANGEDCO any surplus/excess power generated shall get lapsed - As the Solar Power Plant forms part of the business of the applicant the generation and supply of electricity is treated as a supply as per the GST provisions. Whether it is taxable supply of goods or services or not. As per the tariff electricity is goods classifiable under HSN 27160000 as specified under First Schedule to the tariff. Electricity is charged to NIL rate of tax in terms of Sl. No. 104 of N/N. 02/2017-CT(Rate) dated 28-06-2017? - HELD THAT - As per the definition of Exempt supply supply of any goods or services or both is attracting nil rate of tax. Hence as per the said definition the generation and supply of electricity to TANGEDCO which attracts nil rate of tax is an exempted supply and accordingly all provisions related to exempt supply are applicable. Eligibility of input tax Credit (ITC) on goods and services used or consumed during the setting up for Solar Power Plant - HELD THAT - In the instant case as the activity of generation of electricity itself is supply of goods the tax paid on goods and services used and consumed in the setting up of Solar Power Plant is eligible to be taken as ITC. The applicant has stated in the statement of facts that the cost incurred for installation of Solar Power Plant to make it in the present condition and use shall be capitalized in their books of accounts and included in the Fixed Asset Register of the company. In terms of Section 16 (3) when the registered person who is claiming depreciation on the tax component of the cost of capital goods and plant machinery under the provisions of Income Tax Act 1961 ITC on said tax component shall not be allowed. Here the applicant has not disclosed whether they are claiming/going to claim any depreciation on the tax component of cost of capital goods and plant and machinery classified as Fixed Asset . However eligibility and the quantum of ITC on the capital goods depends on the fact whether the applicant is claiming depreciation under Income Tax Act or not. The applicant is not eligible for input tax credit on the goods and services exclusively used for the provision of exempt supply namely generation and supply of electricity . Electricity being a goods charged to Nil rate of tax is supplied to TANGEDCO which in turn is given as Credit for adjustment towards the power consumed in the factory of manufacture and hence electricity is not captively consumed but the supply is to be treated as exempt supply . As per Section 17 (2) and 17 (3) of the CGST/TNGST Act 2017 read with Rule 43 (1) (a) of the CGST/SGST Rules 2017 the input tax credit exclusively used or consumed for the generation and supply of electricity which is an exempted supply is unavailable for availment as input tax credit. Whether the applicant is eligible to take input tax credit for inputs and services for running the solar power plant? - HELD THAT - The applicant is not eligible to avail the input tax credit on any goods or services exclusively used for running or maintenance of the Solar Power Plant also. Conclusion - i) The activity of the applicant namely generation and supply of electricity would fall under the scope of supply and as the supply of electricity attracts nil rate of tax it falls within the definition of exempted supply. The input tax credit on the goods and services used or consumed exclusively for providing exempted supplies are not available for availment and utilisation. ii) The applicant is not eligible to avail the input tax credit on any goods or services exclusively used for running or maintenance of the Solar Power Plant.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the applicant is eligible to take input tax credits as inputs/capital goods or input services of the items used in the design, engineering, and installation of a 10.2 MW Solar Power Plant, used for captive consumption.
Whether the applicant is eligible to take input tax credit for inputs and services used in running the solar power plant.

ISSUE-WISE DETAILED ANALYSIS

1. Eligibility for Input Tax Credit on Solar Power Plant Installation

Legal Framework and Precedents: The eligibility for input tax credit (ITC) is governed by Section 16 of the CGST/TNGST Act, 2017, which allows credit on goods and services used in the course of business. Section 17(5) restricts ITC on goods or services used for constructing immovable property, except for plant and machinery. The definition of "exempt supply" under Section 2(47) includes supplies attracting nil tax rates.
Court's Interpretation and Reasoning: The Court examined whether the electricity generated is captively consumed or supplied to TANGEDCO. Since the electricity is supplied to TANGEDCO and not directly consumed, it is not considered captive consumption. The supply of electricity attracts a nil rate of tax, classifying it as an exempt supply.
Key Evidence and Findings: The applicant's arrangement with TANGEDCO involves transferring electricity to the grid, receiving credits for consumption, and lacking a banking agreement for surplus electricity. This arrangement implies that the electricity is not captively consumed.
Application of Law to Facts: The Solar Power Plant, being used to generate electricity supplied to TANGEDCO, results in an exempt supply. Under Section 17(2) and Rule 43, ITC on goods and services used exclusively for exempt supplies is ineligible.
Treatment of Competing Arguments: The applicant argued that the Solar Power Plant is a capital asset and should not be considered immovable property. However, the Court determined that the electricity supply is exempt, thus blocking ITC.
Conclusions: The applicant is not eligible for ITC on goods and services used for the Solar Power Plant installation, as the generated electricity is an exempt supply.

2. Eligibility for Input Tax Credit on Running the Solar Power Plant

Legal Framework and Precedents: The same legal provisions apply as in the first issue, focusing on the eligibility of ITC for goods and services used in providing exempt supplies.
Court's Interpretation and Reasoning: Since the electricity generated is supplied to TANGEDCO and classified as an exempt supply, ITC on goods and services used in running the plant is also blocked.
Key Evidence and Findings: The applicant did not provide evidence of direct consumption of electricity at the generation site, reinforcing the classification as an exempt supply.
Application of Law to Facts: The Court applied Section 17(2) and Rule 43, confirming that ITC on goods and services used for exempt supplies is not available.
Treatment of Competing Arguments: The applicant's reliance on previous rulings was distinguished based on differences in facts, such as the location of electricity consumption and the nature of agreements with power entities.
Conclusions: The applicant is not eligible for ITC on goods and services used for running the Solar Power Plant.

SIGNIFICANT HOLDINGS

Core Principles Established: The generation and supply of electricity to TANGEDCO, attracting a nil rate of tax, is classified as an exempt supply under GST law. Consequently, ITC on goods and services used exclusively for such exempt supplies is not available.
Final Determinations on Each Issue:
- The applicant is not eligible for ITC on the goods and services used in the design, engineering, and installation of the Solar Power Plant, as the electricity generated is an exempt supply.
- The applicant is not eligible for ITC on goods and services used for running the Solar Power Plant.