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TMI Blog2019 (10) TMI 570X X X X Extracts X X X X X X X X Extracts X X X X ..... ement manufacturing plants which are physically located at distinct locations within the State of Karnataka - section 17(1) and 17(2) of the CGST/KGST/IGST Act - permission for utilization of the credit for payment of output tax - HELD THAT:-The activity of production of electric energy is a supply to self as the electricity produced is captively used. In fact the production of electricity in a solar power plant geographically separated from the manufacturing site is an intermediate process in the manufacture of cement akin to the use of generators sets within the factory premises to produce electricity for consumption in the manufacturing process. The operation of generator sets within the factory would not constitute a separate supply. Similarly the operation of the solar power plant shall not constitute a separate supply warranting the application of Section 17(1) and /or 17(2) - the applicant shall be entitled to the eligible input credits in entirety provided the entire production is captively consumed. Reversal of Input Tax Credit - electric energy generated by it at its plant and banked with the KPTCL, GESCOM HESCOM and which is unutilized at the end of six months from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s received a license to set-up and produce electricity vide GO No. 381 NCE 2016 dt. 02-02-2017. Under the said GO, the applicant has been authorised to set-up a renewable energy based Solar Electric Power Plant of 20MW capacity for power generation and captive consumption. The plant has been commissioned and operative w.e.f. 01 April 2018. 5. The Applicant, for the purpose of setting up the power plant, has purchased the following inputs/ capital goods such as Solar Power Panels, Transformers, electrical meters, wiring installations and performed civil works for the foundation of these items. The detailed listing of the items and the sample invoices of each type have been enclosed. 6. Under the Central and State Electricity regulations, the applicant was required to seek permission for the setting up of the captive power plant and enter into agreements with Power Transmission authorities for the transmission of the electricity generated at its solar power plant. The Applicant is statutorily required to transmit the electricity to its other plants only through licensed State Transmission Companies which operate the electricity grids. 7. The applicant has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant seeks clarification on the eligibility of input tax credit u/s 16 and 17 of the Central Goods and Services Tax Act, 2017 (CGST Act) and the Karnataka State Goods and Services Tax Act, 2017 (KGST Act) and Integrated Goods and Service Tax Act, 2017 (IGST Act) in respect of the inputs, input services and capital goods received towards erection, installation and commissioning of the solar power plant at Bisarahalli (Koppal District). 10. In view of the above Statement of Facts put forth by the Applicant, advance ruling in respect of the following questions has been sought:- 1. Whether the company is eligible to take input tax credit as inputs/capital goods or input services of the items enlisted in Annexure-4 of this application in terms of Section 16 and 17 of the CGST/ KGST/ IGST Act? Additionally, whether the capital goods and. inputs constitute plant and machinery of the Applicant which are used in the business of Manufacturing Cement and hence not blocked input tax credit under section 17(5) of the CGST/ KGST/ IGST Act? 2. Whether the Applicant Company is permitted to avail the entire input tax credit of the enlisted items in Annexure 4 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions for claiming this input tax credit, such as:- 1. Taxable person should be in possession of the tax invoice or tax paying document 2. Taxable person should have received the goods and services 3. Tax charged has been duly paid to the Government cither in cash or by input tax credit 4. Taxable person has duly furnished his return as per the law f. Section 17 of the said Act also provides certain conditions for availment of input tax credit and the relevant conditions are below:- 1. Input tax which are partly used for taxable and exempted supplies would have to be proportionately reduced in terms of Section 17(1)/ 17(2) and the rules there under 2. Works contract services received for construction of immovable property (other than plant and machinery) would not be eligible for input tax credit 3. Goods and services received for construction of immovable property (other than plant and machinery) on own account would not be eligible for input tax credit 4. Plant and machinery has been defined in Explanation as apparatus, equipment and machinery fixed to earth by foundation or struc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TNVAT Act. 14. In respect of the second question the applicant contends as follows:- a. The provisions of section 17(1) (2) of the CGST/ KGST restrict proportionate credit in respect of common credits (partly used for taxable and exempt supplies) and also exclusive credit used for exempt supplies. Rule 42 and 43 of the respective rules provide for the mechanism of computation of the proportionate amount eligible as input tax credit. b. The applicant is engaged in manufacture of cement and engaged in production of electrical energy but solely for own use/ consumption. The electrical energy generated at the solar power plant is transmitted through the electrical grid of KPTCL/ ESCOMs to the consuming cement manufacturing plant at Lokapur and Kaladgi. The applicant is liable to pay the wheeling / banking charges to KPTCL/ESCOMs for usage of the grid for transmission of electricity. c. The applicant submits that even though electrical energy is an exempted item in terms of CGST-Notification 2/2017-Central Tax (Rate) dated 28.06.2017 KGST-Notification GD48 CSL 2017 dated 29.06.2017, there is no requirement of reversal of input tax credit on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral Tax (Rate) dated 28.06.2017, electric energy is exempted from tax under the CGST Act. 18. Section 2(59) provides that input means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Further capital goods are defined in Section 2(19) as goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business. This implies that goods which have been capitalized in the account books would not qualify to be considered as inputs. 4.3 It has been contended, as well as suitably been demonstrated with the help of Wheeling and Banking agreements, that the applicant has a solar power plant located away from the manufacturing units and the electric energy produced there is used in the manufacture of the end product in the units located away from the solar power plant. Undoubtedly the electricity energy is captively used after transmission through the grid and drawal from the grid at the manufacturing point. The electric energy is therefore qualified to be considered as an input, used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises. 22. On the basis of the above cited provisions of law and the facts and circumstances attending to the applicant s case we proceed to answer the first question as follows.- (a) Question 1 has two parts. The first part reads Whether the company is eligible to take input tax credit as inputs/capital goods or input services of the items enlisted in Annexure-d of this application in terms of Section 16 and 17 of the CGST/ KGST/ IGST Act? . The definition of input (as provided in Section 2(59) ibid) does not cover capital goods. Therefore goods, the value of which has been capitalized in the books of account would not be considered as inputs and the applicant will not be entitled to credit of input tax in relation to such goods. From the list of the goods given in Annexure 4 to the application it cannot be inferred as to where capitalization has been done. Therefore in respect of each and every entry of the Annexure specific order cannot be made. Therefore the applicant is entitled to input tax credit in respect of goods other tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cond activity of production of electric energy is a supply to self as the electricity produced is captively used. In fact the production of electricity in a solar power plant geographically separated from the manufacturing site is an intermediate process in the manufacture of cement akin to the use of generators sets within the factory premises to produce electricity for consumption in the manufacturing process. The operation of generator sets within the factory would not constitute a separate supply. Similarly the operation of the solar power plant shall not constitute a separate supply warranting the application of Section 17(1) and /or 17(2). Needless to say that this shall apply only in the case where the entire electricity generated is consumed captively and no part of the energy produced is sold or discharged into the grid and not taken out at their manufacturing site. (c) The answer to the second question, therefore, shall be that the applicant shall be entitled to the eligible input credits (as decided in question 1) in entirety provided the entire production is captively consumed (emphasis supplied). 24. The third question asks Whether the applicant co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced by them accrues to Escom and Escom pays them a price. Moreover the agreement does not provide that the applicant has to necessarily produce energy in excess of their requirement and have to necessarily supply that to Escom as a condition for issue of Licence to set up the solar power plant. If the applicant pumps surplus energy in the grid that energy would be utilized elsewhere by the Escom and therefore it is commercial fair for them to offer a certain value of that energy to the applicant. The applicants contention in this regard, as reproduced above, has no merit and we do not accept it. The surplus energy consumed by Escom and also paid for amounts to a supply by the applicant. (c) Electrical energy is an exempted item in terms of CGST-Notification 2/2017-Central Tax (Rate) dated 28.06.2017 (Serial No. 104) KGST-Notification GD48 CSL 2017 dated 29.06.2017. The applicant also agrees to this, as per para 12 of Annexure 3 to their application. Therefore in respect of the supply of surplus electric energy it is evident that the applicant is engaged in supply of exempted goods. (d) In summation of the above discussion the answer to question number 3 is i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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