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TMI Blog2023 (2) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... ribution of electricity and sale of energy. 3. The applicant has sought advance ruling in respect of the following questions:- i. Since the Government of Karnataka holds 99.99% of equity in the Corporation, whether the Corporation is considered as "Governmental Authority" or "Local Authority"? ii. Since the Corporation is fully owned by the Government of Karnataka and audited by the Comptroller and Auditor General of India, whether filing of Annual Return in Form GSTR-9 and Form GSTR-9C is exempt under the Second Proviso to Section 44 of the CGST and KGST Acts? iii. Whether the Corporation is eligible to claim input tax credit on the inward supply of goods and services which are capitalized in the books of accounts? iv. Whether the Corporation is eligible to claim input tax credit on the inward supply of services against output taxable supplies of support and auxiliary services and other supply of taxable goods? v. Whether the Corporation is eligible to claim input tax credit (on inputs, input services and capital goods) proportionately on the taxable output supply of support services and goods (scrap etc.) as per the provisions of Rule 42 and 43 of the CGST and KGST Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion "governmental authority" means an authority or a board or any other body (i) set up by an Act or Parliament or a State Legislature; or (ii) established by any Government, with ninety percent or more participation by way of equity or control to carry out any function entrusted to a Panchayat under article 243G or to a municipality under Article 243W of the Constitution. Firstly, the Corporation is set up with 99.99% of equity and established by the State of Karnataka. Besides, the Corporation is undertaking rural electrification, including distribution of electricity as per serial number 14 of the Eleventh Schedule to the Constitution, as per Article 243G. Hence, the Corporation is of the opinion that it is a "governmental authority". 6.2 The applicant submits that as per Section 44 of the GST Acts, every registered person shall furnish annual return which may include a self-certified reconciliation statement. However, an exemption has been granted under the second proviso to any Department of the Central Government or a State Government or a local authority, whose books of accounts are subject audit by C & AG. In the case of the Corporation, firstly, it is a Government Authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uipment would thereafter vest with the Licensee who maintains it as per Electricity Supply and Distribution Code, 2000-01, Clause 9.11. And other than above, the new consumer seeking power supply shall execute the service line works under 'Self Execution Works' as per Electricity Supply and Distribution code 2000-01 and after completion of the works, the same shall be taken over by Licensee (i.e., CESC) and ownership of the lines and other equipment would thereafter vest with the Licensee who maintains it as per Electricity Supply and Distribution code, 2000-01, Clause 9.11. Further, the deposit collected under DCW will be treated as contribution and the asset taken over under both DCW and self-execution will be capitalized in the books of accounts as per statues for maintenance. The applicant submits that since the Section 16(3) of the GST Act prohibits claiming input tax credit if depreciation on the tax component of the cost of the capital goods and plant and machinery under the provisions of the Income Tax Act, 1961, is claimed, they are of the opinion that on such goods which are capitalized, no input tax credit is allowable. Also, the applicant is of the opinion tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iliary services, a registered person can claim input tax proportionately. 6.5 The applicant states that they provide auxiliary and support services and collects GST, as has been stated supra. Similarly it receives input services and capital goods and incurs input GST. Therefore, the applicant is of the opinion that it is eligible to claim input tax credit to the extent of output tax collected by it as per the formula given under Rule 42 for the inputs or input services and as per Rule 43 on capital goods. 6.6 The applicant also states that they incur GST liability on hiring of vehicle and advocate fee etc., and pays tax on RCM basis. The applicant is of the opinion that it can claim the taxes paid under RCM as input tax credit as per Section 49(4) of the GST Acts. 6.7 The applicant states that they collect additional surcharge from Open Access Consumers. Additional surcharge is allowed to DISCOMs by KERC to collect from Open Access consumer, to recover stranded cost on account of stranded Power Purchase Agreements (PPAs) and stranded assets due to consumers procuring power through Open Access. This has led to under recovery of power procurement expenses incurred by DISCOMs. Und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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". Further, clause 5.8.3 of the National Electricity Policy notified by the Ministry of Power, Government of India, reads as under: "5.8.3....An additional surcharge may also be levied under sub-section (4) of Section 42 for meeting the fixed cost of the distribution licensee arising out of his obligation to supply in cases where consumers are allowed open access........" Since, the applicant is collecting the above charges as provided by statue incurred by CESC towards power purchase from open access consumers who have moved out of CESC to procure power from independent generators / IEX even though CESC has surplus power. Hence, GST is not collected. Therefore, the applicant is of the opinion that since such Additional Surcharge related to power purchase cost which is exempt. Hence, Additional Surcharge does not comes under purview of GST. 6.8 The applicant submits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is required to be transmitted to the load centers located either within the State or in another State. The host State may not be able to consume all the power generated by it and hence, it may need to be transmitted for long distances to load centers in other States. This will require open access through transmission and distribution systems for transmission and wheeling of the electricity generated. 6.8.2. Section 86(l)(e) of Electricity Act 2003 (hereinafter referred to as EA) requires State Electricity Regulatory Commissions (SERCs) to develop policies that will promote the sale of electricity to any person. In any open access transaction between an RE generator and its buyer (open access user), which could be an obligated entity or otherwise, regional/state transmission charges and losses are required to be paid depending upon connectivity of the generator and the buyer at state transmission networks. 6.8.3 Further, if the generator and/or the buyer are connected at the distributed voltage level, appropriate wheeling charges and losses are also required to be paid. Banking of energy: 6.8.4 Banking is a provision wherein an RE power-generating facility is allowed to bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n access transactions, it is considered appropriate to allocate average distribution loss in such cases". KERC vide order dated 14.5.2018 (Revised order of Wheeling and Banking charges for renewable power projects) also mentioned that "The concessional wheeling charge towards Line loss i.e., distribution loss". 6.8.7 Clause 9.07 of the Wheeling charges for NCE projects, KERC order, dated 9.6.2005 reads as under.- "Considering the discussions at Sl.No.4 above, the Commission determines the overall wheeling charges payable by NCE sources as 5% of the energy input into the system. Other than this wheeling charge, they shall not be liable to pay any transmission charges or wheeling charges either in cash or kind as determined in the preceding sections of this order. However, surcharge shall be payable where the wheeling of energy is other than for their own use." 6.8.8 The calculation of wheeling charges in kind, explained in clause 9.05 of KERC order dated 9.6.2005, is reiterated as follows: Distribution network Charges in kind: 6.8.9 The Commission had allowed the following loss levels for FY04, ESCOM wise in its Tariff Order 2003: ESCOM Distribution Loss (%) BESCOM 21.35% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 6.8.17 Additional surcharge is allowed to DISCOMs by KERC to collect from Open Access consumer, to recover stranded cost on account of stranded Power Purchase Agreements (PPAs) and stranded assets due to consumers procuring power through Open Access. This has led to under recovery of power procurement expenses incurred by DISCOMs. 6.8.18 Under the sub section (4) of the Electricity Act 2003, DISCOMs have a universal supply obligation and are required to supply power as and when required by the consumers in its area of supply. Considering the sales forecast approved by the State Commission while determining the Annual Revenue Requirement, the DISCOM enter into long term Power Purchase Agreements (PPA) with sellers (generators/ traders etc.) so as to ensure supply of power for the envisaged increase in the load. While contracting energy through such long term PPAs, the tariff payable to the generators usually consists of two part i.e. capacity charges and energy charges. Therefore, the DISCOMs have to bear the fixed cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statue incurred by CESC towards power purchase from open access consumers who have moved out of CESC to procure power from independent generators. Cross Subsidy Surcharge: 6.8.23 It is the charge payable by a consumer who opts to avail power supply through open access from someone other than such Distribution Licensee in whose area the consumer is situated. Such surcharge is meant to compensate such Distribution Licensee from the loss of cross subsidy that such Distribution Licensee would suffer by reason of the consumer taking supply from someone other than such Distribution Licensee." 6.8.24 Banking Charges: 7.06 Banking facility to be provided for Renewable Sources of Energy, as per KERC order, dated 9.6.2005 reads as under.- "the Commission hereby decides to allow banking facility in respect of wind and mini-hydel projects subject to payment of difference of UI charges between the time of injection and time drawal of the power from these sources, as suggested by KPTCL and also payment of banking charges @ 2% of the input energy." 6.8.25 The order of the Commission dated 14.5.2018, revising the concessional wheeling charges (allowed vide order dated 9.6.2005) for renewab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rising cost of supply of the ESCOMs and increasing viability of open access and captive procurement through renewables, Karnataka has seen an increase in open access sales by 52% between 2016 and 2019. 6.8.28 Despite these changes, the wheeling and banking charges and the banking period have not changed since 2005 in Karnataka. Further, there have been no changes in concessional wheeling provided as well. This is significant as many other states with RE investments have revised their banking frame work and wheeling charges significantly in recent years. 6.8.29 Banking Provisions: Result in an Increase in Distribution Licensee's Power Purchase Costs. Wind energy generation is available at its maximum during the monsoon, when distribution licensees' overall demand is lessened due to low agricultural load as well as lower air-conditioning loads. During this time, distribution licensees have to scale down to lower-cost thermal generation in order to absorb the wind energy, part of which will be treated as banked energy. But during the non-windy season when the system demand is higher and consequently cost of power is also high, use of banked energy by the captive and third-pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and banking arrangement on Karnataka ESCOMs' - May 22) conducted by Prayas (Energy Group), in compliance with KERC directions is to assess impact of current banking arrangement and concessional wheeling charges on the finances of the ESCOMs. As per the study, the significant financial impact on ESCOMs are as follows:- a) The concessional wheeling and transmission charges result in ESCOMs and KPTCL foregoing revenue of Rs.243 crores and Rs.277 crores in FY 2019-20 and FY 2020-21 respectively. Transmission charge waiver is a major contributor to this revenue loss accounting for 50% of the revenue foregone. b) The total loss to the ESCOMs for FY 2019-20 and 2020-21 from energy banking and concessional wheeling and transmission is Rs.343-373 crores and Rs.530-630 crores respectively. 6.8.35 Considering the above financial impacts on the ESCOMs, following recommendations are made in the report by Prayas:- a) Considering the actual loss of wheeled energy, recommended to increase banking charge to 10-12% of wheeled energy (as against existing 2% charge) to adequately compensate ESCOMs for their losses. b) Banking charge should be levied as Rs./KWh charge per unit of banked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Authorised Representative appeared for personal hearing proceedings held on 18-08-2022 and reiterated the facts narrated in their application. FINDINGS & DISCUSSION 8. At the outset we would like to make it clear that the provisions of CGST Act, 2017 and the KGST Act, 2017 are in pari-materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act. 9. We have considered the submissions made by the applicant in their application for advance ruling. We have also considered the issues involved on which advance ruling is sought by the applicant and the relevant facts along with the arguments made by their authorized representative and also their submissions made during the time of hearing. 10. Regarding the first question as to whether applicant can be treated as "Governmental Authority" or "Local Authority", the contention of the applicant is that since the Government of Karnataka holds 99.99% of equity in the Corporation, they shall have to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of electricity is covered. But the applicant company is not set up or established only to provide Rural Electrification and hence the second condition is not satisfied. Hence, even for the purposes of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017, the applicant cannot be covered under the definition of "governmental authority" and hence the same is clarified. 11. Regarding the issue whether annual returns in FORM GSTR-9 and FORM GSTR-9C are required to be filed by the applicant under Second proviso to section 44 of the CGST Act and KGST Acts as it is a corporation is fully owned by the Government of Karnataka and audited by the Comptroller and Auditor General of India, Section 44 of the CGST Act reads as under: "Section 44: Annual return:- Every registered person, other than an Input Service Distributor, a person paying tax under Section 51 or Section 52, a casual taxable person and a non-resident taxable person shall furnish an annual return which may include a self-certified reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year, with the audited annual financial statement for every financial yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Tax Act; or (e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy;" As per the above it is seen that every registered person is entitled to take credit of input tax charged and input tax means tax charged on any supply of goods or services or both made to him. Goods or services procured by the applicant and capitalized, if used or intended to be used in the course or furtherance of business, then the applicant is entitled to take credit of input tax. 13. Regarding the applicant is eligible to claim input tax credit on the inward supply of services against output taxable supplies of support and auxiliary services and other supply of taxable goods, Section 17(1) and 17(2) of the Central Goods and Services Tax Act, 2017 which reads as under:- "Section 17: Apportionment of credit and blocked credits (1) Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax is attributable to the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be levied by the respective State Commissions on consumers switching to alternate supplies under open access. This is to compensate the host distribution licensee serving such consumers who are permitted open access under section 42(2), for loss of the cross-subsidy element built into the tariff of such consumers. An additional surcharge may also be levied under sub-section (4) of Section 42 for meeting the fixed cost of the distribution licensee arising out of his obligation to supply in cases where consumers are allowed open access. The amount of surcharge and additional surcharge levied from consumers who are permitted open access should not become so onerous that it eliminates competition that is intended to be fostered in generation and supply of power directly to consumers through the provision of Open Access under Section 42(2) of the Act. Further it is essential that the Surcharge be reduced progressively in step with the reduction of cross-subsidies as foreseen in Section 42(2) of the Electricity Act 2003." 16.1 It is seen from the submissions made by the applicant that an open access consumer receiving electricity from a person other than the distribution licensee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at the distributed voltage level, appropriate wheeling charges and losses are required to be paid. The wheeling charges include recovered of the fixed costs related to network assets and line loss (i.e., distribution loss). The wheeling charges is based on the account of investments being made in the sector for meeting the load growth, AT&C loss reduction and improving the performance standards (network assets). The applicant has quoted the clause 9.07 of the Wheeling charges for NCE projects, KERC Order dated 09.06.2005 which reads - "Considering the discussions at SI. No. 4 above, the Commission determines the overall wheeling charges payable by NCE sources as 5% of the energy input into the system. Other than this wheeling charge, they shall not be liable to pay any transmission charges or wheeling charges either in cash or kind as determined in the preceding sections of this order. However, surcharge shall be payable where the wheeling of energy is other than for their own use". From the above, it is clearly seen that the regulatory authority has distinguished that the wheeling charges and the transmission charges are different in nature. 17.2 Further, it could be seen that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt from the payment of GST. 18. In view of the foregoing, we pass the following RULING 1. Chamundeshwari Electricity Supply Corporation Limited cannot be considered either as "Governmental Authority" or "Local Authority". 2. The Applicant is not exempted from filing of Annual Return in Form GSTR-9 and Form GSTR-9C under the Second Proviso to Section 44 of the CGST and KGST Act. 3. The Applicant is eligible to claim input tax credit on the inward supply of goods and services which are capitalized in the books of accounts if they are used or intended to be used in the course or furtherance of business. 4. The applicant is eligible to claim input tax credit on the inward supply of services against output taxable supplies of support and auxiliary services and other supply of taxable goods subject to section 17(2) of the CGST Act read with Rule 42 and 43 of CGST Rules. 5. The Applicant is eligible to claim input tax credit (on inputs, input services and capital goods) proportionately 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. The Applicant is eligible to claim tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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