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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 ..... al Authority or Local Authority? - HELD THAT:- The definition of Governmental Authority is applicable only for the purposes of interpretation of the entries in the Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 and not for any other purposes - Even the Explanation to clause (16) of section 2 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017) is issued only for the purposes of that clause only and not applicable for all purposes. Hence, there is no definition of governmental authority which is universally applicable under the GST Acts and it is not clear in what context the applicant has sought to know whether he is covered or not. Article 243W of the Constitution and Twelfth Schedule to the Constitution relating to the functions entrusted to a Municipality is verified and found that the supply of electricity is not covered. Article 243G of the Constitution and Eleventh Schedule to the Constitution relating to the functions entrusted to a Panchayat is verified and found that the Rural Electrification including the distribution of electricity is covered. But the applicant company is not set up or established only to provide Rural Electrification a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Rule 42 and 43 of the CGST and KGST Rules, the appellant is eligible to claim input tax credit. Whether the Corporation is eligible to claim taxes paid under RCM, as input tax credit? - HELD THAT:- It is clear that the tax on a transaction is paid under reverse charge basis would still be a tax on the inward supply of goods or services or both and would be eligible as input tax credit under Section 16(1) of the CGST Act subject to apportionment of input tax credit in terms of Section 17(2) of the Act, ibid read with Rules 42 and 43 of the Rules, ibid. Whether Additional Surcharge collected from Open Access Consumer as per sub-section (4) of Section 42 of the Electricity Act, 2003, clause 8.5.4 of the Tariff Policy 2016, Clause 5.8.3 of the National Electricity Policy and Clause 11 (vii) of the KERC (Terms and Conditions for Open Access) Regulations, 2004, is taxable under the GST Acts? - HELD THAT:- 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 of his area of supply, shall have to pay to the distribution licensee an additional surcharge to meet the fixed co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgy. This is covered SI.No. 104 of Notification No.2/2017- Central Tax (rate) dated 28.06.2017 and is exempt from the levy of GST. Thus, Wheeling charges and Banking charges collected by the applicant is exempt from the payment of GST. - KAR ADRG 09/2023 - - - Dated:- 17-2-2023 - DR. M.P. RAVI PRASAD AND SRI. KIRAN REDDY T, MEMBER Represented by : Sri Y.C. Shivakumar, Advocate ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2017 AND UNDER SECTION 98(4) OF THE KGST ACT, 2017 M/s. Chamundeshwari Electricity Supply Corporation Limited, (hereinafter referred to as The applicant), No.29, 2nd Stage, Vijayanagar, Hinkal, Mysore-570017 having GSTIN 29AACCC6636P1Z1 have filed an application for Advance Ruling under Section 97 of CGST Act, 2017 read with Rule 104 of CGST Rules, 2017 and Section 97 of KGST Act, 2017 read with Rule 104 of KGST Rules, 2017, in FORM GST ARA-01 discharging the fee of Rs.5,000/- each under the CGST Act and the KGST Act. 2. The Applicant is a Public Limited Company registered under the provisions of Central Goods and Services Tax Act, 2017 as well as Karnataka Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act and KGST/SGST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lectricity and sale of energy. Sale of energy is exempt as per serial number 104 of Notification No.2/2017-Central Tax (Rate), dated 28-06-2017. Similarly, transmission and distribution of electricity is exempt as per serial number 25 of Notification No. 12/2017-Central Tax (Rate), dated 28-06-2017. 5.2 The applicant states that they purchase power from Central and State generating stations, major independent power producers and independent power producers from non-conventional sources like wind, solar and mini hydel, Telangana State Power Generation Corporation Limited, Damodar Valley Corporation Limited and short-term and medium-term co-generators. The Corporation supplies and distributes power to various consumers, such as, companies, industries, commercial shops, hospitals, farmers, irrigation pumps, individuals, Government organisations etc in the districts of Mysore, Mandya, Chamarajanagar, Hassan and Kodagu. The retail tariff is determined by the Karnataka Electricity Regulatory Commission (KERC) as per Electricity Act 2003. 6. Applicant's Interpretation of Law: 6.1 The applicant submits that the Government of Karnataka holds 99.99% of equity in the Corporatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and general expenses like telephone / mobile and internet charges, man-power services (for obtaining security, data entry operators, house-orderly, sweepers etc.) computer billing charges, legal expenses, professional charges, vehicle hiring expenses, printing and stationery, revenue expenses incurred on software, maintenance charges of FAMS, demonstration transactions and maintenance charges of prepaid meters, transaction charges paid to revenue collecting agency (mobile one), material related expenses, expenses towards consumer relation / education, asset decommissioning costs etc. In all these input services (except open access charges and transmission charges), the applicant incurs GST liability. Some of the input goods are utilized for creating infrastructure and capitalized. As per KERC (Recovery of Expenditure of Supply of Electricity) (Ninth Amendment) Regulations 2017, Clause 3.2.1, Deposit shall be collected by CESC towards the cost of Distribution transformer and allied materials / equipment under Deposit Contribution Works (DCW) . By providing Transformer by CESC, the transformer portion of work will be get done by licensed contractor. After completion of the work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Corporation are application fee, collection of registration fee on HT/Lt/Temporary application on supply of electricity. HT/LT meter testing charges, supervision charges, re-connection fee, augmentation charge, fee for testing of installation, fee for inspection of installations, installation fee collected towards issue of NOC, facilitation fee towards solar roof top system, name transfer fee, service line charges, ledger abstract fee, amount collected towards self-execution works, vendor approval fee, tender application fee, meter burn-out cost, additional load fees, load reduction fees, development charges, penalty recovered from supplier bills, disconnection fee, re-connection fee, delayed payment charges, calibration charges, meter testing charges, re-sealing charges, rentals collected from TV cable operators, one time maintenance cost from new layouts, line shifting charges etc. These are called auxiliary services or support services on which GST is collected by the Corporation which is an output tax and paid every month by the applicant. The applicant is of the opinion that it can claim input tax credit on input and input services against output taxable supplies of suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed charges in the tariff schedule is less than the fixed cost incurred by the DISCOM for supplying energy. This leads to the situation where the DISCOM is saddled with the stranded cost on account of its universal supply obligation. Also, the DISCOMs, in a number of cases, establish assets for supplying power to certain specific consumers. There may be certain cases wherein such assets become redundant. In such cases, fixed charges for such stranded assets should be borne by the customers as part of additional surcharge. In view of the adverse financial situation caused by arrangements made for complying with the obligation to supply, Section 42(4) of the Electricity Act, 2003 provides as under:- Where the State Commissioner permits a consumer or class of consumers to receive supply of electricity from a person other than the distribution licensee of his area of supply, such consumer shall be liable to pay an additional surcharge on the charges of wheeling as may be specified by the State Commission, to meet the fixed cost of such distribution licensee arising out of his obligation to supply. Section 8.5 of the Tariff Policy 2016 also provides;- The additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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. The commission in its order dated 14-05-2018, revising the wheeling charges for renewable power projects, which was effective from 1-4-2018 was challenged by various renewable energy generators before Hon'ble High Court of Karnataka in various Writ petitions. The Hon ble High Court of Karnataka vide its order dated 13-03-2019 has quashed the order dated 14-05-2018. The above order of Honlole High Court of Karnataka is challenged by ESCOMs before the division bench of the Hon ble High Court of Karnataka in WA No. 1061/2019. And the commission has also filed a separate writ appeal before the Hon ble High Court of Karnataka vide WA No. 1176 / 19 and the matter is pending before the Court. Hence, KERC vide dated 07-09-2021 and 08-02-2022 passed interim orders to continue the existing wheeling and banking charges till 31-07-2022. Wheeling and Banking: 6.8.1 Large-scale planned Renewable En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order dated 9.6.2005 ( Concessional W B rates order ) decided to compensate the distribution loss as explained in para 7.07(c) which is reiterated as follows: Wheeling charges in Kind 7.07 Commission's Views/Decision: The Commission is of the view that with proper and efficient management, commercial losses could be curtailed. The Commission appreciates the fact that while reduction of technical losses requires capital investment, reduction of commercial losses requires sincere and concerted efforts by the utilities. The Commission, therefore, agrees with the views expressed by the experts/consumers that passing on the inefficiencies of the utilities cannot incentivize the utilities to improve their performance. In respect of open access consumers, the Commission is of the view that commercial losses should not be loaded to open access customers, as they are in no way responsible for the commercial losses of the utilities. Hence the Commission decides to allocate only technical losses to the open access customers for computing losses in kind. Further, the allocation of distribution losses to HT level and LT level is based on studies instituted by the Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MESCOM 5.68% HESCOM 6.24% GESCOM 11.04% 6.8.12 After deducting the commercial loss as above, the technical loss applicable for the purpose of wheeling would be as follows: ESCOM 33/11KV (%) LT (%) Total Technical loss (%) BESCOM -Distribution Loss 5.5 8.26 13.76 MESCOM -Distribution Loss 6.24 9.36 15.60 HESCOM- Distributic Loss 8.59 12.88 21.47 GESCOM- Distribution Loss 6.40 9.61 16.01 i. If the point of injection point of drawal are both at 33 kV/11 kV, only 33 kV/11 kV loss is payable in kind. ii. If the point of injection point of drawal are both at LT level, only LT loss is payable in kind. iii. In case of transactions involving both HT LT network, the open a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. capacity charges and energy charges. Therefore, the DISCOMs have to bear the fixed cost even when there is no off take of energy through such source. Whenever any consumer opts for open access and takes intermittent supply through open access, the DISCOMs continue to pay fixed charges in lieu of its contracted capacity with generation stations. However, DISCOMs are unable to sufficiently recover such fixed cost obligation from the open access consumers. The cost recovered from fixed charges in the tariff schedule is less than the fixed cost incurred by the DISCOM for supplying energy. This leads to the situation where the DISCOM is saddled with the stranded cost on account of its universal supply obligation. Also, the DISCOMs, in a number of cases, establish assets for supplying power to certain specific consumers. There may be certain cases wherein such assets become redundant. In such cases, fixed charges for such stranded assets should be borne by the customers as part of additional surcharge. 6.8.19 In view of the adverse financial situation caused by arrangements made for complying with the obligation to supply, Section 42(4) of The Electricity Act, 2003 provides as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Commission dated 14.5.2018, revising the concessional wheeling charges (allowed vide order dated 9.6.2005) for renewable power projects, which was effective from 1.4.2018, was challenged by various Renewable energy generators before Hon ble High Court of Karnataka in various Writ petitions. The Hon hie High Court of Karnataka vide its order dated 13.3.2019 has quashed the order dated 14.5.2018. The above order of Hon ble High Court of Karnataka is challenged by ESCOMs before the Division Bench of the Hon ble High Court of Karnataka in WA No. 1061/2019. And the Commission has also filed a separate writ Appeal before the Hon ble High Court of Karnataka vide WA No. 1176/2019 and the matter is pending before the court. Hence, Wheeling and Banking charges are collected as percentage of the energy input/drawal into/from the distribution system. 6.8.26 Effects of W B to Distribution licensee: Wheeling charges: Distribution licensees are concerned with losing high-tariff customers, which would leave largely subsidized customers to serve. Fear of losing a large consumer base has been a major deterrent to granting open access. As per the EA 2003, the open access co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgy. 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-party users results in more costly power purchase by the distribution licensee to service such banked energy. Quite often, in the event of their inability to buy expensive power during such a period, the distribution licensees resort to load shedding. Load management becomes difficult and results in adverse impact to consumers in terms of unreliable power supply (Live Mint 2015). 6.8.30 Switching of cross subsidizing consumers. Distribution licensees face revenue loss due to migration of industrial and commercial consumers as they subsidize consumers paying lower tariffs. This forces distribution companies to seek higher tariffs to offset the loss of cross subsidies from high-paying industrial and commercial consumers. 6.8.31 Concerns of distribution licensee in RE resource-rich states: In the RE resource-rich states, if RE IPPs are allowed the benefit of concessional wheeling, they would prefer to sell under open access if power sales under open access are more than feed-in tariffs (FiTs). This would lead to a si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 energy so that there is a clear economic signal to the cost of banking which would directly incentivize consumers to align their consumption and generation patterns to the extent possible . c) Discontinue all wheeling and transmission concessions on charges. 6.8.36 The concessional wheeling and banking arrangement for RE has remained unchanged in the last 17 years. As per the results presented in the study, the current practice of banking and concessional wheeling has a significant financial impact on Distribution licensees. Hence, the Charges collected in kind (Wheeling Banking charges) and in cash (Additional surcharge and cross subsidy surcharge) are the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be treated within the meaning of Governmental Authority. The term governmental authority is defined in clause (zf) of para 2 of Notification No. 12/2017 -Central Tax (Rate) dated 28.06.2017 as under:- 2. For the purposes of this notification, unless the context otherwise requires,- (zf) governmental authority means an authority or a board of any other body, - (i) set up by an Act of Parliament or a State Legislature; or (ii) established by any Government, With 90 per cent, or more participation by way of equity or control, to carry out any function entrusted to a Municipality under article 243W of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned 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 year electronically, within such time and in such form and in such manner as may be prescribed: Provided that the Commissioner may, on the recommendations of the Council, by notification, exempt any class of registered persons from filing annual return under this section: Provided further that nothing contained in this section shall apply to any department of the Central Government or a State Government or a local authority, whose books of account are subjected to audit by the Comptroller and Auditor General of India or an auditor appointed for auditing the accounts of local author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purposes of his business. (2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. Since the applicant is effecting both supplies of taxable goods and exempted goods, the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of his area of supply, shall have to pay to the distribution licensee an additional surcharge to meet the fixed cost of such distribution licensee arising out of his obligation to supply. Further, he goes on to say that 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. This is nothing but a charge levied for tolerating an act which is a supply under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RC 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 the service provided by the applicant to the users as wheeling charges, the applicant is only providing the services of transmission of electricity only and whatever the applicant is charging are for the services for transmission of electricity from the point of production to the point of its usage, whatever heads the same is charged. Hence they form the part of consideration for the same single service and as per section 15, they form the consideration for the same service. Further it is see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 taxes paid under RCM, as input tax credit, subject to section 17(2) of the CGST Act read with Rule 42 and 43 of CGST Rules. 7. Additional Surcharge collected from Open Access Consumer as per subsection (4) of Section 42 of the Electricity Act, 2003, clause 8.5.4 of the Tariff Policy 2016, Clause 5.8.3 of the National Electricity Policy and clause 11 (vii) of the KERC (Terms and Conditions for Open Access) Regulations, 2004, is taxable under GST Act. 8. The Wheeling ..... X X X X Extracts X X X X X X X X Extracts X X X X
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