The Chhattisgarh High Court (Bilaspur Bench) noted that the electricity supplied by BALCO to the township is a welfare-related activity, not integrally connected with its manufacturing or business operations related to the generation of electricity, and therefore, held that no ITC would be available in respect of electricity consumed for its township maintenance in the State of Korba.
Pointing out that the electricity consumed for township purposes is neither used within the factory for manufacturing nor for captive consumption related to the production of goods, as it is supplied externally for residential consumption, the Division Bench comprising the Chief Justice Ramesh Sinha and Justice Ravindra Kumar Agrawal observed that the Single Judge has correctly noted that input tax credit (ITC) is a concessional benefit and is available only in accordance with the scheme of the statute.
Speaking for the Bench, the Chief Justice explained that the supply of electricity to the township is for BALCO’s (appellant’s) own consumption and is not directly connected to any taxable supply of goods or services carried in the course of its business. Consequently, the claim for ITC in respect of such electricity is not permissible under the statutory framework.
Further, the Bench referred to the provisions of Section 17 of the CGST Act, the amendment made to Explanation 1 to Rule 43 of the CGST Rules, and Section 164(3) of the CGST Act, 2017, to emphasize that the ITC, being a statutory concession rather than a substantive right, cannot be claimed for periods before the effective date of the amendment.
The Bench went on to state that the amendment to Explanation 1(d) of Rule 43 of the CGST Rules, 2017, effected vide Notification No. 14/2022 – Central Tax dated 05.07.2022, is prospective in nature, and does not confer any retrospective right or entitlement to claim ITC for periods before the date of amendment.
Thus, the Bench concluded that any claim for ITC made in respect of periods antecedent to the notification cannot be sustained, and the appellant cannot rely on the amendment to justify any retrospective ITC claims.
Briefly, in this case, the appellant (BALCO), engaged in the manufacture, sale, and export of aluminium products, had established two captive power plants at Korba, and imported coal on payment of GST Compensation Cess and utilized the same for the generation of electricity in the said power plants, which, in turn, was used for manufacture of aluminium products. The appellant had also maintained a residential township for its employees.
The dispute arose utilization of the electricity generated from the power plants, when it was supplied to the residential township for the benefit of its employees. When the appellant claimed a refund of the ITC under Section 54(1) of the CGST Act, 2017, of the Compensation Cess paid on imported coal, amounting to Rs. 7.44 crores, the same was rejected to an extent of Rs. 51.48 lacs. The appellant objected, asserting that the electricity supplied to the township was for business purposes and that no reversal of ITC was warranted under Rule 42 of the CGST Rules.
However, the refund application was rejected, holding that (i) the electricity generated by the 540 MW power plant and supplied for township consumption was not eligible for ITC of Compensation Cess attributable to that portion, and (ii) the sale of Duty Credit Scrips (DCS) being an exempt supply required proportionate reversal of ITC under Rule 42 of the CGST, SGST, and IGST Acts. Aggrieved, the appellant approached the High Court contending that maintenance of the township and supply of electricity thereto were activities “in the course of business” within the meaning of Section 2(17) read with Section 16(1) of the CGST Act, and therefore, eligible for ITC. However, the Single Judge confirmed the order of the Revenue Authorities and dismissed the writ.
Circulars/ Notifications Referred:
Notification No. 14/2022 – Central Tax dated 05.07.2022
Cases Relied On:
Maruti Suzuki Limited v Commissioner of Central Excise, Delhi-III – 2009 (9) SCC 193
Commissioner of Central Excise v Gujarat Narmada Fertilizers Company Limited – 2009 (9) SCC 101
Cases Distinguished:
Commissioner of Customs & Central Excise, Hyderabad-III v. ITC Limited – 2013 (32) STR 288 (AP)
Commissioner of Central Excise, Nagpur v. Ultratech Cement Ltd. – 2010 (260) ELT 369 (Bom.)
Cinemax India Limited v. Union of India – 2011 (24) STR 3 (Guj.)
S.A. Builders Ltd. v. Commissioner of Income Tax (Appeals) Chandigarh – (2007) 1 SCC 781
Ascent Meditech Ltd. v. Union of India and others – 2024: GUJHC: 62022-DB
Mysore Rolling Mills (P) Ltd. v. Collector of Central Excise, Belgaum – (1987) 1 SCC 695
Appearances:
Advocates Bharat Raichandani and K. Rohan, for the Appellant/ Taxpayer
Advocate Rahul Tamaskar, for the Respondent/ Revenue
