Classification of Grid-Supplied Electricity for GST Exemption vs. Taxable DG Sets

The Authority classified grid-supplied electricity as goods exempt from GST, while electricity from DG sets is a taxable service. They determined that the supply of utilities and electricity are separate. Input Tax Credit (ITC) is available for renting services and electricity from DG sets only.

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Issues Involved:
1. Classification of the supply of electricity as goods or services.
2. Determination of whether the supply of electricity and utilities/leasing are separate or composite supplies.
3. Classification of the supply of electricity for GST purposes.
4. Eligibility for Input Tax Credit (ITC) on renting services and electricity supply.

Issue-wise Detailed Analysis:

1. Classification of the Supply of Electricity as Goods or Services:
The applicant contended that electricity qualifies as goods under Section 2(52) of the CGST Act, referencing the Supreme Court's decision in Commissioner of Sale Tax v/s Madhya Pradesh Electricity Board. The Authority agreed, citing Notification No. 2/2017-Central Tax (Rate), dated 28.06.2017, which lists Electrical Energy as a good under Entry No. 104. Therefore, the supply of electricity, when grid-supplied, is classified as goods.

2. Determination of Whether the Supply of Electricity and Utilities/Leasing are Separate or Composite Supplies:
The applicant argued that the supplies under the agreement are separately identifiable and do not qualify as a mixed supply under Section 2(74) of the CGST Act. The Authority examined Section 2(30) of the CGST Act, which defines composite supply, and concluded that the supply of utilities and electricity are neither naturally bundled nor supplied in conjunction with each other. Consequently, they are separate supplies. The supply of electricity through the grid is exempt from GST, whereas the supply through DG sets is taxable as a service.

3. Classification of the Supply of Electricity for GST Purposes:
The supply of electricity through the grid is classified under Entry No. 104 of Notification No. 2/2017-Central Tax (Rate), dated 28.06.2017, with Tariff Code-27160000. The supply via DG sets, however, is considered a service and is subject to GST at 18%.

4. Eligibility for Input Tax Credit (ITC) on Renting Services and Electricity Supply:
The applicant is eligible for ITC on renting services as these are used in the course or furtherance of business. For electricity supply, ITC is available only for the tax paid on electricity supplied through DG sets, as grid-supplied electricity is exempt from GST. The Authority referenced Section 16 of the CGST Act and relevant case law to support this conclusion.

Ruling:
1. The supply of electricity, when grid-supplied, is classified as goods.
2. The supply of electricity through the grid and the supply of utilities are separate supplies.
3. The supply of electricity through the grid falls under Entry No. 104 of Notification No. 2/2017-Central Tax (Rate), dated 28.06.2017, with Tariff Code-27160000.
4. The applicant is eligible to take ITC on renting services. ITC on electricity supply is restricted to the supply made through DG sets.

Conclusion:
The Authority ruled that grid-supplied electricity is goods and exempt from GST, while electricity supplied through DG sets is a service and taxable. The supply of utilities and electricity are separate supplies, and ITC is available for renting services and electricity supplied through DG sets.

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