Deposit Works Not Eligible for Tax Credit

The Authority ruled that Deposit Work undertaken by a state transmission utility in Uttar Pradesh is not integral or ancillary to the supply of electricity transmission or distribution. The exemption under Entry No. 25 for services of electricity transmission or distribution does not apply, and the applicant is ineligible to claim Input Tax Credit for Deposit Works related to infrastructure enhancement for electricity transmission.

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Issues involved:
- Whether the Deposit Work is integral to the supply of transmission or distribution of electricityRs.
- Whether the Deposit Work is ancillary to the principal supply of transmission or distribution of electricityRs.
- Applicability of exemption under Entry No. 25 of the exemption notification for services of electricity transmission or distribution.
- Eligibility of Input Tax Credit (ITC) for undertaking Deposit Works.

Analysis:

The applicant, a registered GST assessee, sought clarification on various aspects related to Deposit Work undertaken in the transmission of electrical energy. The applicant, as the state transmission utility of Uttar Pradesh, performs Deposit Work to enhance infrastructure for transmission. The applicant applied for an Advance Ruling to determine the nature of Deposit Work in relation to transmission services and the eligibility for exemptions and Input Tax Credit (ITC).

During the submission, the applicant explained that the cost for Deposit Work is recovered directly from consumers who have availed the service, distinct from tariff charges. The applicant argued that Deposit Work is integral to the transmission service, falling under the exemption for transmission or distribution of electricity. They contended that Deposit Work and transmission services are naturally bundled, with transmission being the principal supply.

The Authority examined the concept of composite supply, emphasizing the integration of constituent supplies. It was observed that Deposit Work is not directly related to transmission and can occur independently. Referring to a Gujarat High Court decision and a GST circular, the Authority concluded that Deposit Work does not qualify for the exemption under Entry No. 25.

Regarding ITC eligibility, the applicant claimed that Deposit Work involves constructing immovable property qualifying as plant and machinery. However, the Authority referenced relevant GST sections and definitions to determine that the immovable property created does not meet the criteria for plant and machinery, thus disqualifying the applicant from claiming ITC.

In the final ruling, the Authority unanimously determined that Deposit Work is not integral or ancillary to the supply of transmission or distribution of electricity. The exemption under Entry No. 25 does not apply to the applicant, and they are not eligible to claim Input Tax Credit for Deposit Works involving infrastructure creation for electricity transmission.

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