Deposit work for electricity infrastructure is separate from transmission service, so exemption and input tax credit were denied.
Consumer-specific deposit work for electricity infrastructure was treated as a separate supply, not a naturally bundled composite supply with transmission or distribution of electricity, because transmission can occur independently and the charges are separately recovered as non-tariff charges. The exemption for transmission or distribution services under Notification No. 12/2017-Central Tax (Rate) was therefore held inapplicable to the deposit work and related recoveries. Input tax credit was also denied, as the infrastructure created under the deposit work was treated as immovable property and not plant and machinery, bringing it within the blocked-credit provisions for construction activity.
Issues: (i) Whether the deposit work undertaken by the applicant is an integral part of supply of transmission or distribution of electricity and whether it is ancillary to the principal supply; (ii) whether the exemption for transmission or distribution of electricity is applicable to the applicant's deposit work and non-tariff charges; (iii) whether input tax credit is available in respect of the deposit work undertaken for creating infrastructure for electricity transmission.
Issue (i): Whether the deposit work undertaken by the applicant is an integral part of supply of transmission or distribution of electricity and whether it is ancillary to the principal supply.
Analysis: A composite supply under section 2(30) of the Central Goods and Services Tax Act, 2017 requires elements that are naturally bundled and ordinarily supplied together. The deposit work was found to be independent of the transmission of electricity, since transmission can take place with or without such work and the charges are recovered only from the consumers who specifically avail that service as non-tariff charges.
Conclusion: The deposit work is neither an integral part of, nor ancillary to, the supply of transmission or distribution of electricity.
Issue (ii): Whether the exemption for transmission or distribution of electricity is applicable to the applicant's deposit work and non-tariff charges.
Analysis: The exemption under Notification No. 12/2017-Central Tax (Rate) applies to the service of transmission or distribution of electricity by an electricity transmission or distribution utility. Relying on the departmental circular clarifying that various ancillary consumer-specific charges are taxable, the authority held that the deposit work and related recoveries do not fall within the exempt service.
Conclusion: The exemption is not available to the applicant in respect of the deposit work and non-tariff charges.
Issue (iii): Whether input tax credit is available in respect of the deposit work undertaken for creating infrastructure for electricity transmission.
Analysis: Input tax credit is blocked under section 17(5)(c) and section 17(5)(d) of the Central Goods and Services Tax Act, 2017 in relation to construction of immovable property other than plant and machinery. The authority found that the infrastructure created under the deposit work is an immovable property and does not qualify as plant and machinery, so credit is not admissible.
Conclusion: Input tax credit is not available to the applicant.
Final Conclusion: All the questions were answered against the applicant, holding the deposit work to be taxable and denying input tax credit on the related construction activity.
Ratio Decidendi: A consumer-specific deposit work that is independently undertaken and separately recovered does not form a naturally bundled composite supply with electricity transmission, and credit is blocked where the underlying construction results in immovable property that is not plant and machinery.
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