2023 (2) TMI 1083 - AAR - GST

Government-owned electricity corporation must file GST returns despite 99.99% state ownership, rules AAR

The AAR Karnataka ruled on a government-owned electricity corporation's GST obligations. The corporation was not considered a governmental authority for ... Governmental Authority or Local Authority? - Government of Karnataka holds 99.99% of equity in the Corporation - Corporation is fully owned by the Government of Karnataka and audited by the Comptroller and Auditor General of India, whether filing of Annual Return in Form GSTR-9 and Form GSTR-9C is exempt under the Second Proviso to Section 44 of the CGST and KGST Acts? - input tax credit - inward supply of goods and services which are capitalized in the books of accounts - inward supply of services against output taxable supplies of support and auxiliary services and other supply of taxable goods - corporation to claim proportionately on the taxable output supply of support services and goods (scrap etc.) - reverse charge mechanism - taxability of Additional Surcharge collected from Open Access Consumer as per sub-section (4) of Section 42 of the Electricity Act, 2003 - taxability of Wheeling and Banking Charges. Since the Government of Karnataka holds 99.99% of equity in the Corporation, whether the Corporation is considered as Governmental 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 and hence the second condition is not satisfied - Hence, even for the purposes of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017, the applicant cannot be covered under the definition of “governmental authority” and hence the same is clarified. Since the Corporation is fully owned by the Government of Karnataka and audited by the Comptroller and Auditor General of India, whether filing of Annual Return in Form GSTR-9 and Form GSTR-9C is exempt under the Second Proviso to Section 44 of the CGST and KGST Acts? - HELD THAT:- As per the second proviso of the Section 44 of CGST Act, it is seen that the same is applicable only to a department of Central Government or State Government or to a local authority. The applicant is a company fully owned by the Government of Karnataka and hence this proviso is not applicable to the applicant. Whether the Corporation is eligible to claim input tax credit on the inward supply of goods and services which are capitalized in the books of accounts? - HELD THAT:- Every registered person is entitled to take credit of input tax charged and input tax means tax charged on any supply of goods or services or both made to him - Goods or services procured by the applicant and capitalized, if used or intended to be used in the course or furtherance of business, then the applicant is entitled to take credit of input tax. Whether the Corporation 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? - HELD THAT:- Since the applicant is effecting both supplies of taxable goods and exempted goods, the eligible input tax credit claimed shall be restricted as per Section 17(2) of the CGST Act as prescribed in Rule 42 and 43 of the CGST Rules - subject to section 17(2) of the CGST Act read with Rule 42 and 43 of CGST Rules, 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. Whether the Corporation 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.) as per the provisions of Rule 42 and 43 of the CGST and KGST Rules? - HELD THAT:- As per the provisions 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 cost of such distribution licensee arising out of his obligation to supply - This is nothing but a charge levied for tolerating an act which is a supply under section 7(1) of the CGST Act and hence is taxable under GST Act. It is also important to note that these charges are made from the consumers who have moved out of the applicant and hence cannot be linked to the supply of electricity or distribution of electricity. Whether “Wheeling and Banking Charges” allowed by Commission (KERC) as 5% and 2% of the energy input into the distribution system by Open Access consumer is taxable under the GST Acts? - HELD THAT:- It is clear that the consideration need not be in the form of money only and is very clear from the words used “money or otherwise” and also by the words “monetary value of any act or forbearance” and hence the wheeling and banking charges collected by the applicant in kind, i.e., in terms of energy units but not in terms of cash, is taxable, if the same is found to be taxable, under the GST Act. Regarding the nature of wheeling services, it is seen that the applicant has stated that if the generator and the buyer are connected at the distributed voltage level, appropriate wheeling charges and losses are required to be paid. The wheeling charges include recovered of the fixed costs related to network assets and line loss (i.e., distribution loss). The wheeling charges is based on the account of investments being made in the sector for meeting the load growth, AT&C loss reduction and improving the performance standards (network assets) - the regulatory authority has distinguished that the wheeling charges and the transmission charges are different in nature. Entry No. 25 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 states that “Services of transmission or distribution of electricity by an electricity transmission or distribution utility”. Hence the wheeling charges collected is for the services of transmission of electricity and hence is covered under this entry and hence exempted from the levy of tax under the GST Act. - Regarding Banking charges, the applicant charges the user for the energy used by the user in excess of the energy input made into the system of transmission. Hence it is nothing but the amount of consideration charged for the energy consumed and is the consideration charged for supply of electrical energy. 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. Issues Involved:1. Classification of the Corporation as a 'Governmental Authority' or 'Local Authority.'2. Exemption from filing Annual Return in Form GSTR-9 and Form GSTR-9C.3. Eligibility to claim input tax credit on inward supply of goods and services capitalized in the books of accounts.4. Eligibility to claim input tax credit on inward supply of services against output taxable supplies.5. Proportionate claim of input tax credit on taxable output supply of support services and goods.6. Eligibility to claim taxes paid under RCM as input tax credit.7. Taxability of Additional Surcharge collected from Open Access Consumer.8. Taxability of 'Wheeling and Banking Charges.'Detailed Analysis:1. Classification as 'Governmental Authority' or 'Local Authority':The applicant contended that since the Government of Karnataka holds 99.99% of equity in the Corporation, it should be considered a 'Governmental Authority.' The definition under Notification No. 12/2017-Central Tax (Rate) requires two conditions: (a) set up by an Act of Parliament or State Legislature or established by any Government with 90% or more participation by way of equity or control, and (b) to carry out any function entrusted to a Municipality under Article 243W or to a Panchayat under Article 243G of the Constitution. The Corporation does not exclusively provide rural electrification, thus failing the second condition. Therefore, the Corporation cannot be classified as a 'Governmental Authority' or 'Local Authority.'2. Exemption from Filing Annual Return:Section 44 of the CGST Act requires every registered person to furnish an annual return. The second proviso exempts departments of the Central or State Government or local authorities whose books are audited by the C&AG. As the applicant is a company fully owned by the Government of Karnataka, it does not qualify for this exemption.3. Claiming Input Tax Credit on Capitalized Inward Supplies:Section 16(1) of the CGST Act entitles every registered person to take credit of input tax charged on any supply of goods or services used in the course or furtherance of business. Goods or services procured and capitalized, if used in business, qualify for input tax credit.4. Claiming Input Tax Credit on Inward Supply of Services:Sections 17(1) and 17(2) of the CGST Act restrict input tax credit to the extent attributable to taxable supplies. Since the applicant effects both taxable and exempt supplies, the input tax credit must be apportioned as per Rule 42 and 43 of the CGST Rules.5. Proportionate Claim of Input Tax Credit:The applicant is eligible to claim input tax credit proportionately on taxable output supplies of support services and goods, subject to Section 17(2) and Rules 42 and 43 of the CGST Rules.6. Claiming Taxes Paid Under RCM:Section 16(1) allows input tax credit on taxes paid under reverse charge mechanism (RCM), subject to apportionment under Section 17(2) and Rules 42 and 43 of the CGST Rules.7. Taxability of Additional Surcharge:Additional surcharge collected from Open Access Consumers is for tolerating an act, qualifying as a supply under Section 7(1) of the CGST Act, and is thus taxable under GST. It is not linked to the supply or distribution of electricity.8. Taxability of Wheeling and Banking Charges:Wheeling charges are for the transmission of electricity and are exempt under Entry No. 25 of Notification No. 12/2017-Central Tax (Rate). Banking charges relate to the supply of electrical energy, exempt under SI.No. 104 of Notification No. 2/2017-Central Tax (Rate). Therefore, both wheeling and banking charges are exempt from GST.Ruling:1. The Corporation is neither a 'Governmental Authority' nor a 'Local Authority.'2. The Corporation is not exempt from filing Annual Return in Form GSTR-9 and Form GSTR-9C.3. The Corporation can claim input tax credit on capitalized inward supplies if used in business.4. The Corporation can claim input tax credit on inward supply of services against output taxable supplies, subject to apportionment.5. The Corporation can claim input tax credit proportionately on taxable output supplies, subject to apportionment.6. The Corporation can claim taxes paid under RCM as input tax credit, subject to apportionment.7. Additional surcharge collected from Open Access Consumers is taxable under GST.8. Wheeling and Banking Charges collected by the Corporation are exempt from GST.