Electricity transmission company's deposit work and supervision charges taxable at 9% under SAC-998631, not exempt

AAR Odisha ruled that deposit work undertaken by electricity transmission company and 6% supervision charges are taxable at 9% under SAC-998631, not exempt under transmission/distribution of electricity notification. The authority held that deposit work constitutes separate supply of support services rather than composite supply with transmission services, as both applicant and consumer can independently execute such works with amounts recovered as non-tariff charges. The exemption for transmission/distribution of electricity cannot extend to deposit contribution works. However, ITC is admissible on GST paid to contractors and materials supplied for deposit work execution, as these create infrastructure used for furtherance of transmission business and qualify as plant and machinery under CGST Act provisions.

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Issues Involved:
1. Taxability of "Deposit Work" and 6% supervision charges under GST.
2. Eligibility of Input Tax Credit (ITC) on GST paid for execution of deposit work and materials/equipment supplied.
3. Requirement of ITC reversal under section 17(2) of CGST Act read with Rule 42 and 43 of CGST Rules.

Detailed Analysis:

Issue 1: Taxability of "Deposit Work" and 6% Supervision Charges
The Applicant sought a ruling on whether "Deposit Work" and the 6% supervision charges are integral to the supply of transmission or distribution of electricity and thus exempt under Entry 25 of Notification No. 12/2017-CT (R) dated 28.06.2017. Alternatively, whether these services form part of a composite supply under Section 2(30) of the CGST/OGST Acts, 2017, and should be treated as part of the principal supply, which is exempt from GST.

Findings:
- The Applicant is engaged in transmission and distribution of electricity, and also undertakes "Deposit Work" involving the creation of electrical infrastructure.
- The "Deposit Work" is executed either by the Applicant or the consumer, and involves costs plus GST, with 6% supervision charges.
- The main activity of transmission or distribution of electricity is exempt from GST under Entry 25 of Notification No. 12/2017-CT (R).
- However, ancillary services such as "Deposit Work" and supervision charges are not naturally bundled with the principal supply of electricity and are executed upon specific consumer requests.
- As per Circular No. 34/8/2018-GST, ancillary services like application fees, rental charges for metering equipment, testing fees, labor charges for shifting meters, and charges for duplicate bills are taxable.
- The "Deposit Work" and supervision charges do not fulfill the criteria for composite supply under Section 2(30) of the CGST/OGST Acts and are thus taxable.

Ruling:
The "Deposit Work" and 6% supervision charges are not exempt under Entry 25 of Notification No. 12/2017-CT (R) and are taxable.

Issue 2: Eligibility of ITC on GST Paid for Execution of Deposit Work and Materials/Equipment Supplied
The Applicant sought clarification on whether ITC is available for GST paid to contractors for executing the deposit work and for materials/equipment supplied free of cost from its stock or procured from third-party vendors.

Findings:
- Section 16(1) of the CGST Act allows ITC on goods or services used in the course or furtherance of business.
- The deposit work involves creating infrastructure for the supply of electricity, which is in furtherance of the Applicant's business.
- ITC is admissible for apparatus, equipment, and machinery fixed to the earth by foundation or structural support used for making outward supply of goods/services, as per the explanation in Section 17(5) of the CGST Act.

Ruling:
ITC is admissible for apparatus, equipment, and machinery fixed to the earth by foundation or structural support used for making outward supply of goods/services.

Issue 3: Requirement of ITC Reversal under Section 17(2) of CGST Act read with Rule 42 and 43 of CGST Rules
The Applicant sought clarification on whether any part of the ITC needs to be reversed under section 17(2) of the CGST Act read with Rule 42 and 43 of CGST Rules.

Findings:
- Section 17(2) of the CGST Act requires reversal of ITC attributable to exempt supplies.
- Rule 42 and 43 of the CGST Rules provide the mechanism for reversal of ITC.

Ruling:
Yes, ITC is required to be reversed under section 17(2) of CGST Act read with Rule 42 and 43 of CGST Rules.

Conclusion:
1. The "Deposit Work" and 6% supervision charges are taxable and not exempt under Entry 25 of Notification No. 12/2017-CT (R).
2. ITC is admissible for apparatus, equipment, and machinery used in the deposit work.
3. ITC must be reversed as per section 17(2) of CGST Act read with Rule 42 and 43 of CGST Rules.

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