Electrical energy supply exempt from GST under Notification 2/2017, no input tax credit allowed on solar plant procurement under Section 17

AAR Maharashtra ruled that electrical energy supply is exempt from GST under Notification No. 2/2017-Central Tax-(Rate) and Notification No. 2/2017-Integrated Tax-(Rate) for both intrastate and interstate delivery. The applicant invoiced only electricity charges without separate transmission charges. Since output supplies are tax-exempt, the applicant cannot claim input tax credit on solar power plant procurement under Section 17 read with Rules 42 and 43.

---

---

Issues Involved:
1. Liability to pay GST on intra-state delivery of electrical energy.
2. Liability to pay GST on inter-state delivery of electrical energy.
3. Eligibility to claim and utilize input tax credit (ITC) for GST paid on procurement of the solar power plant.

Issue-wise Detailed Analysis:

1. Liability to pay GST on intra-state delivery of electrical energy:
The applicant, M/s. AES Engineering Solar Pvt. Ltd., is engaged in the production of electrical energy through a solar power plant. The applicant has entered into a Power Purchase Agreement with Phillip Commodities India Private Limited to sell electrical energy up to 2MW. The intra-state supply of electricity generated from the solar power plant falls under Customs Tariff Heading 27160000 and is exempted from GST as per entry at Sl. No. 104 of Notification No. 02/2017-Central Tax (Rate) dated 28.06.2017. The applicant's invoices to the buyer only include charges for the supply of electricity and do not include delivery charges. Therefore, the supply of "Electrical Energy" is exempt from tax.

2. Liability to pay GST on inter-state delivery of electrical energy:
Similar to the intra-state supply, the inter-state supply of electrical energy by the applicant also falls under the same tariff heading and is exempted from GST as per entry at Sr. No. 104 of Notification No. 2/2017-Integrated Tax-(Rate) dated 28th June 2017. The applicant's invoices to the buyer only include charges for the supply of electricity and do not include delivery charges. Thus, the supply of "Electrical Energy" is exempt from tax.

3. Eligibility to claim and utilize input tax credit (ITC) for GST paid on procurement of the solar power plant:
As the output supplies of the applicant are exempt from tax, the applicant is not entitled to claim input tax credit on its inward supplies of goods, services, or capital goods used in the generation of electricity. This is in accordance with the provisions of Section 17 of the GST Act, which states that the amount of credit shall be restricted to the extent attributable to taxable supplies. Rules 42 and 43 of the CGST Rules 2017 further provide that the applicant is not entitled to input tax credit as its output supplies are exempt from tax.

Conclusion:
1. The applicant is not liable to pay GST on the intra-state delivery of electrical energy as it is exempt from tax.
2. The applicant is not liable to pay GST on the inter-state delivery of electrical energy as it is exempt from tax.
3. The applicant is not entitled to claim and utilize input tax credit for GST paid on the procurement of the solar power plant used in the generation of electricity.

---