Solar power plant operator denied input tax credit for electricity supplied to TANGEDCO under Section 17

The AAR Tamil Nadu ruled that a solar power plant operator generating electricity for captive consumption through grid transfer to TANGEDCO is not eligible for input tax credit. The authority determined that electricity supply to TANGEDCO constitutes an exempt supply under GST, being classified as goods under HSN 27160000 with nil tax rate. Consequently, ITC on goods and services used exclusively for setting up, running, or maintaining the solar power plant is unavailable under Section 17(2) and 17(3) of CGST/TNGST Act, 2017. The ruling clarifies that grid-connected solar generation constitutes supply rather than captive consumption for GST purposes.

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ISSUES:

• Whether the generation and supply of electricity by the applicant constitutes a 'supply' under GST and whether such supply is an exempted supply.
• Whether electricity generated from the Solar Power Plant is to be considered as captively consumed by the applicant.
• Whether the Solar Power Plant qualifies as 'Capital Goods' under the CGST/TNGST Act, 2017.
• Whether the applicant is eligible to claim input tax credit (ITC) on inputs, capital goods, and input services used for the design, engineering, installation, and running of the Solar Power Plant.
• Whether ITC is blocked under Section 17(5) of the CGST/TNGST Act, 2017 for goods and services used in construction of immovable property, specifically the Solar Power Plant.
• Whether the applicant must apportion ITC under Section 17(2) and Rule 43 when engaged in both taxable and exempt supplies.

RULINGS / HOLDINGS:

• The generation and supply of electricity by the applicant is a 'supply' under GST and is classified as an exempted supply since electricity is charged at nil rate of tax.
• Electricity generated by the Solar Power Plant is not captively consumed because it is transferred to TANGEDCO and adjusted against consumption at the factory; thus, it constitutes a supply to another person.
• The Solar Power Plant qualifies as 'Capital Goods' under Section 2(19) of the CGST/TNGST Act, 2017, as its cost is capitalized in the books of accounts and it is used in the course of business.
• The Solar Power Plant is classified as 'plant and machinery' under the Explanation to Section 17(5) despite being fixed to earth, and thus is not an immovable property for the purpose of ITC blocking under Section 17(5)(d).
• The applicant is not eligible to claim ITC on inputs, capital goods, or input services used exclusively for the generation and supply of exempted electricity, as per Section 17(2) and Rule 43(1)(a) of the CGST/TNGST Rules, 2017.
• ITC must be apportioned when goods or services are used partly for taxable supplies and partly for exempt supplies; ITC attributable exclusively to exempt supplies is not available for credit.

RATIONALE:

• The legal framework applied includes Sections 2(17), 2(19), 2(47), 16, 17(2), 17(3), 17(5)(c) and (d), 103, and 104 of the CGST/TNGST Act, 2017, and Rules 43 and 104 of the CGST Rules, 2017.
• 'Business' under Section 2(17) includes manufacture and supply of goods; generation and supply of electricity is a 'supply' under GST.
• Electricity is classified as goods under HSN 27160000 and is exempted by Notification No. 02/2017-CT(Rate), making the supply an exempt supply under Section 2(47).
• Section 16(1) entitles ITC on goods or services used in the course or furtherance of business, but Section 17(2) restricts ITC on goods or services used for exempt supplies.
• Section 17(5)(d) blocks ITC on goods or services used for construction of immovable property other than plant and machinery; the Explanation to Section 17(5) defines 'plant and machinery' to include apparatus fixed to earth used for making outward supply, excluding land, buildings, telecommunication towers, and pipelines outside factory premises.
• The applicant's Solar Power Plant is capitalized as plant and machinery, used for making outward supply (electricity), and thus not blocked under Section 17(5)(d).
• Rule 43 prescribes apportionment of ITC where goods or services are used partly for taxable and partly for exempt supplies; ITC attributable exclusively to exempt supplies must be reversed.
• The absence of a banking agreement with TANGEDCO means surplus electricity lapses and the supply to TANGEDCO is not captive consumption but a distinct supply.
• Precedent advance rulings cited by the applicant were distinguished on facts, particularly regarding captive consumption and location of the Solar Power Plant.

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