2025 (8) TMI 245 - HC - GST

No ITC on Electricity for Township Maintenance or Exempt Supplies Before 5-7-2022 Amendment Under Section 16(1) CGST Act

Bharat Aluminium Company Limited Versus State of Chhattisgarh, Joint Commissioner (Appeals), State Tax, Bilaspur, Assistant Commissioner, State Tax, Korba.

The HC held that the petitioner is not entitled to ITC on electricity consumed for township maintenance as it is not in the course or furtherance of ... Refund of the Input Tax Credit (ITC) of the Compensation Cess paid on import of coal - maintenance of township and supply of electricity thereof is in the course or furtherance of business in terms of Section 2(17) read with Section 16 of the CGST Act and it amounts to business activity to entitle the petitioner for Input Tax Credit (ITC) under Section 16(1) of the CGST Act or not - exempt supply - supply of DCS on or before 5-7-2022. Whether the maintenance of township and supply of electrical energy thereof is in the course or furtherance of business in terms of Section 2(17) read with Section 16(1) of the CGST Act entitles the petitioner for Input Tax Credit? - HELD THAT:- A careful perusal of Section 16(1) of the CGST Act would show that it provides for input tax credit to every registered person on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person subject to two conditions; (a) such conditions and restrictions as may be prescribed and (b) in the manner specified in Section 49 - The Input Tax Credit is a nature of benefit or concession extended to the dealer under the statutory scheme. The concession can be received by the beneficiary only as per the scheme of the statute. In the matter of Godrej & Boyce Mfg. Co. Pvt. Ltd. and others v. Commissioner of Sales Tax and others [1992 (7) TMI 292 - SUPREME COURT], their Lordships of the Supreme Court dealing with Rules 41 & 41-A of the Bombay Sales Tax Rules, 1959 held that the rule-making authority can provide for a small abridgement or curtailment while extending a concession. The petitioner in Form G submitted Electricity Duty under the Electricity Duty Rules mentioning therein that 1388641 KWH units have been consumed in the township colony for the month ending February, 2019. The competent authority by its order dated 22-6-2019 (rectification order dated 6-7-2019) held that the electricity generated by the petitioner to the extent of 1388641 KWH units has been supplied for township consumption by the taxpayer as evident from Form G provided by the taxpayer, as such, ITC of Compensation cess paid on coal attributable to 540 MW Power Plant is liable to be reversed under Rule 42 of the CGST Rules. The expression “in the course or furtherance of his business” employed in Section 16(1) of the CGST Act, has not been defined in the CGST Act and it may be referred to the activities which are integrally related to the business activity and not welfare activity. In that view of the matter, as it is admitted case of the petitioner that the electricity generated in 540 MW Power Plant is used in the course of or furtherance of his business, which is evident from Form G provided by the taxpayer i.e. the petitioner herein, the petitioner would not be entitled for ITC to electrical energy consumed for maintenance of its township in light of the decisions rendered by their Lordships of the Supreme Court in Gujarat Narmada Fertilizers Company Limited’s case [2009 (8) TMI 15 - SUPREME COURT] and Maruti Suzuki Limited [2009 (8) TMI 14 - SUPREME COURT]. Accordingly, the first question formulated is answered against the petitioner and in favour of the respondents. Whether the Input Tax Credit (ITC) will be available on effecting exempt supplies that is supply of DCS on or before 5-7-2022? - HELD THAT:- Admittedly and undisputedly, sale of DCS is an exempt supply as notified by Notification No. 35/2017 issued in exercise of power conferred under Section 11 of the CGST Act. Therefore, the petitioner was not eligible for Input Tax Credit before the amendment in the CGST Rules. However, by amendment dated 5-7-2022, sale of DCS was excluded from ‘aggregate value of exempt supply’ for the purpose of Rule 42. Therefore, after the amendment dated 5-7-2022, ITC is available to the petitioner even on supply of DCS, despite being an ‘exempt supply’, which the petitioner is claiming that the amendment dated 5-7-2022 be declared clarificatory and be given retrospective effect so that the petitioner can enjoy the benefit of ITC on sale of DCS from the date of enactment of the CGST Act. In Sree Sankaracharya University of Sanskrit [2023 (5) TMI 1246 - SUPREME COURT], it has been held by the Supreme Court that merely describing a provision as an “Explanation” or a “clarification” is not decisive of its true meaning and import and it has been further held that a prerequisite for describing a provision as explanation or clarification, the pre-amended law should be vague or ambiguous. Reverting to the facts of the present case, it is quite vivid that clause (d) was enacted and inserted in Explanation 1 to Rule 43 of the CGST Rules based on the representations and recommendation made by the GST Council. Insertion of clause (d) has only expanded the scope of supplies which have to be excluded from the aggregate value of exempt supplies. Therefore, the amendment made in the explanation in shape of Rule 43, Explanation (1)(d), of the CGST Rules, is not clarificatory in nature. Though express power in Section 164(3) of the CGST Act has been conferred upon the rule-making authority, yet the rule-making authority did not choose to promulgate it with retrospective effect. ITC, as held earlier, is not the substantive right of the dealer, it is only a nature of benefit or concession extended to the dealer under the statutory scheme and it cannot be claimed as a matter of right as held by their Lordships of the Supreme Court in Jayam & Co. [2016 (9) TMI 408 - SUPREME COURT]. As such, it cannot be held that it was retrospective in nature and would not apply to the present pending cases. Accordingly, the learned appellate authority has rightly dismissed the appeals of the petitioner. The question is also answered against the petitioner and in favour of the State/ respondents. The benefit of amendment in shape of Explanation 1(d) to Rule 43 of the CGST Rules would be available for the period after 5-7-2022 and no case for interference in the order impugned passed by the Joint Commissioner (Appeals) deciding both the issues against the petitioner, would be made out - there are no merit in the petitions and all the writ petitions stand dismissed. ISSUES: Whether maintenance of a residential township and supply of electricity thereto constitutes 'business' in the course or furtherance of business under Section 2(17) read with Section 16(1) of the CGST Act, entitling the claimant to Input Tax Credit (ITC) on GST Compensation Cess paid on coal used for electricity generation'Whether ITC is available on exempt supplies, specifically on the sale of Duty Credit Scrips (DCS), prior to the amendment dated 5-7-2022 inserting Explanation 1(d) to Rule 43 of the CGST Rules? RULINGS / HOLDINGS: The Court held that supply of electricity to the residential township is not 'intrinsically connected' to the business activity and therefore does not amount to business activity under Section 2(17) of the CGST Act; accordingly, ITC on the compensation cess attributable to electricity supplied to the township must be reversed under Rule 42 of the CGST Rules. The petitioner is not entitled to ITC on electricity consumed for township maintenance, following the Supreme Court decisions in Maruti Suzuki Limited and Gujarat Narmada Fertilizers Company Limited.The Court held that the amendment inserting Explanation 1(d) to Rule 43 of the CGST Rules, which excludes the value of supply of Duty Credit Scrips from the aggregate value of exempt supplies, is not clarificatory or retrospective in nature but a substantive amendment with prospective effect from 5-7-2022. Therefore, ITC on exempt supply of DCS prior to this amendment is not available. RATIONALE: The Court applied the statutory definitions under the CGST Act, particularly Sections 2(17), 2(59), 2(60), and 16(1), emphasizing that ITC is a concession and not a substantive right, available only for inputs used 'in the course or furtherance of business.' The Court relied on authoritative Supreme Court precedents which restrict ITC to inputs used for business activities and exclude inputs used for non-business or welfare activities, such as supply of electricity to township residents. The Court interpreted 'business' as activities integrally related to manufacturing operations and not ancillary welfare activities.Regarding the amendment to Rule 43, the Court analyzed Section 164(3) of the CGST Act empowering rule-making authority to make rules retrospective but noted the absence of express retrospective effect in the relevant notification. The Court applied principles of statutory interpretation, referencing Justice G.P. Singh's treatise and Supreme Court jurisprudence, which hold that an explanation or clarification must be truly clarificatory of a previously ambiguous or vague provision to be given retrospective effect. Since the amendment expanded the scope of exempt supplies excluded from reversal, it was substantive and prospective. The Court distinguished cases cited by the petitioner as factually and legally inapposite.