GST in electricity charges provided to Contractors

[Sanjoy Das]

We have a manufacturing company and some of contractors are working in our factory. and for running the work ,we are providing to contractors an electricity as chargeable basic to contractor account on monthly basis without charging GST due to electricity is "NON GST" product.

Whether GST is applicable on electricity which is provided to contractors. Kindly advise.

Regards

Sanjoy Das

[KASTURI SETHI]

Is there any contract/agreement with the contractor ? If so, terms and conditions have to be seen. I am not aware of full facts of your issue. However, I am giving general information.

General information for your knowledge

Exemption from electricity is conditional. It is exempted only if transmitted or distributed by an electricity transmission or distribution Utility (i.e. Electricity Board, Central Electricity Authority, State Transmission Utility or Central Transmission Utility ). Read Serial no.25 of Notification No.12/17-CT(Rate) dated 28.6.17. No exemption is available to you.

996912 Electricity Distribution services

This service code includes services involving distribution of electricity; maintenance of electric meters.

Rate of tax is 18% vide Notification No.11/17-CT (Rate) dated dated 28.6.17 as amended up to 30.9.19. It may be composite supply.

[Sanjoy Das]

Thanks Sir,

There is contract/agreement between manufacturer with contractor and there condition is that the manufacturer has to supply the electricity for running the contractual work on chargeable basis. Accordingly manufacturer has been debiting the electricity charges as per meter reading on monthly basis without charging GST.

Kindly advise against this type of contract we would charge GST on electricity consumed by contractor.

Regards

Sanjoy Das

[KASTURI SETHI]

Yes. GST is applicable in this scenario. It is a composite supply. You will have to pay GST on the supply of electricity.

[KASTURI SETHI]

Also consult your C.A./Advocate as contracts/agreements are to be examined.

[SHARAD ANADA]

Refer AAR in case of E-SQUARE LEISURE PVT. LTD AUTHORITY FOR ADVANCE RULING, MAHARASHTRA 2019 (4) TMI 421

[KUNAL DESAI]

Agreed with the reply of Kasturiji.

[Venkataprasad Pasupuleti]

It can be said that the transaction is supply of electricity and exempted from GST vide sl. No. 104 of Notification no. 2/2017-C.T (R) dated 28.06.2017 as amended.

[KASTURI SETHI]

Electricity is a goods but here is the question of transmission or distribution of electricity.Supply of ‘electrical energy’ is exempt but in terms of Notification No. 2/2017-Central Tax (Rate), dated 28-6-2017 (serial no.104) but under the Notification No. 12/2017-Central Tax (Rate) dated 28.6.17 as amended the value attributable to ‘transmission and distribution of electricity’ shall be taxable as the same is being provided by the querist who is not covered under the definition of “electricity transmission or distribution utility”. It appears that the querist is also not a pure agent in this scenario.

 

[KASTURI SETHI]

The issue before us to explore the admissibility of exemption under the supply of service (transmission or distribution of electricity) falling under SAC 9969 and NOT for manufacture and supply of goods i.e. electrical energy classified under Chapter/Heading/Sub-heading no. 2716 00 00.

Electricity and electrical energy are not same things.

[Venkataprasad Pasupuleti]

The queriest is supplying the electricity and charging towards the sale of electricity, not for mere transmission & distribution charges. Hence, I opine that the transaction is pure supply of electricity and exempted from GST.

[Ganeshan Kalyani]

Whether anybody can sell "Electricity"?

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Yes. Electricity is being manufactured and sold by companies e.g. Tata Power Solar Systems etc.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Big companies are engaged in the manufacture, transmission or distribution of electricity. Big companies supply electricity to various Electricity Boards etc. But here it appears to me that the party is engaged in distribution of electricity. Moreover, composite supply is involved. During my service, I have dealt with such case . Pl. examine and give your independent opinion without any hiccup.

[Ganeshan Kalyani]

Whether anybody can sell "Electricity"? By this question I meant whether manufacture, in this query, is an electricity transmission or distribution utility. If he is so then it would be supply of electricity energy and exempted from GST. Otherwise, it would to supply of service (transmission or electricity distribution) and would attract GST.

The querist has to clarify the nature of manufacturing activity.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

I agree with you. In GST era, tax is leviable on 'supply' and not on 'manufacture' as it was in pre-GST era. There is a definition of 'manufacture' in CGST Act. Supply of goods and supply of service are different concepts. There is no change in the language mentioned in the respective tariff description and in service description in SAC.

[YAGAY and SUN]

Please check the following Advance Ruling on this matter. This ruling connotes the very view of Kasturi Sir.

Inox Air Products Pvt Ltd. 2018 (6) TMI 518- Authority for Advance Rulings Gujarat.

AI Summary

Supply of electricity to contractors may attract GST when provider is not an electricity transmission or distribution utility.
Whether GST applies where a manufacturer supplies electricity to on-site contractors on a chargeable basis turns on whether the supplier qualifies as an electricity transmission or distribution utility. If not, the charge is likely classifiable as a service for transmission or distribution of electricity and taxable, potentially as a composite supply, so the contract and facts must be examined and precedents considered.