ITC on power plant

[KARAN VERMA]

Sir, assessee is manufacuring aluminium which is taxable under GST and also generate power through power plant. 70 % power generated used in manufacturing of aluminium and 30 % is sold outside to state Govt. Now, electricity is exempt under GST.

GST officer asked to reverse whole ITC in relation to power plant whether capital, input or services. But my contention is we are eligible for proportionate ITC on power plant to the extent of power used in manufacturing of aluminium product.

Whether I m eligible for proportionate ITC on power plant. Kindly provide any judgement copy.

[Sadanand Bulbule]

Dear Karana ji

Apportionment of credit and blocked credits.

Section 17(2) of the GST Act reads like this:

(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts,the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

A.Therefore in my opinion to the extent of sale of power, being exempt from GST, the proportionate ( in your case 30%) ITC needs to be reversed along with interest, if already availed.

B.Further in this regard, plz refer Karnataka Advance Ruling rendered in the case of Shri. Keshava Cement & Infra Limited reported in 2009 (1) TMI 570, which is self-explanatory to resolve your query.

[Sadanand Bulbule]

Please read it as 2019 (10) TMI 570 - AUTHORITY FOR ADVANCE RULING, KARNATAKA - IN RE: M/S. SHRI KESHAV CEMENT AND INFRA LIMITED

[KASTURI SETHI]

I support the views of Sh.Sadanand Bulbule, Sir. Law is very much clear. Also go through the following decision of AAR, Tamil Nadu

2020 (10) TMI 808 - AUTHORITY FOR ADVANCE RULING, TAMILNADU IN RE : KUMARAN OIL MILL

[Sadanand Bulbule]

Dear Sir ji

Thank you very much for supporting my views besides providing additional AAR. Your support means a lot me.

Couple of days back, during inspection the exact query was convinced to a tax payer engaged in the captive consumption of power generated by Wind Turbine who eventually supplied 18% surplus power to its sister concern in Bengaluru, The tax payer being satisfactorily enlightened, he discharged ₹ 52,00,000/- with interest via DRC-03.

Warm regards.

[KASTURI SETHI]

Dear Sir,

The anecdote mentioned by you is a solid proof in support of your own initial reply.

[Shilpi Jain]

In this case the ITC would be eligible to the extent of the captive consumption. However, the manner of identifying the reversal would be to proportion it to the extent of the turnover of the power sold.

Say turnover from sale of aluminum is 500

Turnover from sale of power is ₹ 50

In that case reversal would be ITC*50/500.

Reversal would not be in proportion ot the usage since there is a specific mechanism prescribed int he rules in this regard.

AI Summary

Input tax credit apportionment: restrict ITC for exempt power supplies, allocate reversal by turnover-based method. Input Tax Credit must be restricted where inputs are used partly for taxable supplies and partly for exempt supplies; the credit attributable to exempt supplies must be reversed with interest. In the stated fact pattern, power used for manufacturing is taxable while power sold outside is exempt, so the ITC portion attributable to the exempt sale must be disallowed. Allocation practice and AAR precedents support calculating reversal in proportion to exempt supplies, commonly by a turnover-based mechanism rather than solely by physical usage.