ITC on power plant and raw material

[Vedant Mansingka]

Good Morning All. Just had 2 questions regarding ITC availability for 2 situations

Context - We produce paper and we have a co-gen captive power plant and our raw material is waste paper which consists of a certain percentage of out throws (mainly plastic).

Situation 1 - Claim is being made that the coal that we buy to produce electricity should not have ITC available as electricity is an exempt item. But from what we understand basis CBIC Circular 125/44/2019 that this is not the case. Any more circulars or rulings where this is mentioned explicitly would be helpful

Situation 2 - We buy waste paper as our raw material which has a certain percentage of out throws. This is then given to a certified end user according to MPCB norms. This is at no cost and where in we bear the cost of transport. The claim is that the ITC on the out throws part of the raw material be reversed. Please note plastic is not an exempt item and not our main finished good, just that due to only being able to give the material to certified end users which are very few - we get no consideration in monetary value.

AI Summary

ITC Allowed on Coal for Captive Power When Used in Taxable Manufacturing Goods Under GST Section 17 Input Tax Credit (ITC) on coal used for captive power generation is allowable when the electricity produced is consumed in manufacturing taxable goods, despite electricity being an exempt supply. This is supported by CBIC Circular 125/44/2019 and various rulings, which clarify that ITC denial solely due to electricity's exempt status is unsustainable. Regarding waste paper containing plastic out throws given free to certified end users, ITC reversal is not required since plastic is a taxable item and the disposal without consideration does not amount to an exempt supply. The plastic waste arises incidentally during manufacturing and is not used for exempt or non-business purposes, thus ITC remains admissible. Judicial precedents affirm that free disposal of by-products in manufacturing does not mandate ITC reversal. Compensation cess on coal may be non-creditable if supplies are domestic only. Overall, ITC claims in both scenarios are permissible under GST law, subject to compliance with relevant provisions.