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

Input tax credit on captive power remains admissible when electricity produces taxable goods; no ITC reversal for byproduct disposals.
ITC on fuel for captive power generation is available when the electricity produced is consumed in manufacturing taxable goods, subject to satisfying ITC eligibility conditions and reversal/apportionment rules. Disposal of recoverable out throws (plastic) from waste paper to certified end users without consideration does not, by itself, trigger ITC reversal where such disposals arise in the course of manufacture and do not amount to exempt supplies; statutory exclusions and procedural conditions must be observed.