Eligibility of ITC on Plant and Machinery of a Solar Power Plant Used for Captive Consumption in a Cement Manufacturing Unit

[TEAM GST]

Whether Input Tax Credit (ITC) on the Plant and Machinery of a Solar Power Plant installed for captive consumption in a cement manufacturing unit is admissible under the CGST Act, 2017, in the following circumstances:

a. The majority of the electricity generated by the solar power plant is captively consumed in the manufacture of cement, which is a taxable outward supply.

b. A small portion of the electricity generated is supplied to an external agency. Since the supply of electricity is an exempt supply under GST, proportionately ITC attributable to such exempt supply is reversed in accordance with Rule 43 of the CGST Rules, 2017.

[Ganeshan Kalyani]

ITC is eligible as the plant and machinery are used in the course or furtherance of the business.

Further, ITC is allowed only to the extent of taxable outward supply. So ITC proportionate to the supply made to external agency need to be reversed.

[Sadanand Bulbule]

I endorse the reply.

[TEAM GST]

Is there a requirement for the solar power plant to be located within the same vicinity as the cement manufacturing unit to avail ITC?

[KASTURI SETHI]

Answer is NO. Correctly explained by Sh. Ganeshan Kalyani, Sir at serial no.1 above. Additional Place of business" in this scenario would be "extra precaution".

In Centra Excise Act, it was "in the factory of manufacturer _______". Now in GST regime this phrase is replaced by the term, "in the course or furtherance of business".

[Raam Srinivasan Swaminathan Kalpathi]

Dear Querist

It would be advantageous if the solar power plant is located within the same state. Only point to remember is to add the location of the solar power plant as an additional place of business in the GST registration core field before availing ITC on invoices pertaining to the solar power plant. Thanks

[KASTURI SETHI]

In my reply at serial no. 3.1, please read in " Cenvat Credit Rules" instead of "Central Excise Act".

[TEAM GST]

Thank you to all the experts for sharing your knowledge

[Sadanand Bulbule]

Because renewable power projects like solar power plants and wind mills are resource-dependent-requiring specific geographical terrain or optimal weather conditions-they cannot always be installed inside a typical factory's compounded structure. Consequently, the law recognizes that generating electricity at a geographically separate location for captive use is an intermediate manufacturing process rather than a standalone commercial activity.

Under Section 16, Input Tax Credit (ITC) on goods and services used to set up renewable energy plants is fully admissible to the extent the generated power is captively consumed by the business. However, if any surplus electricity is supplied to DISCOMs under a Power Wheeling or Banking model for financial consideration, that portion constitutes an exempt supply of electrical energy, requiring a proportionate reversal of ITC under Section 17(2).

 

[TEAM GST]

The department has expressed an adverse view, relying on believes of recent judicial pronouncements that have denied the availability of ITC in similar cases. Accordingly, it is not willing to accept the availability of ITC, despite the fact that our case is closely aligned with the facts and circumstances of the advance Ruling issued in the case of Shri Keshav Cements and Infra Limited, under 2019 (10) TMI 570 - AUTHORITY FOR ADVANCE RULING, KARNATAKA and the same has been specifically brought to its attention.

[KASTURI SETHI]

Any Advance Ruling has only persuasive value and NOT precedential value.

[Sadanand Bulbule]

Advance Rulings are statutorily binding on the applicant and the jurisdictional authority. Therefore the jurisdictional authority cannot be superior to the Advance Ruling Authority and has no power to deny the implementation of rulings whether in favour of the applicant or otherwise. In that situation, bring it to the knowledge of the Commissioner for effective compliance.

[Sadanand Bulbule]

When revenue officers decide to bypass a statutorily binding Advance Ruling, they are not enforcing the law-they are indulging in a desperate, bureaucratic witch-hunt, frantically searching for a particular skeleton in a nameless grave.

It is administrative alchemy at its finest: transforming settled legal certainty into artificial chaos just to satisfy an insatiable revenue bias. A binding ruling under Section 103 is supposed to slam the door shut on departmental guesswork, locking away arbitrary disallowances forever. Yet, driven by a mechanical zeal to raise demands at any cost, officers routinely grab their shovels, ignore the statutory mandate, and go digging through dusty, non-existent grounds of disentitlement. Trying to exhume liabilities that the law has already laid to rest isn't just procedural friction created out of thin air-it is an exercise in pure administrative absurdity, rendering every such demand completely dead on arrival and null and void ab initio.

[Sadanand Bulbule]

ITC is the grace of the Parliament and not the choice of Proper Officer

[Sadanand Bulbule]

Under the GST regime, ITC is like an "electric live wire". It supplies essentail energy to the business for survival when everything is normal.Otherwise it gives "shock" when wrongly handled. So preventive caution from both sides is as indispensable as energy itself.

[TEAM GST]

Aptly said, Sir. ITC truly acts like a live wire-indispensable for business growth when handled correctly, but capable of causing serious setbacks if compliance is overlooked

[Shilpi Jain]

As stated by the experts here, ITC is eligible and it is not really necessary that the solar power plant should be in the same premises as the manufacturing unit. Suffice that both of these are within the same GST registration.

[Sadanand Bulbule]

Refer Discussion Issue ID No.120285 dated 24/07/2025

AI Summary

Input tax credit on captive solar machinery may support taxable cement production, subject to proportionate reversal for exempt electricity supplies.
Input tax credit on solar power plant machinery is discussed as eligible where generated electricity is captively used in manufacturing taxable cement in the course or furtherance of business. A separate location for the plant is not treated as determinative where the activities are under the same GST registration. Electricity supplied externally is an exempt supply, and ITC attributable to that supply requires proportionate reversal. Recording the plant as an additional place of business is suggested as a compliance precaution.