Treatment of ITC on Power Plant on Discontinuation of Taxable Manufacturing Activity

[TEAM GST]

The Registered Taxable Person (RTP) is engaged in making both taxable and exempt supplies.

The RTP has availed Input Tax Credit (ITC) on the procurement of capital goods and the installation of a power plant, which was originally established primarily for captive consumption of electricity in the manufacturing of taxable supplies. However, a small quantity of the electricity generated by the power plant is also sold to an outside agency, such supply being exempt under GST.

The ITC availed on the procurement and installation of the power plant has been utilized by the RTP. Further, since the RTP is engaged in both taxable and exempt supplies, it has been duly complying with Section 17(2) of the CGST Act, 2017, and has been making the requisite reversal of ITC attributable to exempt supplies in accordance with Rule 43 of the CGST Rules, 2017. Rule 43 specifically provides for attribution of ITC relating to capital goods used partly for taxable supplies and partly for exempt supplies.

The issue arises where, subsequently, the RTP decides to discontinue/sell the manufacturing unit producing taxable supplies, while retaining the power plant as a standalone asset and continuing to generate and sell electricity, which is an exempt supply under GST.

How to treat the ITC availed and utilized on the procurement / installation of capital goods for Power plant?

[Sadanand Bulbule]

Once the power plant is used solely for exempt electricity generation, it ceases to qualify for common credit, requiring the RTP to keep the past credit already utilized but repay/reverse the ITC corresponding to the asset's remaining balance of its standard 60-month useful life under Section 18(4)/Rule 44 (or Section 29(5) upon GST cancellation) through the cash or credit ledger.

AI Summary

Input tax credit on capital goods requires reconsideration when a captive power plant is retained solely for exempt electricity sales.
Credit availed and utilised on procurement and installation of a power plant has been apportioned where the plant supported taxable manufacturing and exempt external electricity supplies. The issue concerns treatment of that credit when the taxable manufacturing unit is discontinued or sold, while the power plant is retained and used solely to generate and sell exempt electricity. The inquiry is whether, and to what extent, capital-goods credit requires adjustment or reversal after taxable use ceases.