AI Drafter 
TaxTMI 
TaxTMI 
2023 (2) TMI 1083
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....ively). The Applicant is engaged in distribution of electricity and sale of energy. 3. The applicant has sought advance ruling in respect of the following questions:- i. Since the Government of Karnataka holds 99.99% of equity in the Corporation, whether the Corporation is considered as "Governmental Authority" or "Local Authority"? ii. Since the Corporation is fully owned by the Government of Karnataka and audited by the Comptroller and Auditor General of India, whether filing of Annual Return in Form GSTR-9 and Form GSTR-9C is exempt under the Second Proviso to Section 44 of the CGST and KGST Acts? iii. Whether the Corporation is eligible to claim input tax credit on the inward supply of goods and services which are capitalized in the books of accounts? iv. Whether the Corporation is eligible to claim input tax credit on the inward supply of services against output taxable supplies of support and auxiliary services and other supply of taxable goods? v. Whether the Corporation is eligible to claim input tax credit (on inputs, input services and capital goods) proportionately on the taxable output supply of support services and goods ....
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....the Corporation. As per the Explanation under sub-section (16) of Section 2 of the IGST Act, 2017, the expression "governmental authority" means an authority or a board or any other body (i) set up by an Act or Parliament or a State Legislature; or (ii) established by any Government, with ninety percent or more participation by way of equity or control to carry out any function entrusted to a Panchayat under article 243G or to a municipality under Article 243W of the Constitution. Firstly, the Corporation is set up with 99.99% of equity and established by the State of Karnataka. Besides, the Corporation is undertaking rural electrification, including distribution of electricity as per serial number 14 of the Eleventh Schedule to the Constitution, as per Article 243G. Hence, the Corporation is of the opinion that it is a "governmental authority". 6.2 The applicant submits that as per Section 44 of the GST Acts, every registered person shall furnish annual return which may include a self-certified reconciliation statement. However, an exemption has been granted under the second proviso to any Department of the Central Government or a State Government or a local authority, whose bo....
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....on of the work, the Transformer shall be taken over by Licensee (i.e., CESC) and ownership of the lines and other equipment would thereafter vest with the Licensee who maintains it as per Electricity Supply and Distribution Code, 2000-01, Clause 9.11. And other than above, the new consumer seeking power supply shall execute the service line works under 'Self Execution Works' as per Electricity Supply and Distribution code 2000-01 and after completion of the works, the same shall be taken over by Licensee (i.e., CESC) and ownership of the lines and other equipment would thereafter vest with the Licensee who maintains it as per Electricity Supply and Distribution code, 2000-01, Clause 9.11. Further, the deposit collected under DCW will be treated as contribution and the asset taken over under both DCW and self-execution will be capitalized in the books of accounts as per statues for maintenance. The applicant submits that since the Section 16(3) of the GST Act prohibits claiming input tax credit if depreciation on the tax component of the cost of the capital goods and plant and machinery under the provisions of the Income Tax Act, 1961, is claimed, they are of the opini....
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....plies of support and auxiliary services and other supply of taxable goods. On these output taxable supplies of support and auxiliary services, a registered person can claim input tax proportionately. 6.5 The applicant states that they provide auxiliary and support services and collects GST, as has been stated supra. Similarly it receives input services and capital goods and incurs input GST. Therefore, the applicant is of the opinion that it is eligible to claim input tax credit to the extent of output tax collected by it as per the formula given under Rule 42 for the inputs or input services and as per Rule 43 on capital goods. 6.6 The applicant also states that they incur GST liability on hiring of vehicle and advocate fee etc., and pays tax on RCM basis. The applicant is of the opinion that it can claim the taxes paid under RCM as input tax credit as per Section 49(4) of the GST Acts. 6.7 The applicant states that they collect additional surcharge from Open Access Consumers. Additional surcharge is allowed to DISCOMs by KERC to collect from Open Access consumer, to recover stranded cost on account of stranded Power Purchase Agreements (PPAs) and stranded assets due to c....
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.... "The additional surcharge for obligation to supply as per Section 42(4) of the Act should become applicable only if it is conclusively demonstrated that the obligation of a licensee, in terms of existing power purchase commitments, has been and continues to be stranded, or there is an unavoidable obligation and incidence to bear fixed costs consequent to such a contract. The fixed costs related to network assets would be recovered through wheeling charges". Further, clause 5.8.3 of the National Electricity Policy notified by the Ministry of Power, Government of India, reads as under: "5.8.3....An additional surcharge may also be levied under sub-section (4) of Section 42 for meeting the fixed cost of the distribution licensee arising out of his obligation to supply in cases where consumers are allowed open access........" Since, the applicant is collecting the above charges as provided by statue incurred by CESC towards power purchase from open access consumers who have moved out of CESC to procure power from independent generators / IEX even though CESC has surplus power. Hence, GST is not collected. Therefore, the applicant is of the opinion that since s....
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....ale planned Renewable Energy (hereinafter referred to as 'RE') in India is expected to come from RE resource-rich sites located in areas remote from major load centers. This renewable power is required to be transmitted to the load centers located either within the State or in another State. The host State may not be able to consume all the power generated by it and hence, it may need to be transmitted for long distances to load centers in other States. This will require open access through transmission and distribution systems for transmission and wheeling of the electricity generated. 6.8.2. Section 86(l)(e) of Electricity Act 2003 (hereinafter referred to as EA) requires State Electricity Regulatory Commissions (SERCs) to develop policies that will promote the sale of electricity to any person. In any open access transaction between an RE generator and its buyer (open access user), which could be an obligated entity or otherwise, regional/state transmission charges and losses are required to be paid depending upon connectivity of the generator and the buyer at state transmission networks. 6.8.3 Further, if the generator and/or the buyer are connected at the distributed....
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....ier. The Commission had proposed 50% allocation criteria at the distribution level when the voltage level of injection and drawal is different. Since, the Commission is allocating only technical losses for open access transactions, it is considered appropriate to allocate average distribution loss in such cases". KERC vide order dated 14.5.2018 (Revised order of Wheeling and Banking charges for renewable power projects) also mentioned that "The concessional wheeling charge towards Line loss i.e., distribution loss". 6.8.7 Clause 9.07 of the Wheeling charges for NCE projects, KERC order, dated 9.6.2005 reads as under.- "Considering the discussions at Sl.No.4 above, the Commission determines the overall wheeling charges payable by NCE sources as 5% of the energy input into the system. Other than this wheeling charge, they shall not be liable to pay any transmission charges or wheeling charges either in cash or kind as determined in the preceding sections of this order. However, surcharge shall be payable where the wheeling of energy is other than for their own use." 6.8.8 The calculation of wheeling charges in kind, explained in clause 9.05 of KERC order dated 9.6.2....
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....icensee an additional surcharge in addition to wheeling charges and cross-subsidy surcharge, to meet the fixed cost of such distribution licensee arising out of his obligation to supply as provided under sub-section (4) of Section 42 of the Electricity Act 2003. 6.8.16 This additional surcharge shall become applicable only if the obligation of the licensee in terms of power purchase commitments has been and continues to be stranded or there is an unavoidable obligation and incidence to bear fixed costs consequent to such a contract. 6.8.17 Additional surcharge is allowed to DISCOMs by KERC to collect from Open Access consumer, to recover stranded cost on account of stranded Power Purchase Agreements (PPAs) and stranded assets due to consumers procuring power through Open Access. This has led to under recovery of power procurement expenses incurred by DISCOMs. 6.8.18 Under the sub section (4) of the Electricity Act 2003, DISCOMs have a universal supply obligation and are required to supply power as and when required by the consumers in its area of supply. Considering the sales forecast approved by the State Commission while determining the Annual Revenue Requirement, the DI....
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....of the National Electricity Policy notified by the Ministry of Power, Govt, of India, reads as under. "5.8.3... An additional surcharge may also be levied under sub-section (4) of Section 42 for meeting the fixed cost of the distribution licensee arising out of his obligation to supply in cases where consumers are allowed open access. ..." 6.8.22 CESC is collecting the above charges as provided by statue incurred by CESC towards power purchase from open access consumers who have moved out of CESC to procure power from independent generators. Cross Subsidy Surcharge: 6.8.23 It is the charge payable by a consumer who opts to avail power supply through open access from someone other than such Distribution Licensee in whose area the consumer is situated. Such surcharge is meant to compensate such Distribution Licensee from the loss of cross subsidy that such Distribution Licensee would suffer by reason of the consumer taking supply from someone other than such Distribution Licensee." 6.8.24 Banking Charges: 7.06 Banking facility to be provided for Renewable Sources of Energy, as per KERC order, dated 9.6.2005 reads as under.- "the Commission hereby deci....
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....s and processes around metering and billing, especially for open access and captive have been codified for 1 MW and above consumers. • With rapidly falling prices for RE, especially solar and wind, power from new projects is available at a rate (< Rs.3/unit) less than the average procurement cost of the ESCOMs. Thus, new projects are in a position to thrive on the basis of its own economic proposition, rather than being driven by concessions / waivers. • With rising cost of supply of the ESCOMs and increasing viability of open access and captive procurement through renewables, Karnataka has seen an increase in open access sales by 52% between 2016 and 2019. 6.8.28 Despite these changes, the wheeling and banking charges and the banking period have not changed since 2005 in Karnataka. Further, there have been no changes in concessional wheeling provided as well. This is significant as many other states with RE investments have revised their banking frame work and wheeling charges significantly in recent years. 6.8.29 Banking Provisions: Result in an Increase in Distribution Licensee's Power Purchase Costs. Wind energy generation is available at its....
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.... FY22 Upper Limit 12.95 11.75 11.00 Average 12.70 11.50 10.75 Lower limit 12.45 11.25 10.50 The approved Distribution loss of CESC is approximately between 11%-12% as determined by Karnataka Electricity Regulatory Commission. But, the Commission allowed only 5% of wheeled energy as wheeling charges and 2% banked energy as banking charges. The charges allowed by KERC is not compensating the distribution loss incurred by CESC. 6.8.34 The study ('Estimating impact of renewable energy wheeling and banking arrangement on Karnataka ESCOMs' - May 22) conducted by Prayas (Energy Group), in compliance with KERC directions is to assess impact of current banking arrangement and concessional wheeling charges on the finances of the ESCOMs. As per the study, the significant financial impact on ESCOMs are as follows:- a) The concessional wheeling and transmission charges result in ESCOMs and KPTCL foregoing revenue of Rs.243 crores and Rs.277 crores in FY 2019-20 and FY 2020-21 respectively. Transmission charge waiver is a major contributor to this revenue loss accounting for 50% of the revenue foregone. b) The total loss to the....
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.... hence it is exempt from levy and collection of GST on such wheeling charges, cross-subsidy surcharge and additional surcharge etc. The 'etc.' referred to in the order also covers "Banking Charges". The applicant is of the opinion that since, the Wheeling and Banking charges are payable by Open Access Consumer as percentage (not in cash) of the energy input / drawal into/from the distribution system by them is not taxable. Hence, GST is not collected from open access consumer. PERSONAL HEARING / PROCEEDINGS HELD ON 18-08-2022 7. Sri Y.C. Shivakumar, Advocate and Duly Authorised Representative appeared for personal hearing proceedings held on 18-08-2022 and reiterated the facts narrated in their application. FINDINGS & DISCUSSION 8. At the outset we would like to make it clear that the provisions of CGST Act, 2017 and the KGST Act, 2017 are in pari-materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act. 9. We hav....
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.... or to a Panchayat under article 243G of the Constitution. The applicant states that Government of Karnataka holds 99.99% of equity in the applicant company and is established by the Government of Karnataka and hence the first condition is satisfied. Article 243W of the Constitution and Twelfth Schedule to the Constitution relating to the functions entrusted to a Municipality is verified and found that the supply of electricity is not covered. Article 243G of the Constitution and Eleventh Schedule to the Constitution relating to the functions entrusted to a Panchayat is verified and found that the Rural Electrification including the distribution of electricity is covered. But the applicant company is not set up or established only to provide Rural Electrification and hence the second condition is not satisfied. Hence, even for the purposes of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017, the applicant cannot be covered under the definition of "governmental authority" and hence the same is clarified. 11. Regarding the issue whether annual returns in FORM GSTR-9 and FORM GSTR-9C are required to be filed by the applicant under Second proviso to section 44 ....
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....) of section 2 of the Central Goods and Services Tax Act defines the "input tax" as under:- 2(62) "input tax" in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes, - (a) the integrated goods and services tax charged on import of goods; (b) the tax payable under the provisions of sub-sections (3) and (4) of section 9; (c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act; (d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or (e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy;" As per the above it is seen that every registered person is entitled to take credit of input tax charged and input tax means tax charged on any supply of goods or services or both made to him. Goods or services procured ....
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....rd supply of goods or services or both and would be eligible as input tax credit under Section 16(1) of the CGST Act subject to apportionment of input tax credit in terms of Section 17(2) of the Act, ibid read with Rules 42 and 43 of the Rules, ibid. 16. Regarding the seventh question as to whether Additional Surcharge collected from Open Access Consumer as per sub-section (4) of Section 42 of the Electricity Act, 2003, clause 8.5.4 of the Tariff Policy 2016, Clause 5.8.3 of the National Electricity Policy and Clause 11 (VII) of the KERC (Terms and Conditions for Open Access) Regulations, 2004, is taxable under the GST Acts, it could be seen that,- (a) Para 5.8.3 of the National Electricity Policy reads as under "5.8.3 Under sub-section (2) of Section 42 of the Act, a surcharge is to be levied by the respective State Commissions on consumers switching to alternate supplies under open access. This is to compensate the host distribution licensee serving such consumers who are permitted open access under section 42(2), for loss of the cross-subsidy element built into the tariff of such consumers. An additional surcharge may also be levied under sub-section (4) of ....
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.... (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government." Hence, it is clear that the consideration need not be in the form of money only and is very clear from the words used "money or otherwise" and also by the words "monetary value of any act or forbearance" and hence the wheeling and banking charges collected by the applicant in kind, i.e., in terms of energy units but not in terms of cash, is taxable, if the same is found to be taxable, under the GST Act. 17.1 Regarding the nature of wheeling services, it is seen that the applicant has stated that if the generator and the buyer are connected at the distributed voltage level, appropriate wheeling charges and losses are required to be paid. The wheeling charges include recovered of the fixed costs related to network assets and line loss (i.e., distribution loss). The wheeling charges is based on the account of investments being made in the sector for meeting the load growth, AT&C loss reduction a....
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....ted for and the net surplus or shortfall is finally settled on a monthly, quarterly or annual basis. Banking provisions in India are typically provided at the point of consumption by the distribution licensees. In Karnataka, KERC has allowed to pay at the average power purchase cost for the banked energy annually. From this it is very clear that the applicant charges the user for the energy used by the user in excess of the energy input made into the system of transmission. Hence it is nothing but the amount of consideration charged for the energy consumed and is the consideration charged for supply of electrical energy. This is covered SI.No. 104 of Notification No.2/2017- Central Tax (rate) dated 28.06.2017 and is exempt from the levy of GST. In view of the above, Wheeling charges and Banking charges collected by the applicant is exempt from the payment of GST. 18. In view of the foregoing, we pass the following RULING 1. Chamundeshwari Electricity Supply Corporation Limited cannot be considered either as "Governmental Authority" or "Local Authority". 2. The Applicant is not exempted from filing of Annual Return in Form GSTR-9 and Form GSTR-9C under the Second Prov....