TaxTMI 
TaxTMI 
ITC reversal on REC units sold
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....TC reversal on REC units sold<br> Query (Issue) Started By: - Narayan Pujar Dated:- 19-7-2025 Last Reply Date:- 26-7-2025 Goods and Services Tax - GST<br>Got 8 Replies<br>GST<br>One of our clients is engaged in the sale of electricity generated from windmills, which is exempt from GST. In the course of this activity, the client also earns revenue from the sale of Renewable Energy Certificates (REC....
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.... units), which are taxable under GST. A question arises regarding the treatment of Input Tax Credit (ITC) on expenses related to the windmills such as repairs and maintenance. Should such ITC be treated as being exclusively attributable to exempt supplies, or as common credit attributable to both exempt and taxable supplies? In my view, these expenses should be treated as common input services, ....
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....since the functioning of the windmills facilitates both the generation of electricity (exempt supply) and the issuance of RECs (taxable supply). Accordingly, proportionate credit should be allowed under Rule 42 of the CGST Rules. [Kindly refer to the AAR Tamil Nadu ruling in the case of Kumaran Oil Mill] Would appreciate insights from experts, along with any supporting judgments, circulars, or de....
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....partmental clarifications that may help shed further light on this issue. Reply By YAGAY andSUN: The Reply: Aspect Treatment Nature of expense Common input (electricity generation + REC issuance) ITC entitlement Allowed but proportionate under Rule 42/43 Credit reversal method (Exempt turnover / Total turnover) x Common credit Turnover base Includes electricity, REC, and....
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.... other supplies under same GSTIN Capital goods like windmills Treated similarly, credit spread over 60 months Reply By YAGAY andSUN: The Reply: Practical Treatment for Your Client: Based on Kumaran Oil Mill 2020 (10) TMI 808 - AUTHORITY FOR ADVANCE RULING, TAMILNADU AAR: * Treat windmill maintenance and repair expenses as common input services/capital goods. * Claim full ITC on them, bu....
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....t reverse that portion attributable to exempt (electricity) supply using Rule 42/43. * Use total turnover (electricity + REC + any other supply under the same GSTIN) for calculation. * Apply the standard formula: Reversal=(EF)xC2 Where E = exempt turnover (electricity), F = total turnover, C2 = common credit. ?? Supporting References: * AAR - M/s Kumaran Oil Mill 2020 (10) TM....
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....I 808 - AUTHORITY FOR ADVANCE RULING, TAMILNADU, TN/33/AAR/2020 (28-09-2020): Proportionate ITC allowed under Sec 17(2) and Rule 42/43. * Rule 42, CGST Rules: Lays out method for attributing common ITC. Reply By YAGAY andSUN: The Reply: Key Takeaways from Kumaran Oil Mill - 2020 (10) TMI 808 - AUTHORITY FOR ADVANCE RULING, TAMILNADU AAR: 1. Eligibility under Sections 16 & 17 ....
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....* Section 16 allows ITC where the input is used in the course of business and other conditions are met. * Section 17(2) mandates proportional reversal when used partly for exempt and partly for taxable supplies. 2. REC sale qualifies as taxable supply * Electricity generation leads to issuing RECs, which are treated as an output taxable supply. 3. Common input credit al....
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....location via Rule 42/43 * Goods/services: Rule 42; capital goods: Rule 43. Both require computing a reversal amount: The AAR confirmed this method applies here. 4. Turnover base includes all business segments * Turnover across all verticals under the same GSTIN-electricity, REC, windmill services-must be used in the denominator. * Capital goods treated similarly * ....
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....Solar panels etc. are capital goods used for both exempt and taxable supplies; Rule 43 prescribes spreading the ITC over 60 months proportionately. Reply By YAGAY andSUN: The Reply: Your analysis is spot-on. The expenses related to windmills-repairs, maintenance, services, etc.-are indeed common inputs/input-services because they facilitate both: * the generation of electricity (an exem....
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....pt supply under GST), and * the issuance/sale of Renewable Energy Certificates (RECs), which are taxable. Accordingly, Rule 42 (for inputs/services) and Rule 43 (for capital goods) of the CGST Rules require proportionate attribution of Input Tax Credit (ITC), as held in the AAR of Kumaran Oil Mill - 2020 (10) TMI 808 - AUTHORITY FOR ADVANCE RULING, TAMILNADU (TN/33/AAR/2020 dat....
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....ed 28-09-2020). Reply By Ganeshan Kalyani: The Reply: Proportionate to REC you may take the credit. Reply By Sadanand Bulbule: The Reply: Refer Sl No.3 of CBIC Circular No. 34/8/2018-GST dated 01/03/2018. Renewable Energy Certificates [REC] are considered as intangible goods and attract 18% GST in terms of Notification No. 11/2017-CTR dated 28/06/2017. Hence proportionate ITC can be uitl....
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....ised to set off output tax payable on sale of RECs. Reply By Sadanand Bulbule: The Reply: For academic benefit refer : M/s. Aristo Bullion Pvt. Ltd. - 2022 (1) TMI 1056 - APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARAT Reply By Shilpi Jain: The Reply: Agree that proportionate credit should be available.<br> Discussion Forum - Knowledge Sharing ....