No ITC on Solar Power Plant Used to Generate Electricity
Supplied to Electricity Board – Authority for Advance Ruling – Tamil Nadu
M/s Kanishk Steel
Industries Limited, engaged in manufacturing steel, approached the Tamil Nadu
Authority for Advance Ruling to seek clarity on whether they could claim Input
Tax Credit (ITC) on the installation and operation of a 10.2 MW solar power plant.
The solar energy generated is fed into the TANGEDCO grid and adjusted against
their electricity consumption at the steel manufacturing facility. The
applicant argued that such energy usage constituted “captive consumption” and
that the solar plant qualified as plant and machinery. However, the AAR ruled
that the electricity generation and transfer to TANGEDCO constitutes exempt
supply, not captive consumption. Consequently, ITC on goods and services
used in the installation and maintenance of the solar plant is not available
under Section 17(2) and Rule 43 of the CGST Act and Rules.
·
Advance Ruling Number: 01/ARA/2025
·
Date of Ruling: 06 February 2025
·
Ruling Authority: Authority for
Advance Ruling – Tamil Nadu
·
Name of Applicant: M/s Kanishk Steel
Industries Limited
Business
Description:
- Manufacturer of various types of steel
at SIPCOT Industrial Complex, Gummidipoondi.
- Replacing 17 windmills (10.2 MW)
with a 10.2 MW solar power plant at Kayathar Taluk, Tuticorin.
- Electricity generated is not sold
to third parties but transferred to TANGEDCO, which adjusts it
against factory consumption.
Questions
Raised:
1. Whether
ITC is available on goods/services used for design, engineering, and
installation of a 10.2 MW solar power plant for captive consumption?
2. Whether
ITC is available on inputs and services used for running the solar power
plant?
Relevant
Provisions Discussed:
- Section 2(17), 2(19), 16(1), 16(3),
17(2), 17(5)(d) – CGST/TNGST Act
- Explanation to Section 17(5)
– Definition of Plant & Machinery
- Rule 43 of CGST Rules
– Apportionment of ITC for exempt and taxable supplies
- Notification No. 02/2017-CT(R)
– Electricity classified as nil-rated under HSN 2716
Applicant’s
Submissions:
- Electricity generated will be adjusted
against factory consumption via credits in TANGEDCO bill.
- Entire setup will be capitalized
as “plant & machinery” in the books.
- No banking agreement exists with
TANGEDCO; excess generation lapses.
- Claimed that electricity is captively
consumed, not sold, and thus ITC should be allowed.
- Cited favorable AARs from Tamil Nadu,
Karnataka, and Rajasthan including:
- KLF Nirmal Industries Pvt Ltd
- Pristine Industries Ltd
- Kumaran Oil Mill
- Shri Keshav Cement
Discussion
and Key Findings:
On Supply Classification:
- Solar electricity generation
qualifies as “supply” under GST.
- Electricity under HSN 27160000 is exempt,
attracting nil GST.
Not Captive Consumption:
- Power generated at one location and
consumed elsewhere via grid.
- No direct consumption by the
applicant—credit is given by TANGEDCO.
- Hence, not captive use but supply
to another entity (TANGEDCO).
On ITC Eligibility:
- Since electricity is exempt supply,
Section 17(2) applies.
- ITC on goods/services used
exclusively for exempt supply is ineligible.
- Capital goods used in solar plant are
capitalized, but:
- If used for exempt supply, ITC
blocked under Rule 43(1)(a).
- Only proportionate ITC (if partly
taxable) can be claimed.
- Running and maintenance costs
also deemed for exempt supply use—ITC not available.
On Other AARs Cited:
- AARs cited involved cases where:
- Solar plants were on same premises.
- Electricity was directly and
fully used in taxable manufacturing.
- Distinguished from this case where grid-supplied
power is involved.
Ruling:
1. No,
the applicant is not eligible to avail ITC on goods/services used
for the installation of the solar plant, as the electricity is treated as exempt
supply and not captive consumption.
2. No,
the applicant is not eligible to avail ITC on inputs/services used
for running or maintaining the solar power plant.
Conclusion:
The AAR concluded that
the solar power generation by M/s Kanishk Steel Industries, though for internal
use, qualifies as supply of exempt goods under GST due to the
involvement of TANGEDCO as an intermediary and the absence of direct
usage. As such, input tax credit is not admissible on capital goods or
services used for installation, operation, or maintenance of the solar power
plant.
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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