Input Tax Credit on Captive Solar Power Plant: M/s Shri Keshav
Cement and Infra Ltd.
Background
of the Case
M/s Shri Keshav Cement
and Infra Ltd., a public limited company registered in Karnataka, is engaged in
the manufacturing and sale of cement. The company operates two cement plants
located at Lokapur and Kaladgi in Bagalkot district. To meet its electricity
requirements, the company installed a 20 MW captive solar power plant at
Bisarahalli in Koppal district. This solar power plant is exclusively used to
generate electricity for captive consumption at the cement manufacturing units.
Electricity from the solar plant is transmitted to these units through the
Karnataka Power Transmission Corporation Ltd. (KPTCL) grid, under a “Wheeling
and Banking” (W&B) agreement.
The applicant approached
the Authority for Advance Ruling seeking clarity on the eligibility of Input
Tax Credit (ITC) on goods, capital goods, and input services used in the
erection and commissioning of the solar power plant.
· AAR
No. KAR ADRG 26/2019
· Date:
12th September 2019
·
Court:
Authority for Advance Rulings (AAR), Karnataka
·
Applicant:
M/s Shri Keshav Cement and Infra Ltd.
Key
Questions Before the Authority
1. Eligibility
of ITC on goods, capital goods, and input services used for
the solar plant under Sections 16 and 17 of the CGST/KGST/IGST Acts.
2. Whether
full ITC is allowed on inputs and capital goods used in the
solar plant when the electricity is transmitted to cement plants located at
different places but under the same GST registration.
3. Whether
reversal of ITC is required on surplus electricity banked with
the grid and unutilized at the end of six months, which is deemed to be
consumed by KPTCL, GESCOM, or HESCOM.
Submission
by the Applicant
- The applicant argued that electricity
is an essential input for the manufacture of cement and that the solar
power plant was set up purely for captive consumption.
- They contended that:
- The solar power plant forms part of
the plant and machinery used in the business.
- Input goods and services used for
setting up the solar plant are eligible for ITC under Section 16.
- Section 17(5) does not restrict ITC
as the plant qualifies as ‘plant and machinery’.
- The electricity produced is not
sold, but fully consumed for manufacturing taxable output (cement).
- They relied on the decision of the
Madras High Court in Thiagarajar Mills (P) Ltd (2018) which held
that energy generated at a different location and used in the factory is
eligible for ITC.
Revenue’s
Observations
The authority noted:
- Electricity qualifies as goods
under Tariff Heading 27160000 and is also an input as per Section
2(59) of CGST Act.
- ITC eligibility depends on whether:
- The goods are capitalized in books
(capital goods vs. inputs),
- The goods qualify as “plant and
machinery” fixed to earth (per Explanation to Section 17),
- The energy generated is fully
captively consumed (vs. partly supplied to the grid).
Findings
and Ruling of the Authority
Question 1: Eligibility
of ITC on Inputs / Capital Goods
- Held:
ITC is available only on those goods which are not capitalized,
unless they qualify as plant and machinery.
- Plant and machinery
must be equipment or machinery fixed to earth by foundation or structural
support and used for outward supply of goods or services.
- Civil structures, buildings, and
pipelines laid outside the factory do not qualify.
Question 2: Full ITC when
Electricity is Used at Other Units
- Held:
Full ITC can be availed if the entire electricity produced is consumed
captively at the cement plants.
- As the solar plant and cement plants
are under the same GST registration, and no electricity is sold or
injected into the grid, ITC need not be apportioned under Section 17(1) or
(2).
Question 3: Reversal of
ITC on Unutilized Banked Energy
- Held:
If electricity banked with the grid remains unutilized after six months
and is deemed sold to the ESCOMs (as per W&B agreement), it amounts to
a supply of exempt goods.
- Hence, the applicant must reverse
proportionate ITC on such unutilized energy, as the energy is no
longer used in the course of business and is instead an exempt supply.
Conclusion
This ruling provides
significant clarity to businesses that generate their own electricity through
renewable sources such as solar plants. It affirms the availability of ITC when
the energy is used solely for business purposes, even if the power plant is
located away from the main manufacturing site. However, it also establishes
that any unutilized banked energy which lapses and is deemed sold to the grid
is considered a supply of exempt goods, attracting ITC reversal.
The judgment reinforces
the principle that “purpose of use and classification of goods/services”
is central to ITC eligibility under GST.
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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