Chhattisgarh High Court Denies Input Tax Credit for Electricity Supplied to Residential Township by Bharat Aluminium Company
Court Rules ITC Not Admissible for Non-Business Purposes Under CGST Act
In a significant ruling, the Chhattisgarh High Court has dismissed the appeals filed by Bharat Aluminium Company Limited (BALCO) seeking Input Tax Credit (ITC) for electricity supplied to its residential township, emphasizing that such usage does not qualify as being in the course or furtherance of business under the Central Goods and Services Tax Act, 2017 (CGST Act). The Division Bench, comprising Chief Justice Ramesh Sinha and Justice Ravindra Kumar Agrawal, upheld the decision of the single judge that ITC is a concessional benefit under the CGST Act, and its applicability is limited to business activities.
The court addressed two primary issues: whether the supply of electricity to the residential township qualifies for ITC as a business activity, and whether recent amendments to the CGST Rules allow for retrospective claims. The bench concluded that supplying electricity to the township, a facility for employee welfare, falls outside the purview of business operations eligible for ITC. The court relied on precedents such as the Supreme Court’s rulings in Maruti Suzuki Limited and Gujarat Narmada Fertilizers Company Limited, which restrict ITC to electricity used within manufacturing premises.
Moreover, the court clarified that the amendment to Rule 43 of the CGST Rules, introduced in 2022, is not retrospective. This amendment, which expands the scope of exempt supplies, does not apply to periods before its enactment, thereby reinforcing the non-admissibility of ITC claims for the electricity supplied to the township prior to July 2022.
BALCO, represented by advocates Bharat Raichandani and K. Rohan, argued that maintaining the township is integral to its business operations, facilitating uninterrupted industrial activities by providing housing for employees in a remote location. However, the court dismissed these arguments, stating that the connection between township maintenance and business operations is indirect and insufficient under the statutory framework for ITC eligibility.
The State, represented by advocate Rahul Tamaskar, contended that ITC is not a vested right but a statutory concession subject to specific conditions. The court agreed, emphasizing that the electricity consumption for residential purposes does not meet the criteria for ITC under Sections 2(17) and 16(1) of the CGST Act.
This judgment reaffirms the legal stance that ITC claims must strictly adhere to the statutory conditions outlined in the CGST Act, reinforcing that benefits cannot be extended to non-business activities like residential township maintenance.
Bottom Line:
Input Tax Credit (ITC) is not admissible for electricity supplied to a residential township maintained by a business entity, as such usage does not qualify as being in the course or furtherance of business under Sections 2(17) and 16(1) of the Central Goods and Services Tax Act, 2017.
Statutory provision(s): Central Goods and Services Tax Act, 2017 - Sections 2(17), 16(1); Central Goods and Services Tax Rules, 2017 - Rule 43; Notification No. 14/2022 - Central Tax dated 05.07.2022
