GST Payable On Additional Surcharge Collected From Open Access Consumer Under Electricity Act: AAR

The Karnataka Authority for Advance Ruling (AAR) has held that the additional surcharge collected from open-access consumers as per Section 42 of the Electricity Act, 2003, is taxable under the GST Act.

The two-member bench of M.P. Ravi Prasad and Kiran Reddy T. has observed that Chamundeshwari Electricity Supply Corporation Limited cannot be considered either a "governmental authority" or a "local authority."

The applicant is engaged in the distribution of electricity and the sale of energy. It purchases power from central and state generating stations, major independent power producers, and independent power producers from non-conventional sources like wind, solar, and mini-hydro, as well as from Telangana State Power Generation Corporation Limited, Damodar Valley Corporation Limited, and short-term and medium-term co-generators.

The Corporation supplies and distributes power to various consumers, such as companies, industries, commercial shops, hospitals, farmers, irrigation pumps, individuals, government organizations, etc., in the districts of Mysore, Mandya, Chamarajanagar, Hassan, and Kodagu. The retail tariff is determined by the Karnataka Electricity Regulatory Commission (KERC) as per the Electricity Act 2003.

The applicant sought an advance ruling on the various issues.

Since the Government of Karnataka holds 99.99% of the equity in the corporation, it is unclear whether the corporation is considered a "government authority" or a "local authority."

Since the Corporation is fully owned by the Government of Karnataka and audited by the Comptroller and Auditor General of India, the filing of an annual return in Form GSTR-9 and Form GSTR-9C is exempt under the Second Proviso to Section 44 of the CGST and SGST Acts.

Whether the corporation is eligible to claim an input tax credit on the inward supply of goods and services that are capitalised in the books of accounts.

Whether the corporation is eligible to claim input tax credits on inbound services against output taxable supplies of support and auxiliary services and other taxable goods.

Whether the corporation is eligible to claim input tax credits (on inputs, input services, and capital goods) proportionately on the taxable output supply of support services and goods (scrap, etc.) as per the provisions of Rules 42 and 43 of the CGST and KGST Rules.

Whether the corporation is eligible to claim taxes paid under RCM as an input tax credit

Whether an Additional Surcharge collected from an Open Access Consumer is taxable under the GST Acts

Whether "Wheeling and Banking Charges" allowed by the Commission (KERC) as 5% and 2% of the energy input into the distribution system by open access consumers, respectively, are taxable under the GST Acts.

The AAR noted that there are two conditions to be satisfied to be covered under government authority. Firstly, it must be either set up by an Act of Parliament or a State Legislature or be established by any government with 90 percent or more participation by way of equity or control. Secondly, it must be either set up or established to carry out any function entrusted to a municipality under Article 243W of the Constitution or to a panchayat under Article 243G of the Constitution.

The Authority has noted that the applicant states that the Government of Karnataka holds 99.99% of the equity in the applicant company, which was established by the Government of Karnataka, and hence the first condition is satisfied. Article 243W of the Constitution and the Twelfth Schedule to the Constitution relate to the functions entrusted to a municipality. It was verified and found that the supply of electricity is not covered. Article 243G of the Constitution and the Eleventh Schedule to the Constitution relating to the functions entrusted to a panchayat. It was verified and found that 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.

"Article 243W of the Constitution and the Twelfth Schedule to the Constitution relating to the functions entrusted to a municipality are verified, and it is found that the supply of electricity is not covered. Article 243G of the Constitution and the Eleventh Schedule to the Constitution relating to the functions entrusted to a panchayat. It was verified and found that 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," the AAR said.

The AAR held that the applicant is eligible to claim input tax credits (on inputs, input services, and capital goods) proportionately on the taxable output supply of support services and goods (scrap, etc.) subject to section 17(2) of the CGST Act read with Rule 42 and 43 of the CGST Rules.

The AAR ruled that "Wheeling and Banking Charges" collected by the applicant are exempt from the payment of GST.

Applicant’s Name: Chamundeshwari Electricity Supply Corporation Limited

Date: 17.03.2023

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