ITC on Captive Windmill Power: Does Net-Metering Amount to “Supply” Under GST?
Understanding ITC eligibility, reversal rules & the barter question.
As more businesses invest in renewable energy—especially windmills for captive power, questions around GST Input Tax Credit (ITC) keep resurfacing. One of the most debated issues today is:
- If electricity generated by a windmill is adjusted against the electricity bill through net-metering, does it amount to a “supply” or “barter”?
- If yes, does ITC on the windmill need to be reversed?
Let’s break this down in a clear and practical way.
1. Basic Principle: Captive Consumption vs. Outward Supply
When the entire electricity generated is used captively
If a company installs a windmill and uses 100% of the generated power for its own factory or business operations, it is generally treated as self-consumption.
There is no outward supply of electricity.
In such cases, ITC on the windmill (as a capital good) is generally allowed because the electricity is an input in making taxable outward supplies.
2. What changes under Net-Metering / Power Adjustment?
Many units wheel power to their factory located elsewhere. DISCOMs adjust the power generated by reducing the monthly electricity bill.
Even if no money is exchanged, the adjustment is based on units supplied to the grid.
Under GST, the definition of “supply” includes:
- barter
- exchange
- consideration other than money
- anything of value credited or adjusted
Thus, when units exported to the grid are adjusted against consumption, the law views it as:
Supply of electricity in exchange for a financial credit (bill reduction).
Electricity = exempt supply.
And once it becomes an exempt supply, Section 17(2) and Rule 43 kick in.
3. Does ITC need to be reversed?
Yes — if any portion of electricity is exported or adjusted against the electricity bill.
Because that portion of electricity is treated as an exempt outward supply, proportional reversal of ITC is required.
No — if 100% electricity is used captively at the same location and there is no grid export. In such cases, there is no outward supply, and reversal is not required.
4. Why does barter matter here?
Even though electricity is intangible and no cash flows, the moment grid export happens, two things occur:
1. You supply electricity to DISCOM.
2. You receive value in return — adjustment in your bill.
Under GST, this is enough to qualify as a “supply by way of barter”.
This single interpretation changes the ITC game completely.
5. Practical Takeaways for Businesses
Businesses using all electricity internally (no export), ITC on windmill may be fully available.
Businesses exporting any part of electricity to the grid, ITC reversal is required proportionately. Businesses wheeling power between different units
Electricity exported from windmill location to grid → exempt supply → triggers reversal.
Accounting and documentation become crucial
Businesses must maintain records of:
- units generated
- units exported
- units consumed
- net-metering summary
- capitalisation of windmill as plant & machinery
6. Why this matters for industry
With rising renewable energy adoption, understanding GST implications becomes essential:
- Companies must factor ITC reversals into their ROI calculations.
- Disputes are rising because GST law did not originally account for modern net-metering models.
- A clear compliance position helps avoid future litigation.
Conclusion
Windmills used for captive generation can enjoy full ITC only when there is no outward supply of electricity.
The moment grid export + bill adjustment enters the picture, GST law treats it as barter, making electricity an exempt supply, and triggering proportionate ITC reversal.
This is a subtle but crucial distinction for businesses investing in renewable energy.
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