Bharat Aluminum Company Limited Vs State of Chhattisgarh (Chhattisgarh High Court)
Conclusion: ITC for Compensation Cess was not permissible for electricity generated and supplied to an employee township as electricity used for residential townships constituted a welfare activity outside the business ambit. Moreover, the amendment to Explanation 1(d) of Rule 43 of the CGST Rules, 2017, effected vide Notification No. 14/2022 – Central Tax dated 05.07.2022, was prospective in nature, therefore, any claim for ITC made in respect of periods antecedent to the notification could not be sustained.
Held: Assessee-company was engaged in the manufacture of aluminum, generated electricity through captive power plants. Part of this electricity was used in manufacturing, partly sold to the grid, and partly supplied to the company’s residential township. Assessee claimed refund of Input Tax Credit (ITC) on Compensation Cess paid on imported coal, which was denied by the authorities to the extent relatable to electricity supplied to the township. Assessee argued that supply of electricity to the township was in the course of business, as the township was essential for housing employees near the factory in a remote location. It further contended that the insertion of Explanation 1(d) to Rule 43 of the CGST Rules by Notification No.14/2022 was clarificatory and hence retrospective. Revenue maintained that electricity used in the township was for residential and welfare purposes, not linked to business, and that ITC being a concessional benefit, the amendment was prospective only. It was held that electricity supplied to the township was not used in the course or furtherance of business under Sections 2(17) and 16(1) of the CGST Act and therefore not eligible for ITC. Relying on Maruti Suzuki Ltd. and Gujarat Narmada Fertilizers Co. Ltd., it ruled that ITC was available only for captive consumption within the factory. Further, the insertion of Explanation 1(d) to Rule 43 was held to be prospective, not clarificatory, as the Government did not invoke Section 164(3) to give it retrospective effect.
