No ITC on Coal for Township Electricity, GST Rule Amendment Not Retrospective: Chhattisgarh High Court - 2025-07-31

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No ITC on Inputs for Township Electricity; GST Rule Amendment Not Retrospective: Chhattisgarh HC

Bilaspur, Chhattisgarh – The Chhattisgarh High Court, in a significant ruling on Goods and Services Tax (GST), has held that companies are not entitled to Input Tax Credit (ITC) on inputs, such as coal, used to generate electricity supplied to their residential townships. In the case of Bharat Aluminium Company Limited (BALCO) vs. State of Chhattisgarh , Justice Sanjay K. Agrawal also determined that a 2022 amendment to the CGST Rules, beneficial to exporters, does not apply retrospectively.

The court dismissed a series of writ petitions filed by BALCO challenging the orders of the state tax authorities, which had directed the recovery of ₹40,14,605/- by partially rejecting the company's ITC refund claims.

Case Background

Bharat Aluminium Company Limited (BALCO) is engaged in the manufacture and export of aluminium products. The company imports coal, paying GST Compensation Cess, to fuel its captive power plants. The electricity generated is used for three main purposes: manufacturing operations, sale to State Electricity Boards, and supply to its residential township for employees.

The dispute arose when BALCO filed for a refund of the ITC on the cess paid on coal. The tax authorities rejected a portion of the refund, citing two primary reasons:

1. A part of the ITC had to be reversed as it was attributable to electricity supplied to the employee township, which they contended was not "in the course or furtherance of business."

2. ITC attributable to the sale of Duty Credit Scrips (DCS), an exempt supply, also warranted reversal.

BALCO appealed these findings, leading to the writ petitions before the High Court.

Key Legal Questions and Arguments

The High Court framed two central questions for consideration:

1. Is supplying electricity to an employee township an activity "in the course or furtherance of business" under the CGST Act, making the company eligible for ITC on the inputs used?

2. Does the 2022 amendment to Rule 43 of the CGST Rules, which excludes the value of DCS from the calculation for ITC reversal, have a retrospective effect?

BALCO's Submissions: - On Township Supply: The petitioner argued that maintaining a residential township is intrinsically linked to its manufacturing operations, especially given its remote location. Thus, supplying electricity is a matter of commercial expediency and qualifies as a business activity under Section 2(17) of the CGST Act. -

On Duty Credit Scrips: BALCO contended that the insertion of Explanation 1(d) to Rule 43 of the CGST Rules in July 2022 was merely "clarificatory" and intended to correct an anomaly. Therefore, it should apply retrospectively to pending cases.

State's Submissions: -

On Township Supply: The government advocate argued that supplying electricity to a township is a welfare activity, not an integral part of business. They relied on the Supreme Court's decision in Maruti Suzuki Limited , which disallowed CENVAT credit on electricity cleared outside the factory. -

On Duty Credit Scrips: The State contended that the amendment was prospective. It highlighted that the legislature had explicitly given retrospective effect to other amendments in the same notification, but not this one, indicating clear intent. It asserted that ITC is a concession, not a right, and the amendment was a substantive change, not a clarification.

Court's Judgment and Reasoning

The High Court meticulously analyzed both issues and ruled in favour of the State tax authorities.

1. No ITC for Township Electricity

Justice Agrawal affirmed that ITC is a "concession extended to the dealer" and not a substantive right. The court heavily relied on the Supreme Court's precedents in Maruti Suzuki Limited v. CCE and CCE v. Gujarat Narmada Fertilizers Company Limited . It quoted the apex court's finding:

"...the assessee is entitled to credit on the eligible inputs utilised in the generation of electricity to the extent to which they are using the produced electricity within their factory (for captive consumption). They are not entitled to Cenvat credit to the extent of the excess electricity cleared..."

Applying this principle, the High Court concluded that since the electricity was supplied to the township and not used within the factory for manufacturing, BALCO was not entitled to ITC on the coal used for its generation.

2. Amendment to Rule 43 is Prospective

On the second issue, the court examined the nature of the amendment to Rule 43. While acknowledging that the GST Council's recommendation led to the change to support exporters, the court held that the amendment was not merely clarificatory. It reasoned that the pre-amended law was not ambiguous and the new clause expanded the scope of exclusions from "exempt supplies."

The court noted:

"Though express power in Section 164(3) of the CGST Act has been conferred upon the rule-making authority, yet the rule-making authority did not choose to promulgate it with retrospective effect."

Citing the Supreme Court's ruling in Sree Sankaracharya University of Sanskrit , the court held that an amendment is not clarificatory if it introduces a new concept or widens the scope of a provision. Since the amendment substantively altered the rule, it could only have a prospective effect from its date of notification, July 5, 2022.

Final Decision

The High Court dismissed all writ petitions, upholding the orders of the Joint Commissioner (Appeals) and the Assistant Commissioner of State Tax. The decision reinforces the principle that ITC is a conditional benefit governed strictly by statutory provisions and that amendments to tax rules are presumed prospective unless explicitly stated otherwise.