ITC on Electric installation, Goods and Services Tax - GST

[Hiren Pathak]

Dear All,

A company is setting up its manufacturing plant where in power supply by way of supplying and installation of various electric cable connection from main station outside factory premises to company sub station is required from state government. State government instructed company that company can itself set up this electric installation from thier nominated vendor but ultimate ownership of such electric installation (Assets) will remain with state government.

Now question is whether company can claim ITC of such electric installation which mainly constist of supplying and installing various electric cables?

Whether ownership of such electric installation will remain with state govenment and not with compnay, will it have any impact on ITC eligibility?

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

In my opinion since the purchase invoice will be in your name you are eligible to avail the ITC for the reasons that a registered person is (a)in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed; and (b) he has received the goods or services or both.

[KASTURI SETHI]

I agree with Sh.Ranganathan Sir. The ownership of electric installation with State Govt. will not have any adverse effect on the eligibility of ITC. For example; when the goods are manufactured and supplied to the buyer, the ownership is shifted to the buyer but the manufaturer avails credit on inputs used in the manufacture of those finished goods. Similarly, is the situation with the Service Provider who avails input or input servic credit uses the same in the course of taxable business or furtherance of business. In this case your company is service provider and State Govt. is service receiver though the Company may get it done through some other person I.e. sub contractor. Also see .Explanation- (ii) to Section 16(2)(b) inserted vide CGST (Amendment) Act, 2018 effective from 1.2.19

[Alkesh Jani]

Dear Experts,

Can we apply Sl.No.25 of Notification No.12/2017 dated 28.06.2017 (as amended time to time) instant case and can we apply the ratio of decision given by the Hon'ble High Court of Gujarat in case of M/s. Torrent Power Ltd Vs. Union of India SCA No. 5343 of 2018. = 2019 (1) TMI 1092 - GUJARAT HIGH COURT

Can we consider as, the installation is undertaken as per the direction of the state government and title is not transferred by way of Invoice or anyother documents.

This is to enrich my knowledge through your guidence and views.

Thanks,

With Regards,

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

Neither Notification nor ratio of High Court judgement is applicable to this situation inasmuch as erection and installation activities are entirely different from transmission and distribution of electricity.No exemption is available to the company who perform the activities of erection and installation of electrical cables/poles etc. It is taxable service to Govt. by a company and no exemption is available to the company. Pl. go through the following decision of AAR, Madhya Pradesh:-

2018 (19) G.S.T.L. 107 (A.A.R. - GST) = 2018 (11) TMI 57 - AUTHORITY FOR ADVANCE RULING, MADHYA PRADESH IN RE : MADHYA PRADESH POORV KSHETRA VIDYUT VITARAN COMPANY LIMITED

 

 

[Alkesh Jani]

Dear Kasturiji Sir,

Thanks for your reply and views expressed. However, bit confusion still remains with me. The Decision of AAR is applicable to that state and to the applicant only. Moreover, the relevant observation of Hon'ble High Court is reproduced below:-

With due regards,

“The transmission and distribution of electricity cannot be done without the help of electric line, electric plant and electric meter, and nor can the related services be used for any purpose other than for transmission and distribution of electricity. The principal supply and the related/ancillary services go hand in hand and one cannot be provided independent of the other. The upshot of this discussion is that the services provided by the petitioner are in the nature of composite supply and therefore, in view of the provisions of clause (a) of section 8 of the CGST Act, the tax liability thereof has to be determined by treating such composite same as a supply of the principal supply of transmission and distribution of electricity. Consequently, if the principal supply of transmission and distribution of electricity is exempt from levy of service tax, the tax liability of the related services shall be determined accordingly."

In view of above, can we say that such installation is ancillary service provided?

Thanks,

With due regards

[Hiren Pathak]

Kasturi sir,

Little clarification in facts, My question is from the perspective of manufacturing company who is engaging vendor for installation of electric installation having ownership of state government.

[KASTURI SETHI]

Dear Sh.Alkesh Jani Ji,

I agree with you to the extent that AAR decision is applicable to the applicant only. It is also to be taken care of the fact that each and every case has different facts, situations and circumstances. One has to be very cautious. I am of the view any AAR clears the doubt and pave the way for going ahead in which direction. Here I am expressing my views and am not comment upon any decision of High Court or any court. Before resorting to Section 8 of CGST Act, 2017 we are supposed to read carefully the definition of Composite Supply and Exempt Supply which are extracted below:

Section 2(30) of CGST Act, 2017 “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

Illustration. - Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;

(47) “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply.

108) “taxable supply” means a supply of goods or services or both which is leviable to tax under this Act;

In view of the above, it can be easily arrived at the conclusion that composite supply consists of two or more taxable supplies and not one taxable and one exempt. Thus exempt supply is excluded from the scope of composite supply. So erection and installation is not ancillary activity. It is independent.

This is my view.

[KASTURI SETHI]

Sh.Hiren Pathak Ji,

What is your specific doubt about vendor in this situation ? I think there is no legal hurdle.

[Hiren Pathak]

Respected Kasturi sir,

please note that there is no doubt from perspective of vendor who is providing service of electric installation as he is anyway going to charge GST since he is supplying to Manufacturing companay and not to state government.

My question is whether manufacturing company can avail ITC of GST charged by Vendor while providing composite service of electric installation? Doubt is with reference this resultant assets which is electric installation mainly consist of cable lying foundation mainly consist of steel fabrication etc which would result in to IMMOVABLE PROPERTY and second that assets is also having OWNERSHIP OF STATE GOVERNMENT.

So Moot question remains, can ITC be claimed on something which is not ownership of taxpayer and second whether electric installation (Lying of electric cable etc from main power supply station situated outside company premises to company manufacturing plant) can be termed as immovable or movable?

[KASTURI SETHI]

Sh.Hiren Pathak Ji,

No doubt yours is a manufacturing company but here is a question of what nature of service you are supplying/providing. In my view (based on various case laws), it is a works contract service which you are providing to State Govt. and no exemption is available to you. Now is the question of vendor's service. The vendor is working for you. In other words, we can say that that person is your job worker. So the vendor's service is also of the nature of service being provided by you. His service an integral part of the works contract service being provided. In Works Contract Service, ITC is available if utilised in providing the same output taxable service.So you can avail ITC on the strength of invoice to be issued by your vendor.

The factor of ownership does not create any obstacle in availing ITC. (There are case laws. Basic requirements are GST must be paid on the tax invoice (prescribed) and ITC must be used in the course of taxable business or furtherance of taxable business. Remaining are procedural formalities. However, care has to be taken of restrictions imposed under Section 17 (5) of CGST Act. In other words, your outward supply must not fall in the exclusion category. It appears to me you fulfill the condition of same service in Section 17(5). I find no other restriction eclipsing your supply. Ownership is always shifted at the time supply of goods or services. In your case ownership is already known but you will shift ownership of your service only at the time of issuance of invoice or date of contract, whichever is earlier. You are concerned with the supply of service only and not with the whole ownership of power station.

When any machinery/equipment is embedded to earth, that becomes an immovable property. (Power station is an immovable property for which you will work.)There is a Board's circular to this effect and case laws.

You can easily trace out case laws in your support.

[CASusheel Gupta]

The primary responsibility of laying of cable was of state government. SG authorised the company to purchase cable and install it on behalf of SG. The ownership shall rest with the SG.

The SG shall be required to bill the company including the cost of cabling (covered by section 15(2)(b)). Cost of cable though incurred by company shall be included in the value of supply of SG.

Applying the ratio of Torrent Power, the supply from SG to company shall be exempt supply. Being exempt, ITC should not be availed by company, though the bill in the name of company entitles it to avail ITC.

IMO in case the ownership does not rest with SG, section 15(2)(b) shall not be applicable since it can be presumed that SG has only installed the meter and cable was installed by company.