ITC Refund on Electricity Supplied to Employees’ Township Not Allowed | HC

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ITC refund on electricity

Case Details: Bharat Aluminum Company Ltd. vs. State of Chhattisgarh - [2025] 179 taxmann.com 493 (Chhattisgarh)

Judiciary and Counsel Details

  • Ramesh Sinha, CJ. & Ravindra Kumar Agrawal, J.
  • Bharat Raichandani & K. Rohan, Advs. for the Appellant.
  • Rahul Tamaskar, Government Adv. for the Respondent.

Facts of the Case

The assessee, a manufacturer of aluminum, was engaged in the manufacture, sale, and export of aluminum products. For carrying out its industrial operations, the assessee had established two captive power plants of 540 MW and 1200 MW capacity. The assessee imported coal on payment of GST Compensation Cess and utilised the same for the generation of electricity in the said power plants. The electricity generated was used for manufacturing aluminum products, sold to State Electricity Boards and supplied to the residential township for the benefit of its employees. The assessee filed an application for a refund under Section 54(1) of the Central Goods and Services Tax Act, 2017 (CGST Act) seeking a refund of Input Tax Credit (ITC) of the Compensation Cess paid on imported coal. However, the refund application was rejected by the Assistant Commissioner holding that ITC of Compensation Cess attributable to electricity supplied for township consumption was not eligible. The matter then reached the Chhattisgarh High Court.

High Court Held

The High Court held that ITC was a concessional benefit and was available only in accordance with the statutory scheme. The electricity consumed for township purposes was neither used within the factory for manufacturing nor for captive consumption related to the production of goods; it was supplied externally for residential consumption. The Supreme Court in Maruti Suzuki Limited (supra) and Gujarat Narmada Fertilisers Company Limited (supra) has clearly held that ITC is not admissible for electricity wheeled out or supplied externally, even if the excess electricity is used by related parties or for ancillary purposes. The supply of electricity to the township was a welfare-related activity, not integrally connected with the manufacturing or business operations of the assessee. Consequently, the claim for ITC in respect of such electricity was not permissible under the statutory framework.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied