The Chhattisgarh High Court has held that input tax credit (ITC) is not eligible on CESS towards supply of electricity to BALCO’s township as it is a welfare activity.
The bench of Justice Sanjay K. Agrawal has observed that Explanation 1(d) inserted to Rule 43 vide Not. No. 14/2022 CT dated 05.07.2022 is not clarificatory and therefore ITC is to be reversed on supply of duty credit scrips prior to 05.07.2022.
The case revolved around ITC claims made by Bharat Aluminium Company Limited (BALCO) for various months from November 2018 to August 2019, relating to GST Compensation Cess paid on imported coal used to generate electricity. BALCO, which operates massive power plants in Korba, argued that electricity generated was used for three purposes: manufacturing aluminium, sale to state electricity boards, and supply to its employee township.
BALCO claimed that providing power to its residential township was integrally connected to its business operations and hence eligible for ITC. It cited Section 16(1) of the CGST Act and pointed to its dependence on employee welfare and uninterrupted operations.
The company also sought to exclude the sale of DCS from being treated as ‘exempt supply’, arguing that such transactions should not trigger ITC reversal. BALCO relied on a July 2022 amendment to Rule 43 of the CGST Rules that excluded DCS from exempt supplies.
The State tax authorities argued that electricity supplied to the township was not “in the course or furtherance of business”. Sale of DCS was an exempt supply before the 2022 amendment and hence required proportionate reversal of ITC under Rule 42.
The court while relying on Supreme Court precedents (Maruti Suzuki Ltd. and Gujarat Narmada Fertilizers), the court held that electricity consumption in the township was not integrally related to manufacturing operations and did not qualify for ITC.
The court stated that July 2022 insertion of Explanation 1(d) to Rule 43, excluding DCS from exempt supplies, was held to be prospective. The court clarified that the amendment expanded the scope of exemption and was not merely declaratory.
“The Input Tax Credit is a benefit or concession, not a statutory right,” the court observed.
Case Details
Case Title: BALCO Plant Versus State of Chhattisgarh
Case No.: WPT No. 14 of 2021
Date: 31/07/2025
Counsel For Petitioner: Bharat Raichandani
Counsel For Respondent: Rahul Tamaskar
Read More: DGFT Expands Export Authorisation Scope for Chemicals Under GAEC Framework
