Facts of the Case

Bharat Aluminium Company Limited (BALCO), which manufactures and exports aluminium products at Korba, Chhattisgarh, operates two captive power plants using imported coal on which it pays GST Compensation Cess. Electricity generated is used partly for manufacturing, partly sold to State Electricity Boards, and partly supplied to its employee township. BALCO claimed refund of Input Tax Credit of Compensation Cess under Section 54(1) of the CGST Act for several months (November 2018 to August 2019), aggregating claims across five writ petitions. The department, relying on Form G furnished by BALCO itself, held that ITC attributable to electricity (1,388,641 KWH for one month alone) supplied to the township was liable to reversal under Rule 42, and separately treated BALCO's sale of exempt Duty Credit Scrips (DCS) as requiring proportionate ITC reversal, confirming recovery of ₹40,14,605 which was upheld in appeal under Section 107.

Issues Involved

  1. Whether electricity generated and supplied to an employee township is used "in the course or furtherance of business" under Section 2(17) read with Section 16(1) of the CGST Act, entitling BALCO to ITC.
  2. Whether ITC is available on inputs attributable to the exempt supply of Duty Credit Scrips for periods before 5.7.2022, and whether the Rule 43 Explanation 1(d) amendment excluding DCS from exempt-supply value has retrospective effect.

Petitioner's Arguments

  • Maintenance of the township for employees at a remote industrial location is intrinsically connected with business continuity and therefore qualifies as "business" under Section 2(17), entitling BALCO to ITC under Section 16(1), relying on ITC Limited, Ultratech Cement, Cinemax India and S.A. Builders.
  • Availability of credit should be judged by "commercial expediency" — whether the expenditure furthers business, not whether it is a welfare measure.
  • The insertion of Explanation 1(d) to Rule 43 (excluding DCS from exempt-supply value) by Notification No.14/2022 is clarificatory, made on GST Council recommendation, and should apply retrospectively to pending proceedings under the rule-making power in Section 164(3) of the CGST Act.

Respondent's Arguments

  • Supply of electricity to a residential township is not integral to the business, since such supply could equally be undertaken by a power distribution company; the appellate authority rightly ordered reversal of ITC relying on Maruti Suzuki Limited.
  • ITC is a concession, not a vested right, and the Rule 43 amendment excluding DCS was expressly not given retrospective effect (unlike other clauses in the same notification), so it applies only prospectively from 5.7.2022.

Court Order / Findings

  • Applying the Supreme Court's rulings in Maruti Suzuki Limited and Gujarat Narmada Fertilizers, the Court held that credit on inputs used to generate electricity is available only to the extent consumed for captive/factory production, not for electricity supplied outside the factory such as to a residential township — since BALCO's own Form G admitted the electricity was supplied to the township, ITC of the Compensation Cess attributable to that portion was rightly reversed, and the first question was answered against the petitioner.
  • On the second issue, the Court held that ITC is a statutory concession, not a substantive right, and following Sree Sankaracharya University's tests for a genuine "clarificatory" provision, found that Explanation 1(d) to Rule 43 substantively expanded (not merely clarified) the scope of exclusions from exempt-supply value; since the rule-making authority, despite having power under Section 164(3) to give retrospective effect, chose not to do so for this clause (unlike other clauses in the same notification), the amendment operates only prospectively from 5.7.2022, and ITC on the exempt Duty Credit Scrip supply for earlier periods was rightly denied.
  • Finding no merit in either issue, the Court dismissed all five writ petitions, leaving parties to bear their own costs.

Important Clarification

  • ITC on inputs used to generate electricity is confined to the portion consumed for captive use within the factory of production; electricity supplied to an employee township is not "in the course or furtherance of business" for ITC purposes, even where the township supports remote-location operations.
  • Explanation 1(d) to Rule 43 (excluding Duty Credit Scrips from the aggregate value of exempt supplies for ITC-reversal computation) applies only prospectively from 5 July 2022, since it expands rather than merely clarifies the pre-existing rule and was not expressly given retrospective effect, unlike other clauses notified simultaneously.

Sections Involved

  • Section 16(1), CGST Act, 2017 – eligibility conditions for claiming ITC on goods/services used in the course or furtherance of business.
  • Section 17(2), CGST Act, 2017 – apportionment of credit between taxable and exempt supplies.
  • Rule 42/43, CGST Rules, 2017 – formulae for ITC reversal on inputs, input services and capital goods used for exempt supplies.
  • Section 164(3), CGST Act, 2017 – rule-making power to give retrospective effect to CGST Rules.

Decision – In Favour of

In favour of the department — all five writ petitions were dismissed, upholding reversal of ITC on electricity supplied to the township and on the exempt Duty Credit Scrip supply for the pre-5.7.2022 period.

Case Details

High Court of Chhattisgarh at Bilaspur; WPT No. 14 of 2021 with WPT Nos. 15, 16, 17 and 18 of 2021; Coram: Hon'ble Shri Justice Sanjay K. Agrawal; Date: 31.07.2025.

Link to Download the Order

Click here to view/download the full order

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.