Facts of the Case

Bharat Aluminium Company Limited (BALCO) operates captive power plants at Korba, Chhattisgarh, using imported coal on which it pays GST Compensation Cess, to generate electricity partly consumed in its manufacturing operations, partly sold to State Electricity Boards, and partly supplied to its residential employee township. BALCO sought refund under Section 54(1) of the CGST Act of Input Tax Credit of Compensation Cess amounting to Rs.7,44,73,347/- for February 2019; 90% was sanctioned provisionally, but a show cause notice proposed rejecting Rs.51,48,531/- of the claim, on the footing that ITC attributable to electricity consumed by the township, and ITC linked to exempt sale of Duty Credit Scrips (DCS), required reversal under Rule 42. Both the original authority and the first appellate authority, and eventually a Single Judge, ruled against BALCO, leading to the present intra-court writ appeals.

Issues Involved

  1. Whether maintenance of an employee residential township and supply of electricity to it is an activity 'in the course or furtherance of business' under Section 2(17) read with Section 16(1) of the CGST Act, entitling BALCO to ITC of Compensation Cess.
  2. Whether ITC was available on exempt supplies (sale of Duty Credit Scrips) prior to 5 July 2022, before Explanation 1(d) was inserted into Rule 43 of the CGST Rules.
  3. Whether the amendment inserting Explanation 1(d) to Rule 43 operates retrospectively as a clarification, or only prospectively from its notified date.

Petitioner's Arguments

  • BALCO argued that maintaining the township was essential to its remote Korba manufacturing operations, providing residential facilities enabling continuous supervision, emergency response and safety management for skilled staff — hence integrally connected with business, not a mere welfare activity.
  • It contended the Single Judge's order was non-speaking, framed the issue correctly but answered a different question without engaging with precedents on township-as-business-necessity, and wrongly treated ITC as a bare concession.
  • On the Rule 43 amendment, BALCO argued that Explanation 1(d), inserted via Notification No.14/2022-Central Tax, was clarificatory in nature (explaining treatment of DCS as exempt supply) and therefore must apply retrospectively, relying on CIT v. Vatika Township and Himadri Speciality Chemical.

Respondent's Arguments

  • The State argued that ITC on electricity supplied to the township is inadmissible since such consumption is not directly in the course or furtherance of business, and that the Supreme Court's Maruti Suzuki and Gujarat Narmada Fertilizers rulings on CENVAT credit for electricity wheeled out/supplied externally applied equally under the CGST regime.
  • It was submitted that the Rule 43 amendment merely expanded, rather than clarified, the scope of exempt supplies, and since Section 164(3) (empowering retrospective rule-making) was never invoked for this amendment, it could only operate prospectively.

Court Order / Findings

  • The Division Bench held that electricity consumed for township purposes is neither used within the factory for manufacturing nor for captive production-linked consumption — it is supplied externally for residential consumption — and following Maruti Suzuki Limited and Gujarat Narmada Fertilizers Company Limited, ITC is not admissible for electricity wheeled out or supplied externally even to related parties or for ancillary welfare purposes.
  • The Court affirmed that ITC is a statutory concession, not a substantive right, available only on fulfilment of Section 16(4) conditions, and held that the amendment to Explanation 1(d) of Rule 43 — though enacted pursuant to GST Council recommendation — only expanded the scope of exempt-supply exclusions and was not clarificatory; since the rule-making authority did not invoke Section 164(3) to give it retrospective effect, the benefit is available only for periods after 05.07.2022.
  • All five connected writ appeals (WA Nos. 736, 737, 739, 714 and 724 of 2025) were dismissed, affirming the Single Judge's common order dated 31.07.2025 in its entirety, with no order as to costs.

Important Clarification

  • Input Tax Credit on electricity generated in a captive power plant is available only to the extent the electricity is consumed within the factory for manufacture — supply to an employee residential township, even if operationally convenient, is treated as external/welfare consumption ineligible for ITC, applying the CENVAT-era Maruti Suzuki/Gujarat Narmada Fertilizers line of authority to the GST regime.
  • ITC remains a statutory concession, not a vested right, and is available strictly as per the conditions of Section 16 and Section 17 of the CGST Act.
  • An amendment to GST Rules that merely expands the scope of exempt-supply exclusions (as opposed to clarifying existing law) operates only prospectively unless the rule-making power under Section 164(3) is expressly invoked for retrospective effect — here, Explanation 1(d) to Rule 43 applies only from 05.07.2022 onward.

Sections Involved

  • Section 16(1) and Section 2(17) of the Central Goods and Services Tax Act, 2017 – define entitlement to ITC and the phrase 'in the course or furtherance of business', central to the township-electricity dispute.
  • Section 54(1) of the CGST Act, 2017 – governs the refund application for unutilised ITC of Compensation Cess that triggered the dispute.
  • Rule 42 and Rule 43 of the CGST Rules, 2017 – prescribe reversal of ITC attributable to exempt supplies and non-business use; Explanation 1(d) to Rule 43, inserted by Notification No.14/2022-Central Tax, was the amendment in issue.
  • Section 107 of the Chhattisgarh GST Act, 2017 – the first appellate remedy exhausted before the writ petitions were filed.

Decision – In Favour of

In favour of the Department — BALCO's writ appeals were dismissed, confirming denial of ITC on township electricity and prospective-only application of the Rule 43 amendment.

Case Details

Court: High Court of Chhattisgarh at Bilaspur
Case No.: WA No. 736 of 2025 with WA Nos. 724, 714, 739 and 737 of 2025
Coram: Hon'ble Shri Ramesh Sinha, Chief Justice, and Hon'ble Shri Ravindra Kumar Agrawal, Judge
Date of Order: 14.10.2025

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