Facts of the Case: In this case, the appellant was engaged in the manufacture and export of aluminium products, operates two captive power plants at Korba, Chhattisgarh, for generating electricity using imported coal on which Compensation Cess was paid. The electricity so generated was partly used in manufacturing, partly sold to the State Electricity Board, and partly supplied to a residential township established for its employees near the factory.
The Petitioner filed a refund claim under Section 54(1) of the CGST Act for February 2019, including ITC of Compensation Cess paid on imported coal. The Assistant Commissioner rejected refund of ₹51.48 lakh holding that electricity used for the township was not for business purposes. The authority also directed proportionate reversal of ITC on account of sale of Duty Credit Scrips (DCS), treating such sale as an exempt supply.
The order was upheld by the Appellate Authority and subsequently by the learned Single Judge. Aggrieved, the appellant filed the present writ appeals before the Division Bench of the High Court.
Issue: Whether electricity consumed for maintenance of the employees’ township is used “in the course or furtherance of business” under Section 16(1) of the CGST Act, 2017, thereby entitling the assessee to Input Tax Credit (ITC) on coal used for its generation? Whether Explanation 1(d) to Rule 43 of the CGST Rules, inserted by Notification No. 14/2022 – Central Tax dated 05.07.2022, operates retrospectively for computation of exempt supplies made prior to that date?
Held that: The Court held as under:
ITC on electricity used for township – The Court held that ITC is a concessional benefit, available only when inputs are used in the course or furtherance of business. The electricity supplied to the employees’ township is for residential welfare purposes and not for manufacturing or business activity.
The Court cited Maruti Suzuki Ltd. v. CCE and Gujarat Narmada Fertilizers Co. Ltd. v. CCE cases, wherein the Bench observed that ITC is admissible only for electricity used within the factory for captive consumption, not for electricity used for residential or welfare facilities.
Hence, electricity supplied to the township cannot be treated as used in the course or furtherance of business, and ITC of Compensation Cess paid on coal used for such electricity is not admissible.
Retrospective applicability of Explanation 1(d) to Rule 43- The Court held that the insertion of Explanation 1(d) to Rule 43, expanding the definition of “exempt supply,” is prospective and not clarificatory. Section 164(3) of the CGST Act, which empowers retrospective rule-making, was not invoked while issuing the amendment notification. Therefore, Duty Credit Scrip transactions prior to 05.07.2022 cannot be treated as exempt supplies for the purpose of ITC reversal. Accordingly, the Division Bench upheld the order of the learned Single Judge and dismissed the appeals.
Case Name: Bharat Aluminum Company Limited Versus State of Chhattisgarh, Joint Commissioner (Appeals) State Tax, Bilaspur, Assistant Commissioner State Tax, Korba. dated 14.10.2025.
