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GST on Electricity

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  2. GST on Electricity

The supply of electricity is one of the most significant sources of revenue for any state government. GST on electricity has proven to be a bone of contention, with most consumers confused about whether it can be categorised as goods or services. Many also remain confused about whether the same is exempted from GST charges or is taxable under GST laws. We shall discuss on all aspects pertaining to the GST rate on electricity.

With many consumers still confused about whether the supply of electricity is a good or a service, let us look at the definition of these two terms under the GST Act.

According to Section 2(52) of the CGST Act of 2017, goods can be defined as moveable properties, actionable claims, crops, and other assets attached to the land, which need to be extricated before proceeding with the sale. However, this excludes both securities and money.

Services, on the other hand, according to Section 2(102) of the CGST Act of 2017, refer to anything else apart from goods, securities, and money. However, services also include using money or converting money from one currency to another (for which a commission or interest) is charged.

Given that electricity is a variant of moveable property, the GST on electricity charges and the supply of the same is considered as goods under the norms of the GST Act.

As per Notification No.02/2017 supply of electrical energy is exempted from GST.

Further, services provided by way of electricity transmission or a distribution of electricity by an electricity transmission or distribution utility is also exempted as per Notification No.12/2017 CTR.

Electricity transmission or distribution utility means the Central Electricity Authority; a State Electricity Board; the Central Transmission Utility or a State Transmission Utility notified under the Electricity Act, 2003; or a distribution or transmission licensee under the said Act, or any other entity entrusted with such function by the Central Government or, as the case may be, the State Government.

If any individual, apart from electricity distribution or transmission utility, takes up the task of supplying electricity, the GST on electricity levied stands at 18%.

The case of supply of electricity along with renting of commercial immovable property would fall under the category of Composite supply, where renting is the principal supply and other supplies (electricity) are naturally bundled in conjunction with each other, hence GST would be required to be paid combining both the supplies.

Alternatively, where electricity charges are collected by the service provider as a pure agent (on the basis of original electricity charges and no mark-up) subject to fulfilment of conditions under rule 33 of CGST Rules, then GST would not be leviable on such electricity charges.

The said view of no GST on electricity charges on pure agent basis was affirmed by Gujarat AAR in the case of Gujarat Narmada Valley Fertilizers & Chemicals Ltd. GUJ/ GAAR/R/93/2020

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