Deposit Work for development of electricity infrastructure Qualifies as Supply Under GST: AAR

The Company, M/s Kanpur Electricity Supply Company Ltd. (KESCO), is a public service utility that is engaged in the distribution of electricity to consumers in its area of supply. It undertakes the development of electricity infrastructure as requested by the consumers for the distribution of electricity, known as ‘deposit works‘, and there are two modes of implementing these works:

First Mode: KESCO carries out the deposit work, incurs the full cost of the project (including materials and labour) and receives it from the consumer.

Second Mode: In this mode, the consumer directly undertakes the deposit work and incurs the entire expenditure under the supervision of the Applicant. The consumer is required to pay the supervision charges and shutdown charges to the applicant.

The applicant sought an advance ruling for the following questions:

“a. Whether undertaking of deposit works under both modes qualifies to be supply in terms of Section 7 of the CGST Act?

b. If answer to the above question is yes, then what shall be the value of such supply under the First mode and under the Second mode.

C. When deposit work is executed in First mode, whether the Applicant is eligible to avail ITC of GST charged by LEC. Whether consumer is eligible to avail ITC of GST charged by the Applicant?

d. When deposit work is executed in Second mode, whether consumer is eligible to avail ITC of GST charged by LEC?”

As per the Uttar Pradesh Authority for Advance Ruling (UPAAR):

• Undertaking deposit works under both modes qualifies as a “supply” in terms of Section 7 of the CGST Act.
• In the First Mode, the value of supply is the value of material and execution work reimbursed on a cost basis for installation.
• In the Second Mode, the material value and cost of installation will not be included in the value of supply for calculating taxable value under GST. The GST is payable only on the supervision charges.
• The Applicant can claim ITC on GST charged by LEC under the First Mode, subject to conditions in Section 17(5)(c) and (d) of the CGST Act, 2017.
• The Consumer is also eligible to avail the GST ITC on the charges imposed by the applicant, subject to conditions of Section 17(5) (c) and (d) of the CGST Act, 2017 and other rules.