Only T&D exempt, transactions between power utilities may attract GST: AAR

However, no GST on transaction of funds between companies by way of repayment of existing loans, or availment of fresh loans without any interest component

The Tamil Nadu-based Authority for Advance Rulings (AAR) has held that only distribution and transmission segments of the electricity sector are exempt from goods and services tax (GST) and any transaction between the two utilities could come under the indirect tax depending on its nature.

The issue was applicability of GST to the inter-company transactions between applicant Tamil Nadu Generation and Distribution Corporation (TANGEDCO) and Tamil Nadu Transmission Corporation (TANTRANSCO), both subsidiaries of Tamil Nadu Electricity Board.

The AAR held that GST is applicable on these supplies from TANGEDCO to TANTRANSCO, operation and maintenance materials used in the regular day-to-day functioning, transfer of assets and movement, and deployment of employees, said Harpreet Singh, partner at KPMG.

Besides, GST will be levied on application for releasing connection of electricity, rental charges against metering equipment, testing fee for meters, transformers, capacitors, labour charges for shifting of meters or shifting of service lines and charges of duplicate bill.

However, AAR will not be imposed on transaction of funds between the companies by the way of repayment of existing loan, availing of fresh loans without any interest component.

GST will also not apply to income from transmission charges, scheduling and systems operating charges, reactive energy charges received from open access consumers by the applicant and adjusted through payable to TANTRANSCO in TANGEDCO’s bank account.

Singh cautioned the electricity companies to document the exact nature of transaction between the related entities. “Any incorrect nomenclature, accounting entry could result in GST liability,” he said.

Singh said unless it was proved to the satisfaction of the tax authorities that the transaction was pure financial support, loan etc, the chances of litigation cannot be ruled out.