The Chhattisgarh High Court recently ruled on a case involving Bharat Aluminium Company Ltd. (BALCO) concerning the availability of Input Tax Credit (ITC) for electricity supplied to a residential township for its employees. BALCO, which operates an aluminium smelter unit and generates electricity through captive power plants, argued that the electricity supplied to the township should qualify as used "in the course or furtherance of business" under the Central Goods and Services Tax (CGST) Act. They contended that this supply was essential for their operations at a remote industrial site.
The company also sought to apply an amendment to Rule 43, introduced in 2022, retrospectively to support their claim. However, a Single Judge had previously rejected these arguments, determining that the supply to the township was not a business activity and that the rule amendment was prospective, not retrospective. BALCO appealed this decision.
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The Division Bench upheld the Single Judge's decision, agreeing that the electricity supplied to the township did not have a direct business nexus with aluminium manufacturing. It was deemed to serve residential and welfare purposes rather than business use, thus not qualifying for ITC under Section 16(1) of the CGST Act. The court also confirmed that the 2022 rule amendment could not be applied retrospectively. Additionally, the court held that being amendment to Rule 43 is prospective, there is a requirement for proportional ITC reversal concerning exempt supplies of sale of Duty Credit Scrips. Consequently, all writ appeals by BALCO were dismissed, affirming the denial of ITC for the township electricity supply.
Order date: 14 Oct 2025
Parties: Bharat Aluminium Company Limited v. State of Chhattisgarh & Ors.
Facts –
- The appellant, Bharat Aluminium Company Ltd. (BALCO), operates an aluminium smelter unit with captive power plants generating electricity from imported coal on which Compensation Cess is paid.
- Electricity so generated is: (i) used in its manufacturing operations, (ii) sold to the State grid, and (iii) supplied to the residential township established for its employees.
- The dispute arose over denial of Input Tax Credit (ITC) attributable to electricity supplied to the township and reversal of ITC related to exempt supplies (sale of Duty Credit Scrips).
- BALCO contended that supply of electricity to the township is an essential business activity integral to operations at the remote industrial site and therefore qualifies as used “in the course or furtherance of business” under Section 16(1) of the CGST Act.
- It further argued that Explanation (1)(d) to Rule 43, inserted by Notification No. 14/2022–CT dated 05.07.2022, which clarifies the treatment of such supplies, should be read retrospectively as a declaratory amendment.
- The Single Judge rejected these contentions by order dated 31.07.2025, holding that the township supply is not part of business activity and that the 2022 amendment operates prospectively. BALCO filed the present writ appeals.
Issue –
- Whether electricity supplied to a company’s employees’ township can be treated as used “in the course or furtherance of business” so as to permit availment of ITC?
Order –
- The Division Bench upheld the Single Judge’s reasoning, holding that electricity supplied to the residential township lacks direct nexus with the appellant’s business of aluminium manufacture. Such supply, being for residential and welfare purposes, does not constitute business use under Section 16(1).
- The Court further held that Explanation (1)(d) to Rule 43 introduced in 2022 is prospective in nature; it cannot retrospectively validate claims for ITC for periods prior to 05.07.2022.
- On the issue of reversal for exempt supplies (sale of Duty Credit Scrips), the Bench held that amendment to Explanation 1(d) of Rule 43 of the CGST Rules, 2017, effected vide Notification No. 14/2022 – Central Tax dated 05.07.2022, is prospective in nature. It does not confer any retrospective right or entitlement to claim ITC for periods prior to the date of amendment.
- Concluding that no legal infirmity existed in the Single Judge’s findings, the Division Bench dismissed all writ appeals, affirming denial of ITC on electricity supplied to the township and maintaining the direction for proportionate reversal for exempt transactions.
