Order dated 31 July 2025 

Parties: Bharat Aluminium Company Ltd. (BALCO) v. State of Chhattisgarh & Ors.

Facts -

• The petitioner, BALCO, manufactures and exports aluminium and operates 540 MW and 1200 MW power plants at Korba. Coal is imported with payment of GST Compensation Cess to generate electricity.For FY 2018–19 and 2019–20, BALCO claimed refund of ITC on Compensation Cess on imported coal. 
• The Assistant Commissioner rejected part of the refund, holding that (a) ITC attributable to electricity supplied to the township must be reversed under Rule 42, and (b) turnover from Duty Credit Scrips (DCS) constitutes exempt supply. Appeals under Section 107 CGST/CGGST Act were dismissed.

Issue -

• Whether ITC reversal is required on supply of DCS prior to the insertion of Explanation 1(d) to Rule 43, and if the amendment applies retrospectively to pending proceedings?

Order -

• The single bench of the Hon’ble High court held that electricity used in the residential township is not integrally connected with business operations; hence, Input Tax Credit (ITC) on coal used for generating such electricity is not admissible under Section 16(1) read with Rule 42 of CGST Rules.
• Supply of electricity to the township was viewed as a welfare activity, not a business activity under Section 2(17) of the CGST Act, and thus falls outside the scope of eligible ITC.
• The sale of Duty Credit Scrips (DCS) is an exempt supply as per Notification No. 35/2017, and proportionate ITC attributable to such exempt supply must be reversed under Rule 43.
• The Court held that the amendment via Explanation 1(d) to Rule 43 (excluding DCS from exempt supply) introduced on 05.07.2022 is not retrospective or clarificatory, and thus not applicable to periods prior to that date.
• Accordingly, it was held that the learned appellate authority has rightly dismissed the appeals of the petitioner.