"Coal rejects" Attracts 5% GST: Punjab AAR

The Punjab Authority of Advance Ruling (AAR) has held that "coal rejects" are to be classified under HSN 2701 and are taxable at 5% GST.

The two-member bench of Varinder Kaur and Viraj Shyamkarn Tidke has observed that where the goods are being received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment. Thus, if the applicant fulfils the eligibility conditions as prescribed under Section 16 of the CGST Act and if the type of ITC does not fall under the categories prescribed under Section 17 of the CGST Act, the applicant is eligible to avail the Input Tax Credit of GST and Compensation Cess of raw coal brought from its supplier and transferred to the washery/job worker for cleaning. The "principal" shall be entitled to avail himself of ITC in relation to goods sent directly to the premises of the job worker.

The AAR ruled that the formula prescribed under Rule 42 of the CGST Rules, 2017 for the manner of determination of input tax credit in respect of inputs or input services and reversal will be applicable in both cases, i.e., GST and Compensation Cess. Therefore, the provisions prescribed under Rule 42 of the CGST Rules, 2017 should be followed by the applicant and they have to make a reversal in the proportion of exempt/taxable turnover.

The applicant, M/s Punjab State Power Corporation Limited, is engaged in the generation, transmission, and distribution of electricity, which is exempt under the GST Act vide Notification No. 12/2017-Central Tax (Rate), dated June 28, 2017.

For the generation of electricity, an essential raw material is "coal", which the applicant procures from Coal India Ltd. (CIL) sources.

However, as per the guidelines laid down by the Ministry of Environment and Forest, applicants having their plants located at a long distance from coal mines are mandatorily required to get raw coal washed before captive consumption to meet percentage ash stipulations as the ash content in raw coal received from CIL sources is generally on the higher side.

In accordance with the provisions of the statute, read with the rules and notification, the applicant pays 5% GST along with Compensation Cess at the rate of Rs. 400 tonne to its supplier (CIL sources).

Since raw coal procured by the applicant is mandated to be washed before captive consumption, the applicant has engaged some washeries in the private sector on a job-work basis for the job of raw coal beneficiation, who in turn supply washed coal to the applicant.

However, in the process of raw coal beneficiation by washery/job worker, certain low quality coal is also generated, which is commonly referred to as "coal rejects", which is disposed of/soId directly by the washery/job worker in an environmentally friendly manner.

The applicant sought an advance ruling on the issue of whether the "coal rejects" whose invoice is raised by the applicant upon washery/job-worker is taxable under the GST Act and Compensation Cess Act in the hands of the applicant.

The applicant requested to allow reversal of the GST and compensation cess in terms of quantity of clean coal and coal rejects as it can be easily mapped by them, but there is no such provision as prescribed under Rule 42.

The government has added a proviso to Rule 42 through Notification No. 16/2019 Central Tax dated 29.03.2019. Accordingly, it allowed reversal of ITC made by real estate on the basis of aggregate carpet area attributable to exempt supply, but nothing has been issued regarding reversal of ITC on the basis of quantity till date.

The AAR noted that any supply that has been exempted by the government by notification or any nil-rated supply or supply of non-GST goods such as petrol or diesel will fall within the ambit of exempt supply. Hence, ITC will be admissible in the proportion of taxable supplies made by the applicant.

Applicant's Name: M/s Punjab State Power Corporation Ltd.

Date: 20.09.2022

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