Power sector feels burden of ‘stranded’ input credit

The power sector is in a fix because of the build-up of stranded input credit, which are adding to the costs of setting up infrastructure for power generation, transmission and distribution. The non-inclusion of the power sector under the GST regime has led to rising costs.

According to industry players, there were multiple representations made to the Goods and Services Tax Council seeking to bring the power sector under the GST regime, but without much success. “States earn a substantive amount through levies on the sale of electricity. They were unwilling to part with it,” a power sector official told BusinessLine .

Chief Executive at Sterlite Power Pratik Agarwal said, “Electricity being an exempt sector, the entire incremental impact of GST is a cost to the transmission company. It will result in at least 5-7 per cent incremental cost for transmission capital expenditure.”

Sector players used to get passable tax credits on services and goods that would be utilised for generating, transmitting or distributing electricity. “Since the sector has been kept out of GST, the tax credit from Engineering, Procurement, Construction contract services and goods purchase cannot be offset anywhere. This has become a cost for us now,” another sector player said.

“While these costs are covered under the change-in-law clause, the Central Electricity Regulatory Commissionneeds to find a way to make these pass-through on immediate basis and not wait till Commercial Operation Date,” Agarwal added.

In a presentation to power industry representatives, Sachin Menon, Tax and National Head of Indirect Tax at KPMG, said, “The sale and generation of power is not under GST, and State governments are free to levy their taxes on the same. The transmission sector has been specifically exempted under the GST law. Which means that the output service is an exempt service.” This has led to the credit stranding, he explained.

“The fallacy is that if the input is subject to GST, it becomes a cost to the distributor and transmission player,” he added.

Menon said, “The works contract attracts 18 per cent GST. Some contracts may also have supplies and transport components, where the rate of GST is much lower.”

Many of the projects that are already ongoing and have faced the GST transition are asking contractors to raise separate bills for equipment and transport, he added.

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