GST on Cost Recovery by Power Utilities: UP AAAR 13/2021
The Appellate Authority for Advance Ruling failed to reach a decision on whether cost recoveries between power companies are taxable under GST.
- Ruling
- Appeal Order No. 13/AAAR/2021 dated 21.01.2021
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- The applicant asked if recovering operational costs from subsidiaries attracts GST.
- The two members of the authority disagreed on the taxability.
- Because of this deadlock, no final ruling was issued.
In short
The Uttar Pradesh Power Corporation asked the Appellate Authority for Advance Ruling (AAAR) whether recovering management and operational expenses from its subsidiary power companies through book entries counts as a taxable service under GST. The authority could not agree on an answer, leaving the question unsettled.
What has changed
How it worked before
Businesses in this sector were uncertain whether internal cost-sharing arrangements between related power entities should be treated as taxable services or as part of the exempt supply of electricity.
What has changed
Nothing changed because the authority reached a deadlock. The original ruling is no longer in effect, and there is no new guidance from this specific case.
Who this affects
State-owned power utilities and holding companies that recover operational costs from their subsidiary distribution companies.
An example
Imagine a state-run water utility that shares administrative costs with its regional branches. They might wonder if these internal cost recoveries are taxable services. Because the UP AAAR 13/2021 case ended in a deadlock, it provides no answer for this water utility. They would need to seek their own independent legal advice or file their own application for a ruling.
What you should do
Since this order is not a binding decision, it cannot be used as a legal precedent. If your business faces a similar issue, you must consult your own tax advisor to determine your specific tax position, as this ruling does not apply to you.
If you do nothing
Assuming this case provides a 'green light' for your tax treatment is risky. If a tax officer disagrees with your interpretation, you could face demands for unpaid GST, interest, and penalties. A non-precedential outcome offers no protection against future tax audits.
The terms explained
- Book entries
- Accounting records used to track money owed or transferred between departments or companies without an actual cash payment.
- Composite supply
- A package of two or more goods or services provided together, where one is the main item and the others are naturally bundled with it.
- DISCOM
- A distribution company responsible for delivering electricity to end consumers.
The ruling in detail
Appellate Authority for Advance Ruling
M/s UTTAR PRADESH POWER CORPORATION LTD
Appeal Order No. 13/AAAR/2021 dated 21.01.2021 · Uttar Pradesh
Questions before the authority
- Whether there is a supply of service by the applicant Corporation in recovery of expenses from DISCOMs as well as UPPTCL and other power companies by way of book entries and hence, liable to GST;
- Whether inclusion clause in subsection (2) of Section 15 of CGST Act, 2017 providing for inclusion of incidental expenses in value of supply apply to applicant's case when there is no supply of a service by the Corporation to the DISCOMs as well as UPPTCL and other power companies so as to make the stated recoveries from DISCOMs, UPPTCL and other power companies liable to GST, if answer to question I is negative;
- If the answer to I or II is in affirmative, whether recovery against certain expenses such as interest cost, salary, depreciation, etc. which do not attract GST due to either they being exempt or non-taxable will also be liable to GST;
- Whether transfer of miscellaneous incomes of the applicant Corporation to DISCOMs, UPPTCL and other power companies will attract GST;
- If the answer to I or II is in affirmative, whether GST paid on all taxable expenditure will be allowed as ITC to the corporation for further adjustment of GST payable on recovery of expenses by way of book entries.
Facts
The Appellant is a state government undertaking that purchases electricity in bulk and supplies it to its five subsidiary distribution companies (DISCOMs) on a 'no profit no loss' basis. The Appellant recovers both direct power procurement costs and indirect operational and management expenses from these DISCOMs through book entries. The Appellant sought an advance ruling on whether these cost recoveries constitute a taxable supply of service under the GST regime.
Ruling
The Appellate Authority for Advance Ruling was **deadlocked** due to a difference of opinion between the two members. Consequently, no ruling could be issued on the questions raised by the Appellant. The original Advance Ruling order is deemed to be not in operation.
Reasoning
The Member (CGST) was of the opinion that the activities related to operational and management expenses meet the definition of supply under Section 7(1) of the CGST Act, 2017, and are not naturally bundled with the supply of electricity. Conversely, the Member (SGST) concluded that the subject expenses are part and parcel of the process of supplying electricity, which is the principal supply. Since the principal supply of electricity is exempt from GST, the Member (SGST) reasoned that the ancillary supply of services is also exempt. Due to this **divergence in interpretation** regarding the nature of the supply and the applicability of the composite supply provisions, the authority could not reach a consensus.
Provisions relied on
- Section 7(1) of the CGST Act, 2017
- Section 15(2) of the CGST Act, 2017
- Section 16 of the CGST Act, 2017
- Section 17 of the CGST Act, 2017
- Section 2(30) of the CGST Act, 2017
- Section 2(90) of the CGST Act, 2017
- Schedule III of the CGST Act, 2017
- Rule 36 of the CGST Rules
- Notification No. 2/2017-Central Tax (Rate) dated 28.06.2017
For the practitioner
This order serves as a **non-precedential outcome** because the appellate authority failed to reach a majority decision. It does not settle the taxability of cost recoveries by state power utilities, leaving the legal position ambiguous. Practitioners should note that the original ruling is effectively nullified, but the underlying issue remains unresolved for similar entities.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2024-02/up_aaar_13_2020-21_21.01.2021_uppc.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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