Seil Energy India Limited vs The Union Of India on 31 July, 2024

Here's a summary of the judgment:

1. Outcome

The Writ Petitions are allowed. The orders in appeal and the orders in original, which rejected the refund applications, are set aside. The 2nd respondent (Deputy Commissioner of Central Tax) is directed to reconsider the petitioner's refund applications, permitting the production of the Regional Energy Account (REA) of the previous month as proof of export for refund applications made in the succeeding month, provided all other requirements are met. There is no order as to costs.

2. Core Issue

The core issue is the interpretation of the "relevant period" for which the Regional Energy Account (REA) must be furnished as proof of export for claiming Input Tax Credit (ITC) refund under the GST regime, specifically for the continuous supply of electricity. The dispute centers on whether the REA of the preceding month can be considered valid for a refund application made in the succeeding month, given the invoicing practices for continuous supply of goods.

3. Key Facts

• Petitioner: M/s. SEIL Energy India Limited, engaged in generating and selling electrical power.
• Transaction: Petitioner supplied electricity to M/s. Bangladesh Power Development Board from January 2022 to October 2022.
• Claim: Petitioner contended these supplies were export sales, exempt under the IGST Act, and sought refund of accumulated Input Tax Credits (ITC).
• Initial Rejection: Refund applications were initially rejected for failure to produce the "bill of shipping."
• Prior Litigation & Rule Amendment: The petitioner had previously challenged similar rejections (W.P.No.11194 of 2021 and batch) arguing that electricity, being an intangible, does not require a bill of shipping. During the pendency of these cases, Rule 89 of the CGST Rules, 2017, was amended to accept the Regional Energy Account (REA) as proof of export in lieu of a bill of shipping.
• Retrospective Application: A Division Bench of the High Court, in its judgment dated 26.08.2022 (W.P.No.11194 of 2021 and batch), held that this amendment to Rule 89 was retrospective.
• Subsequent Rejection: After the amendment and the court's ruling, the 2nd respondent requested the REA. The petitioner produced the REA. However, the refund applications for the period January 2022 to October 2022 were again rejected on the ground that the petitioner was filing the REA for the previous month (e.g., REA for December 2021 for an application made in January 2022), which the Revenue contended was not for the "relevant period."
• Invoicing Practice: As per the Power Purchase Agreement (PPA) with M/s. Bangladesh Power Development Board, the petitioner raises invoices for the electricity supplied in a particular month by the 7th day of the succeeding month.

4. Arguments (Taxpayer vs Revenue)

• Taxpayer (M/s. SEIL Energy India Limited):

  • The rejection by authorities is incorrect.
  • The supply of electricity constitutes "continuous supply of goods" under Section 2(32) of the CGST Act.
  • Under Section 12(2) read with Section 31(4) of the CGST Act, the time of supply for continuous goods is linked to the date of invoice issuance or payment, whichever is earlier.
  • Given that invoices for a month's supply are raised by the 7th day of the succeeding month, the REA of the previous month (i.e., the month of actual supply) becomes the relevant document for refund applications filed in the succeeding month (i.e., the month of invoice). This aligns with the statutory provisions on "time of supply."

• Revenue (The Union of India & Others):

  • Supported the rejection orders issued by the Primary and Appellate Authorities.
  • Contended that Rule 89 of the CGST Rules is unambiguous, requiring the REA for the same month for which the refund is being sought (the "relevant period").
  • Since the petitioner submitted REAs for a preceding month instead of the refund application month, the rejections were justified.

5. Court’s Reasoning

1. Nature of Supply: The Court confirmed that the supply of electricity falls within the definition of "continuous supply of goods" under Section 2(32) of the CGST Act.
2. Time of Supply for Continuous Goods: The Court referred to Section 12(2) of the CGST Act, which stipulates that the "time of supply" for goods is the earlier of: (a) the date of issue of invoice (or the last date by which it should be issued under Section 31(1)), or (b) the date of payment receipt.
3. Invoice for Continuous Supply: The Court further noted Section 31(4) of the CGST Act, which mandates that for continuous supply of goods involving successive statements or payments, the invoice shall be issued before or at the time each such statement is issued or payment is received.
4. Legal Fiction: The Court reasoned that for continuous supply of electricity, the "time of supply" for tax purposes is not the continuous physical flow of electricity but rather a point fixed by the legal fiction of invoice issuance or payment.
5. Reconciliation with Invoicing Practice: Since the petitioner, as per the Power Purchase Agreement, raises invoices for electricity supplied in a particular month by the 7th day of the succeeding month, the legal "time of supply" for the electricity physically supplied in, say, December, would effectively fall in January (when the invoice is raised).
6. Conclusion on "Relevant Period": Therefore, furnishing the REA for the preceding month (e.g., December REA) when making a refund application in the succeeding month (e.g., January) is in conformity with the provisions of the Act and Rules, as the "time of supply" for the December electricity only materializes in January with the invoice. The Revenue's interpretation of "relevant period" was thus held to be narrow and inconsistent with the statutory framework for continuous supply.

6. Statutory References

• Integrated Goods and Services Tax Act, 2017 (IGST Act): Exemption for export sale.
• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Section 2(32) – Definition of "continuous supply of goods."
  • Section 12 – Time of supply of goods.
  • Section 12(2) – Specifies events for fixing time of supply.
  • Section 31(1) – Mentioned in Section 12(2)(a) regarding invoice issuance.
  • Section 31(4) – Time limit for issue of invoice in case of continuous supply of goods.
• Central Goods and Services Tax Rules, 2017 (CGST Rules):
  • Rule 89 – Regarding refund applications and the documentary proof required (specifically, the amendment allowing REA).

7. Precedents Cited

• W.P.No.11194 of 2021 and batch (Judgment dated 26.08.2022) passed by a Hon'ble Division Bench of this Court: Cited for the proposition that the amendment to Rule 89 of the CGST Rules, substituting the requirement of a bill of shipping with a Regional Energy Account (REA), is retrospective in nature.