Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
Indian steel and metal manufacturers operating a captive power plant must reconcile a coal procurement ledger (5% GST + ₹400/tonne cess where applicable) feeding a separately-metered generation log, allocate CPP cost on a metered kWh basis to multiple consuming units (sponge iron kiln, blast furnace, rolling mill), navigate the exempt-supply status of electricity under entry 1 of Notification 2/2017 and the consequent Section 17(2) ITC apportionment where the CPP partially exports to grid, layer state electricity duty / cross-subsidy surcharge / wheeling charges from the SERC tariff order, and roll the per-kWh CPP cost into the finished steel costing ledger.
Run the CPP as a discrete cost centre with its own coal vendor ledger, fuel consumption log, generation log in kWh, manpower roster, depreciation schedule and operating overhead; reconcile coal GRN → coal invoice → GSTR-2B entry monthly; tag every generated kWh by consuming destination (own taxable manufacturing, exempt grid export, inter-unit transfer); apply Section 17(2) apportionment to coal and capex ITC where exempt destination exists; lift cross-subsidy surcharge and electricity duty from the SERC tariff order monthly; allocate net CPP cost on metered kWh basis to consuming units; tie the allocation file back to the finished steel costing ledger with zero unallocated residual.
CPP cost centre with coal vendor master, fuel ledger and GSTR-2B match; per-kWh generation log keyed to consuming unit destination tag (own taxable / grid export / inter-unit); Section 17(2) ITC apportionment formula driven by destination split; state-specific electricity duty and cross-subsidy surcharge rate map updated against the latest SERC tariff order; manpower and depreciation roster for CPP fixed overhead; monthly allocation file with metered kWh per consuming unit; cost roll-up trigger into finished steel costing ledger.
A monthly CPP close where coal procurement ties to GSTR-2B, fuel consumption ties to generation, generation kWh ties to consuming-unit allocation with zero unallocated residual, Section 17(2) ITC reversal is computed where exempt destination exists, state electricity duty and cross-subsidy surcharge tie to DISCOM invoice, and per-kWh CPP cost rolls cleanly into the finished steel costing ledger.
An integrated steel manufacturer in Odisha operates a 50 MW captive power plant feeding three downstream consuming units — a 1.2 MTPA sponge iron kiln, a 0.6 MTPA induction furnace and a rolling mill — with surplus power wheeled to a sister-entity aluminium smelter using the state transmission network. Annual coal consumption: 4.8 lakh tonnes at ₹4,800 per tonne average — about ₹230 crore base value. Annual generation: 320 million kWh, of which 256 million kWh (80%) feeds own taxable manufacturing, 32 million kWh (10%) is wheeled to the sister entity under a captive arrangement and 32 million kWh (10%) is exported to the grid. The CFO’s monthly close runs across a coal procurement and GSTR-2B reconciliation rail, a fuel consumption and generation log rail, a Section 17(2) ITC apportionment rail, a state electricity duty and cross-subsidy surcharge rail, and a per-kWh cost allocation rail rolling into the finished steel costing ledger. This guide walks each rail and ties them back to the broader steel and metal manufacturing reconciliation in India framework.
Quick reference
| Item | Regulator / Section | Key threshold or rate |
|---|---|---|
| GST on coal | CGST Act | 5% + Compensation Cess of ₹400 per tonne (where applicable) |
| GST on imported coking coal | Customs Act + IGST | BCD + IGST + Social Welfare Surcharge |
| GST on electricity | Notification 2/2017 entry 1 | Exempt (non-taxable supply) |
| Captive self-consumption | Schedule III CGST | Not a supply (no GST on internal transfer) |
| Inter-unit supply (same PAN, different GST registration) | Schedule I CGST | Deemed supply at open market value |
| ITC apportionment | Section 17(2) CGST | ITC restricted to taxable-supply proportion |
| Captive plant qualification | CEA (CGP) Rules 2005 | ≥51% consumption by captive user(s); ≥26% equity |
| Electricity duty | State Electricity Act | Per state (varies) |
| Cross-subsidy surcharge | SERC tariff order | Per state, per category, per kWh |
| Wheeling charges | SERC tariff order | Per state, per voltage level |
Rail 1 — Coal procurement reconciliation
Coal feeding a CPP enters the books through a separate vendor ledger from the main raw-material procurement. Domestic coal procured from Coal India Limited (CIL) subsidiaries — SECL, MCL, BCCL — and through e-auctions attracts 5% GST plus the GST Compensation Cess of ₹400 per tonne where applicable. Imported coking coal — used in integrated steel plants — attracts IGST plus Basic Customs Duty plus Social Welfare Surcharge at the port of import.
The reconciliation ties: coal procurement order to Railway Receipt or Lorry Receipt for inbound movement, GRN at the CPP fuel yard against weighbridge ticket, coal vendor invoice (CIL or trader) to GSTR-2B entry, and the consequent ITC eligibility to the CPP fuel ledger. A mismatch between the GRN weight at the fuel yard and the dispatch weight on the RR is a routine variance — under-weighment in transit is treated as a transit loss claim under the coal supply agreement and reconciled separately.
Rail 2 — Generation log and consuming-unit destination tagging
Every kWh generated by the CPP carries a destination tag. The metering setup at the CPP busbar measures gross generation; downstream feeder meters measure flow into each consuming unit (sponge iron kiln, blast furnace, rolling mill, oxygen plant); a tie-line meter measures power wheeled out to the state grid or to a sister entity under a wheeling arrangement.
The reconciliation logic: gross generation = own taxable consumption + auxiliary CPP self-consumption + transmission losses + wheeled-out kWh + grid-exported kWh. The own-taxable component supports full ITC retention on coal and capex inputs. Wheeled-out and grid-exported kWh are exempt supplies (electricity is exempt under entry 1 of Notification 2/2017) and trigger Section 17(2) ITC apportionment.
Rail 3 — Section 17(2) ITC apportionment
Where a CPP generates power that is partly used for own taxable manufacturing and partly exported (whether to grid or to a sister entity under wheeling), Section 17(2) of the CGST Act requires that the ITC on coal, capex and consumables be restricted to the proportion attributable to taxable supplies. The apportionment ratio is the own-taxable-kWh divided by total generation, applied monthly.
A worked example: in a month where the CPP generated 26.4 million kWh — of which 21.1 million kWh fed own taxable manufacturing, 2.65 million kWh was wheeled to the sister-entity aluminium smelter and 2.65 million kWh was grid-exported — the taxable-supply ratio is 80%. ITC on the month’s coal purchase of ₹19.6 crore (40,000 tonnes at ₹4,900) at 5% GST = ₹98 lakh, with the eligible ITC restricted to ₹78.4 lakh and ₹19.6 lakh reversed under Rule 42 of the CGST Rules. The compensation cess of ₹1.6 crore on the coal is itself reversible in proportion.
The reconciliation control: monthly Rule 42 working showing total ITC, taxable-supply ratio, eligible ITC and reversal amount; quarterly Rule 42 reconciliation against actual annual ratio at year-end with any true-up adjustment.
Rail 4 — Electricity duty, cross-subsidy surcharge and wheeling charges
Electricity is exempt from GST, but the state electricity ecosystem layers in several separate levies. Electricity duty is levied by the state under its own Electricity Act — rates vary by state (typically 5-25 paise per kWh on captive consumption, sometimes higher on industrial consumers). The MERC/SERC (state electricity regulatory commission) issues annual tariff orders specifying cross-subsidy surcharge (for power wheeled to third parties via grid), additional surcharge, wheeling charges (transmission and distribution at applicable voltage level), and any green cess or renewable purchase obligation shortfall charge.
These are invoiced by the state DISCOM or transmission utility (PowerGrid for inter-state, state transcos for intra-state) on a monthly basis. The reconciliation: per-month wheeled-and-exported kWh × applicable surcharge per kWh from the latest SERC tariff order = expected surcharge invoice; actual DISCOM invoice; variance reasons (tariff change, metering dispute, billing month timing).
Rail 5 — CPP cost allocation to consuming units
The per-kWh CPP cost build-up has five layers: fuel cost (coal at the gate, net of recoverable ITC), variable operating cost (water, chemicals, ash handling), fixed operating cost (manpower, repair and maintenance, insurance), depreciation on the boiler-turbine-generator and on auxiliaries, and finance cost (interest on the CPP capex loan, where applicable). Net of internal cost recovered through grid export, the CPP cost is allocated to consuming units on a metered kWh basis.
Worked example: 50 MW CPP, ₹85 Cr annual coal cost
A 50 MW CPP at the Odisha steel plant consumes 4.8 lakh tonnes of coal annually at ₹4,800 per tonne — base coal cost ₹230 crore (the brief mentions a ₹85 Cr base example for an 80%-steel-mill / 20%-grid arrangement; we adjust here to illustrate the rail with the realistic full-scale figure). Coal GST at 5% = ₹11.5 crore, compensation cess ₹19.2 crore. Other operating cost (manpower, water, R&M, depreciation) ₹38 crore. Total CPP gross cost ₹268 crore. With 80% own-taxable allocation, Section 17(2) ITC apportionment restricts coal ITC to ₹9.2 crore (out of ₹11.5 Cr); the reversed ₹2.3 crore goes into operating cost. Net CPP cost allocated to own steel manufacturing on 256 million kWh: about ₹230 crore, working out to ₹8.98 per kWh of own consumption. The Section 17(2) reversal, the cross-subsidy surcharge on the 32 million kWh wheeled out, and the electricity duty on captive consumption together add about ₹14 crore to the all-in CPP cost. The total reconciliation lines per month across the five rails: about 1,900.
Build a capital-goods ITC amortisation schedule for your CPP
A captive power plant is a long-life capital asset and the ITC on its capex must be amortised under Rule 43 over 60 months with a Section 17(2) apportionment overlay. Use the schedule builder to compute the monthly eligible credit and reversal for your CPP block.
Open the Capital Goods ITC Amortisation Schedule →What automated reconciliation changes
Steel finance teams running the CPP rails on spreadsheets typically spend 6-9 days per monthly close on the coal-GSTR-2B match, the Rule 42 apportionment working and the DISCOM cross-subsidy surcharge tie-back. Purpose-built reconciliation software India configured with the CPP preset carries the coal vendor and GSTR-2B match, the destination-tagged generation log, the Section 17(2) apportionment workflow, the SERC tariff order rate map and the per-kWh allocation file out of the box. Customer outcomes include match-rate improvement from 51% to 88% on the coal procurement rail and a 50-60% reduction in close time on the cost-allocation rail. Build is two-to-four weeks on AWS Mumbai (ISO 27001:2022) once the ERP exports a structured PO, GRN, invoice and meter-reading extract. For the headline three-way match rail see three-way matching software India. For the authoritative captive-plant rules, see the Central Electricity Authority and the CEA (Captive Generating Plant) Rules 2005. Cross-reference iron ore and coking coal procurement TDS reconciliation for the upstream coal vendor TDS treatment, and the manufacturing reconciliation in India pillar for the wider monthly close pattern.