Recently, a judgement under case number I FSK 1785/23 passed almost unnoticed, in which the Supreme Administrative Court (NSA) presented an important position regarding the possibility of applying excise duty exemption for electricity used in chemical reduction processes. This judgement may have a significant impact on the operations of energy-intensive companies that use various electricity-powered devices in their production processes (as well as thermal energy generated from coal or gas combustion).

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What was the case about?

A company planned to establish a petrochemical complex, which would include, among others, a polypropylene production installation along with auxiliary infrastructure. In the polypropylene production process, electricity is used to power various devices such as pumps, furnaces, compressors, and heaters. The company applied for a tax interpretation, seeking to confirm that the energy consumed by these devices would be exempt from excise duty as "used for chemical reduction purposes."

The tax authority agreed to apply the exemption only in a very narrow scope -- practically for only one type of device. For the remaining devices, the exemption was denied, arguing that they do not serve directly and immediately for chemical reduction. The Provincial Administrative Court (WSA) in Szczecin shared the authority's position, mainly based on the CJEU judgement in case C-465/15, assuming that the exemption can only apply to energy consumed during the chemical reduction itself, not throughout the entire production process.

What did the NSA decide?

The NSA overturned the unfavorable WSA judgement for the company and ordered a reconsideration of the case. It challenged the authorities' overly narrow approach. In particular, the NSA indicated that when assessing the scope of process exemption from excise duty, one cannot be guided by the criteria of "directness and immediacy" of electricity consumption in the exempt process but must consider all activities requiring such consumption that are necessary for carrying out the given process.

What does that mean for taxpayers?

The NSA judgement opens the way for a broader interpretation of regulations concerning "process exemptions" from excise duty on electricity (but also coal and gas) used for metallurgical processes, chemical reduction, electrolysis, and mineralogical processes. Energy-intensive production companies using these processes can potentially obtain additional savings.

If you have any questions regarding the possibility of applying excise duty exemption for electricity, coal, or gas in your operations, we encourage you to contact our advisors.

 

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