9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (1) TMI 1092 - HC - GSTTransmission or distribution for electricity - exemption from tax under Entry 25 of Notification No.12/2017 dated 28.6.2017 - period of the negative list regime - scenario post GST Regime - validity of clarification issued in para 4 (1) of the Circular No.34/8/2018-GST dated 1.3.2018 - includibility of charges such an application fee, meter rent, testing fee, etc collected by the Petitioners - composite supply - Section 43 (2) of the Electricity Act - It is the case of the petitioners that service by way of transmission or distribution of electricity continued to be kept out of the tax net even post 1.7.2012, and, the petitioners, therefore, neither collected nor paid any tax under the Finance Act on charges collected in connection with transmission of electricity even post 1.7.2012. Whether services relating to transmission and distribution of electricity fall within the ambit of clause (k) of section 66D of the Finance Act and, are therefore, exempt? - Held that - It may be noted that prior to the coming into force of the negative list regime, goods and services were exempted by virtue of notifications issued in exercise of powers under sub-section (1) of section 93 of the Finance Act. By virtue of Notification No. 11/2010 dated 27.2.2010, the Central Government exempted transmission of electricity from the whole of service tax leviable thereon under section 66 of the Finance Act; and by virtue of Notification No.32/2010-Service Tax dated 22.6.2010, distribution of electricity came to be exempted from the whole of service tax leviable thereon under section 66 of the Finance Act. Thus, what was exempt under those provisions was transmission and distribution of electricity, despite which, during the pre-negative list regime, the respondents have considered services related to transmission and distribution of electricity as exempted from service tax by virtue of those notifications - Insofar as electricity meters are concerned, vide circular No.131/13/2010-ST dated 7.12.2010, it was clarified that supply of electricity meters for hire to consumers being an essential activity, having direct and close nexus with transmission and distribution of electricity, the same is covered by the exemption for transmission and distribution of electricity extended under relevant notifications. From the very manner in which the respondents have treated the services related to transmission and distribution of electricity during the pre-negative list regime, such services would stand covered by the exemption granted to transmission and distribution of electricity by virtue of inclusion of such services in the list of negative services under section 66D (k) of the Finance Act as well as by virtue of exemption notification issued under the CGST Act. Scope of bundled service - It is evident that a licensee, on an application by the owner or occupier of any premises, is required to supply electricity to such premises. For the purpose of supplying electricity, it is the duty of the distribution licensee to provide electric plant or electric line for giving electric supply to the premises of the consumer. In case the distribution licensee fails to supply the electricity, it is liable to penalty under sub-section (3) of section 43. Thus, a statutory duty has been cast upon the licensee to provide electric plant or electric line for giving electric supply to the premises of the applicant. Any line which is used for carrying electricity for any purpose as well as any apparatus connected to any such line for the purpose of carrying electricity is mandatorily required to be provided to the consumer by the licensee. Moreover, any plant, equipment, apparatus or appliance or any part thereof used for, or connected with, the generation, transmission, distribution or supply of electricity, except for electric meter and any electrical equipment, apparatus or appliance under the control of a consumer fall within the ambit of electrical plant as defined under section 2(22) of the Electricity Act. Sub-section (2) of section 43 of the Electricity Act casts a duty upon the licensee to provide if required electric plant or electric line for giving electric supply to the premises - all the services related to transmission and distribution of electricity are naturally bundled in the ordinary course of business of the petitioner and are required to be treated as provision of the single service of transmission and distribution of electricity which gives the bundle its essential character. A perusal of the GERC Regulations indicates that the services which are sought to be taxed now are the services, which the petitioner is required to mandatorily provide at the rate prescribed by GERC, a statutory authority constituted under the provisions of the Electricity Act. In the opinion of this court, all these services are essential activities which have a direct and close nexus with transmission and distribution of electricity. As the phase relating to the negative list regime is concerned, the services in question would fall within the ambit of bundled services as contemplated under subsection (3) of section 66F of the Finance Act, and would have to be treated in the same manner as the service which gives the bundle its essential character, namely, transmission and distribution of electricity and, would therefore, be exempt from payment of service tax - the principal supply of transmission and distribution of electricity is naturally bundled and supplied in conjunction with the related/ancillary services in the ordinary course of business, accordingly, in view of the provisions of clause (a) of section 8 of the CGST Act, the tax liability of such composite supply is required to be determined by treating the same as a supply of the principal supply namely, transmission and distribution of electricity. Applicability of clause (a) of section 8 of the CGST Act - principal supply is exempt from levy of service tax - Held that - There is nothing in section 8 of the Act to read any such construction. What the section says is that the tax liability of a composite or a mixed supply shall be determined in the manner provided thereunder. In a given case, the tax liability may be nil, but that would not take such service out of the purview of section 8 of the Act, which would be attracted if the supply is either composite or mixed in nature, notwithstanding that the end result may be nil tax liability. The related supplies cannot be supplied separately nor are the principal supply and related supplies independent of each other. The related supplies are dependent on the principal supply of transmission and distribution of electricity and vice versa, neither service can be provided independent of the other. The transmission and distribution of electricity cannot be done without the help of electric line, electric plant and electric meter, and nor can the related services be used for any purpose other than for transmission and distribution of electricity. The principal supply and the related/ancillary services go hand in hand and one cannot be provided independent of the other. Thus, the services provided by the petitioner are in the nature of composite supply and therefore, in view of the provisions of clause (a) of section 8 of the CGST Act, the tax liability thereof has to be determined by treating such composite same as a supply of the principal supply of transmission and distribution of electricity. The impugned summons dated 28.3.2018 is hereby set aside to the extent the petitioners are called upon to produce the documents listed at serial No.5 of the annexure thereto, except clause - (vi); income from shifting of HT lines received from MEGA - the respondents shall drop the proceedings under the Finance Act, 1994 as well as under the CGST/SGST Acts sought to be initiated by virtue of the impugned summons to the extent the same is based upon item No.4 (1) of the impugned circular dated 1st March, 2018.
Issues Involved:
1. Validity of the impugned circular dated 1.3.2018. 2. Taxability of charges related to transmission and distribution of electricity. 3. Application of principles of bundled services and composite supply under the Finance Act and CGST Act. 4. Retrospective applicability of the impugned circular. 5. Maintainability of the petition challenging the summons based on the impugned circular. Detailed Analysis: 1. Validity of the Impugned Circular: The petitioners challenged the circular dated 1.3.2018, which clarified that certain charges related to electricity transmission and distribution are taxable. The court found that the circular sought to give a different interpretation to the same services that were previously exempted. The services related to transmission and distribution of electricity were considered exempt under the pre-negative list regime and should continue to be exempt under the negative list and GST regimes. The court struck down paragraph 4(1) of the impugned circular as ultra vires the provisions of section 8 of the CGST Act and Notification No.12/2017-CT(R). 2. Taxability of Charges Related to Transmission and Distribution of Electricity: The court noted that services such as application fees, meter rent, testing fees, etc., are essential activities with a direct and close nexus to the transmission and distribution of electricity. These services were previously exempted and should continue to be exempt. The court held that the meaning of "transmission and distribution of electricity" does not change across different regimes, and related services should be treated as part of the main service, which is exempt from tax. 3. Application of Principles of Bundled Services and Composite Supply: The court examined whether related services fall within the ambit of bundled services under section 66F(3) of the Finance Act and composite supply under section 8 of the CGST Act. It concluded that related services are naturally bundled with the principal supply of transmission and distribution of electricity. Therefore, these services should be treated as a provision of the single service of transmission and distribution of electricity, which is exempt from tax. 4. Retrospective Applicability of the Impugned Circular: The court held that the clarificatory circular cannot be applied retrospectively to alter the tax treatment of services that were previously considered exempt. The circular sought to give a different interpretation to the same services, which is not permissible. The court emphasized that beneficial circulars should be applied retrospectively, while oppressive circulars should be applied prospectively. 5. Maintainability of the Petition Challenging the Summons: The court rejected the preliminary objection regarding the maintainability of the petition. It noted that the summons was based on the impugned circular, which is the subject matter of the challenge. Therefore, the challenge to the summons is ancillary to the challenge to the circular, and the petition is maintainable. Conclusion: The court allowed the petition, striking down paragraph 4(1) of the impugned circular and setting aside the summons to the extent it was based on the circular. The respondents were directed to drop proceedings initiated under the Finance Act and CGST/SGST Acts based on the impugned circular. The court emphasized that the related services should be treated as part of the exempt service of transmission and distribution of electricity.
|
