2021 (2) TMI 155 - AT - Service Tax

Levy of Service tax - amount of late payment surcharge, meter rent and supervision charges received by the appellant from the electricity consumers - period of dispute is from July, 2012 to March, 2017 - HELD THAT - The late payment surcharge, meter rent and supervision charges are collected by the appellant in terms of Madhya Pradesh Electricity Regulatory Commission (Recovery of Expenses and Other Charges for Providing Electric Line or Plant used for purpose of giving supply) Regulations, 2009 M.P 2009 Regulations - The period of dispute is from July, 2012 upto March, 2017. Section 66D of the Finance Act provides for a negative list of services. This negative list comprises, amongst others, in sub-clause (k), transmission or distribution of electricity by an electricity transmission or distribution utility . The issue involved in this appeal is not regarding the amount collected by the appellant for supply of electricity; the dispute is regarding the amount collected towards late payment surcharge, meter rent and supervision charges. These three charges have been collected by the appellant in terms of the 2009 Regulations. The Principal Commissioner has confirmed the demand of service tax on late payment surcharge under section 66E(e) of the Finance Act by holding that the same is a consideration received by the appellant for tolerating an act of electricity consumers by receiving the payments after the prescribed due date for payment of electricity bills. The Principal Commissioner has confirmed the demand of service tax on meter rent as a declared service under section 66E(f) of the Finance Act by holding that the same is the consideration received by the appellant for transfer of goods by way of hiring. The Principal Commissioner has also confirmed the demand of service tax on supervision charges collected from electricity consumers by holding that the same is taxable as it is not covered under any exemption. Whether the exemption granted for transmission and distribution of electricity would also include directly connected activities such as meter rents? - HELD THAT - The Government of India issued a Circular dated December 07, 2010 clarifying that supply of electricity meters to the consumers was an essential activity having direct and close nexus with transmission and distribution of electricity and was, therefore, covered by the exemption granted to transmission and distribution of electricity - thereafter, the negative list regime was introduced with effect from July 01, 2012. As noticed above, section 66D(k) includes transmission or distribution of electricity by electricity transmission or distribution utility in the negative list . The issue as to whether the charges collected in connection with transmission of electricity even after July 01, 2012 would be subjected to tax as according to the Department they would not be exempted under section 66D(k) of the Finance Act, came up for consideration before the Gujarat High Court in TORRENT POWER LTD. VERSUS UNION OF INDIA 2019 (1) TMI 1092 - GUJARAT HIGH COURT after referring to the position prior to the introduction of the negative list and the Notifications referred to above and the introduction of the negative list regime w.e.f July 01, 2012, the Gujarat High Court observed that the activities that are related/ancillary to transmission and distribution of electricity would be exempt from payment of service tax since transmission and distribution of electricity is exempted - It is also clear from aforesaid decision that all services related to transmission and distribution of electricity are bundled services, as contemplated under section 66F(3) of the Finance Act, and are required to be treated as a provision of a single service of transmission and distribution of electricity, which service is exempted from payment of service tax. Thus, it is not possible to sustain the levy of service tax on the amount collected by the appellant for late payment surcharge, meter rent and supervision charges. Levy of penalty on the lease rent collected from the customers - HELD THAT - The appellant claims that since it has deposited the lease rent, the levy of penalty may be set aside. It is not possible to accept this contention of the learned counsel for the appellant. The imposition of penalty under lease rent is, therefore, confirmed. The confirmation of demand by the Principal Commissioner on late payment surcharge, meter rent and supervision charges are set aside. The levy of penalty on the lease rent amount is confirmed - Appeal allowed in part.

Summary

Issues Involved:
1. Whether service tax is payable on the amount of late payment surcharge, meter rent, and supervision charges received by the appellant from electricity consumers.
2. Whether the extended period of limitation could be invoked.
3. Whether penalty and interest could be imposed.

Detailed Analysis:

1. Service Tax on Late Payment Surcharge, Meter Rent, and Supervision Charges:

The appellant, Madhya Pradesh Poorva Kshetra Vidyut Vitran Co. Ltd., disputed the service tax demand on late payment surcharge, meter rent, and supervision charges collected from electricity consumers. The Principal Commissioner confirmed the demand under various sections of the Finance Act, 1994, arguing that these charges were taxable as declared services.

Late Payment Surcharge:
The Principal Commissioner held that the late payment surcharge was taxable under section 66E(e) of the Finance Act as it constituted consideration for tolerating an act of electricity consumers paying after the due date.

Meter Rent:
The Principal Commissioner classified meter rent under section 66E(f) of the Finance Act, considering it a declared service for the transfer of goods by way of hiring without transfer of the right to use.

Supervision Charges:
The Principal Commissioner confirmed the taxability of supervision charges under section 66B(44) of the Finance Act, stating that these charges were not covered under any exemption.

Judgment:
The Tribunal referred to the Gujarat High Court's decision in Torrent Power Limited vs. Union of India, which clarified that services related to the transmission and distribution of electricity, including meter rent and other ancillary services, are exempt from service tax. The Tribunal concluded that the late payment surcharge, meter rent, and supervision charges collected by the appellant were bundled services directly related to the transmission and distribution of electricity and thus exempt under section 66D(k) of the Finance Act.

2. Extended Period of Limitation:

The appellant argued that the extended period of limitation under section 73(1) of the Finance Act could not be invoked. However, this issue was not extensively discussed in the judgment as the primary focus was on the taxability of the charges.

3. Penalty and Interest:

Penalty on Lease Rent:
The appellant had deposited the service tax on lease rent after the issuance of the show cause notice but challenged the imposition of penalty. The Tribunal upheld the penalty, stating that the appellant's contention could not be accepted.

Conclusion:
The Tribunal set aside the confirmation of demand for service tax on late payment surcharge, meter rent, and supervision charges, aligning with the Gujarat High Court's interpretation that these are exempt as bundled services under the negative list. However, the penalty on lease rent was confirmed.

Order:
The appeal was allowed in part, setting aside the service tax demand on late payment surcharge, meter rent, and supervision charges, while confirming the penalty on lease rent.