2021 (4) TMI 884 - AAAR - GST

Applicability of GST - generation and distribution of electricity - TANGEDCO LTD. TANTRANSCO LTD. are two subsidiary companies of TNEB Ltd. (Holding company), and both are registered utilities for distribution and Transmission of Electricity respectively under the Electricity Act, 2003 - Applicability of GST on Deposit Contribution Works - Government Entity or not - Applicability of GST on Transmission Charges for Natural Gas - challenge to AAR decision. HELD THAT - Electricity duty is a tax on consumption or sale of electricity and is levied under entry 53 of Part-II State list of Schedule 7 of the Constitution. Therefore, clearly the constitution leaves out only tax on consumption for sale of electricity from the purview of GST. The contention of the appellant is therefore rejected. TANGEDCO is indisputably a generation company and a distribution utility. TANTRANSCO on the other hand is a transmission utility. It is not the case of the appellant that the appellant company is providing transmission services to TANTRANSCO. The appellant contends that the various services extended to TANTRANSCO constitute distribution services. However, as already been stated above, distribution service can be supplied only to consumers in the area of supply of the licensee. Therefore, the services extended by TANGEDCO to TANTRANSCO cannot constitute distribution service. Deployment of employees to TANSTRANSCO from the appellant - HELD THAT - As a matter of fact it has been averred by the appellant that there are two modes, one in which the employees deputed from the appellant to TANTRANSCO are paid by TANTRANSCO and the expenses are debited in that company's books of accounts only. The second mode involves where salary payments are made by the appellant and the same is accounted as receivable from TANTRANSCO. This distinction was not made during the time of hearing before the AAR. In our view, the second mode where the salary payments etc., are paid by the appellant company to the employees deputed to TANTRANSCO (as they are still under the rolls of the appellant) and is booked as receivables from TANTRANSCO, there is no reason to interfere with the AAR's order - However, where the employees are paid by TANTRANSCO themselves, there is no service involved in our considered opinion as they are fully under the control of TANTRANSCO only and deemed to be employees of TANTRANSCO for all purposes. The AAR's ruling is modified depending upon the factual matrix involved with respect to the particular employee, which will have to be determined by the assessing officer concerned - With respect to Deposit Contributory Works which include activities like shifting of service line, etc., we do not find any compelling reasons to differ with the ruling pronounced by the AAR. Appeal disposed off.

Summary

Issues Involved:
1. GST applicability on transactions between TANGEDCO Ltd. & TANTRANSCO Ltd.
2. Applicability of GST on Deposit Contribution Works.
3. Whether TANGEDCO Ltd. can be considered a "Government Entity."
4. Applicability of GST on Transmission Charges for Natural Gas.

Issue-Wise Detailed Analysis:

1. GST Applicability on Transactions between TANGEDCO Ltd. & TANTRANSCO Ltd.:
The appellant argued that the supply of operation and maintenance materials and the transfer of capital assets between TANGEDCO and TANTRANSCO are integral to the transmission and distribution of electricity and should be exempt from GST. The AAR ruled that GST is applicable to these transactions as they constitute the supply of goods. The appellate authority upheld this ruling, stating that the exemption under SI.No.25 of Notification No.12/2017 pertains only to services, not goods. The essential requirements for the exemption are that the supplier must be a transmission or distribution utility, and the supply must be either transmission or distribution service. Since TANGEDCO is not providing transmission services to TANTRANSCO, the transactions do not qualify for the exemption.

2. Applicability of GST on Deposit Contribution Works:
The AAR classified Deposit Contribution Works under SAC 99873, with an applicable tax rate of CGST @ 9% and SGST @ 9%. The appellant contended that these works are part of the supply of electricity and should be exempt. The appellate authority found no compelling reasons to differ from the AAR's ruling, maintaining that GST is applicable to Deposit Contribution Works.

3. Whether TANGEDCO Ltd. can be considered a "Government Entity":
The AAR ruled that TANGEDCO is a "Government Entity" as defined under Notification No. 11/2017-C.T.(Rate) and Notification No. 12/2017-C.T.(Rate). This classification was not contested in the appeal.

4. Applicability of GST on Transmission Charges for Natural Gas:
The AAR did not answer the applicability of GST on transmission charges billed by GAIL, as it was not admitted under sub-section (2) of section 98 of the CGST Act, 2017. The appellate authority did not address this issue further.

Additional Points:

Deployment of Employees:
The AAR ruled that GST is applicable on the deployment of employees from TANGEDCO to TANTRANSCO as it constitutes a supply of service. The appellant argued that the employees are transferred under the Tamil Nadu Electricity (Reorganization and Reforms) Transfer Scheme, 2010, and the transactions are merely fund transfers, not services. The appellate authority modified the AAR's ruling, stating that if employees are paid by TANTRANSCO directly, no service is involved. However, if TANGEDCO pays the employees and books it as receivables from TANTRANSCO, GST is applicable.

Conclusion:
The appellate authority upheld the AAR's rulings except for the modification regarding the deployment of employees. The appeal was disposed of accordingly.