2023 (4) TMI 436 - AT - Service Tax

Liability of service tax - consultancy services (by deploying its engineers to the contractors for assisting them) - liquidated damages (damages/ penalties recovered by the appellant from the contractors where the terms and conditions of the contract were breached) - manpower recruitment services (short payment of service tax) - legal services (short payment of service tax) - period 2013-2014 to 2016-2017 - appellant is a public sector undertaking established by the Government of Madhya Pradesh for transmission of electricity within the city of Jabalpur and is a successor company of the State Electricity Board. Consultancy Services - HELD THAT - The appellant provides consultancy services to contractors and power DISCOMS while laying the power or electricity transmission lines, erection of electricity poles and construction of electricity sub-stations. The appellant collects the amount for consultation services which are incidental to the transmission activities as the appellant has the expertise in power transmission. If the poles, lines or sub-stations are not erected or constructed as per the specifications, it will not be possible to transmit electricity. The issue that arises for consideration is as to whether service tax could be levied on the amount collected by the appellant towards consultancy charges. This issue was examined by a Division Bench of the Tribunal in MADHYA PRADESH POORVA KSHETRA VIDYUT VITRAN CO. LTD. VERSUS PRINCIPAL COMMISSIONER CGST AND CENTRAL EXCISE BHOPAL 2021 (2) TMI 155 - CESTAT NEW DELHI and after placing reliance upon the decision of the Gujarat High Court in TORRENT POWER LTD. VERSUS UNION OF INDIA 2019 (1) TMI 1092 - GUJARAT HIGH COURT , where it was held 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. In the present case the amount collected towards consultation services is in connection with services which are incidental to the transmission activities carried out by the appellant - The demand, therefore, cannot be sustained. Liquidated Damages - amount collected by the appellant towards liquidated damages or penalty - HELD THAT - This issue was also examined by the Division Bench of the Tribunal in M/S MADHYA PRADESH POORVA KSHETRA VIDYUT VITARAN COMPANY LIMITED VERSUS COMMISSIONER OF CGST CENTRAL EXCISE, MADHYA PRADESH 2022 (4) TMI 773 - CESTAT NEW DELHI and after referring to the decision of the Tribunal in M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, RAIPUR 2020 (12) TMI 912 - CESTAT NEW DELHI which decision has been accepted by the Board, observed that no service tax can be levied on the amount collected towards liquidated damages or penalty for breach of any of the terms of the contract. Manpower Recruitment Services - HELD THAT - The contention of the appellant that most of the service providers were public limited or private limited who discharge their own liabilities was not accepted as the appellant could not substantiate this contention with documents. Learned counsel for the appellant has also not placed any material to substantiate this contention. There is, therefore, no error in the order passed by the Commissioner confirming the demand on service tax under manpower supply services. Legal Services - HELD THAT - In regard to confirmation of service tax proposed in the show cause notice towards legal services, the appellant has not also been able to substantiate that certain amount towards stamp duty was included. Such being the position the confirmation of demand under legal service is justified. The confirmation of demand on the amount collected on account of consultancy charges or liquidated damages cannot be sustained and is set aside - the confirmation of demand under manpower supply services and legal services is upheld - Appeal allowed in part.

Summary

Issues involved:
The issues involved in the judgment are:
1. Levying service tax on consultancy services provided by the appellant.
2. Levying service tax on liquidated damages or penalties collected by the appellant.
3. Confirmation of demand on manpower recruitment services.
4. Confirmation of demand on legal services.

Consultancy Services:
The appellant provides consultancy services related to transmission activities and electricity distribution. A Division Bench decision highlighted that services related to transmission and distribution of electricity are exempt from service tax. The amount collected for consultancy services by the appellant is deemed incidental to transmission activities and hence exempt from service tax.

Liquidated Damages:
The judgment examined the issue of levying service tax on liquidated damages or penalties collected by the appellant. Referring to a Tribunal decision, it was concluded that no service tax can be imposed on amounts collected as liquidated damages or penalties for contract breaches.

Manpower Recruitment:
The appellant's argument that most service providers were public or private limited companies who handled their own liabilities was not supported by evidence. As a result, the demand for service tax on manpower recruitment services was upheld due to lack of substantiation.

Legal Services:
The appellant failed to prove that certain amounts included stamp duty in relation to legal services. Consequently, the confirmation of demand for service tax on legal services was deemed justified.

Conclusion:
The judgment set aside the confirmation of demand on consultancy charges and liquidated damages, as they were found to be exempt from service tax. However, the confirmation of demand on manpower supply services and legal services was upheld. The order passed by the Commissioner was modified accordingly, and the appeal was allowed in part.