2024 (6) TMI 345 - AT - Service Tax

Recovery of service tax with interest and penalty - Declared service or not - fixed charges collected by the respondent from M/s. KSEB on sale of electricity be considered as compensation / consideration for agreeing for the obligation to refrain from an Act as envisaged under Section 66E(e) of the Finance Act, 1994 - HELD THAT - The learned Commissioner after analyzing the Power Purchase Agreement entered in the year 1995 between the respondent and M/s. KSEB held that the fixed charges received by the respondent for the services rendered is a part of the sale of electricity and it cannot be said to fall under Declared Services as defined under Section 66E(e) of the Finance Act, 1994 - It is clear from the said provision that the power generated by the respondent, in case of need, could be supplied to other entities subject to the approval or with the consent of the company under Authority. He has observed that the document/agreement has to be read as a whole and not in piecemeal and referred to various judgments in support of his finding. There are no deficiency in the said reasoning of the learned Commissioner. Thus, the fixed charges received by the appellant is a part of the sale proceeds of electricity supplied to KSEB. The Ahmedabad Bench of the Tribunal in the case of GUJARAT STATE PETRONET LTD VERSUS C. CGST CEX-GANDHINAGAR 2022 (8) TMI 540 - CESTAT AHMEDABAD analyzing the issue in the context of applicability of Service Tax on liquidated damages referred to the said Circular No.178/10/2022 GST dated 03.08.2022 in examining the Service Tax liability under Section 66E(e) of the Finance Act, 1994. There are no merit in the appeal filed by the Revenue - The impugned order is upheld and Revenue s appeal is dismissed.

Summary

Issues involved: Appeal against Order-in-Original regarding collection of Service Tax on fixed charges for power generation.

Summary:
The appeal was filed by the Revenue against an Order-in-Original passed by the Commissioner of Central GST and Central Excise, Thiruvananthapuram. The case involved the collection of annual fixed cost by a Public Sector Undertaking from a State Electricity Board under a Power Purchase Agreement. The Revenue alleged non-payment of Service Tax u/s 66E of the Finance Act, 1994. The Commissioner dropped the demand, leading to the Revenue's appeal.

The main issue was whether the fixed charges collected for electricity sales constituted a 'Declared Service' u/s 66E(e) of the Finance Act, 1994. The Revenue argued that the charges were for refraining from selling to other buyers, thus falling under 'Declared Service'. However, the Senior Advocate for the appellant contended that as electricity was goods and the charges were part of business requirements, they did not qualify as 'Declared Service'. Reference was made to relevant Circulars and a Tribunal judgment.

After hearing both sides, it was found that the fixed charges were part of the sale proceeds of electricity and did not fall under 'Declared Services'. The Commissioner's reasoning was upheld, citing the Power Purchase Agreement and relevant provisions. A Board's Circular clarified that such charges were not taxable, applicable to both GST and Service Tax regimes. The Tribunal's decision in a similar case was also referenced.

Based on the clarification and precedents, the appeal by the Revenue was dismissed, upholding the impugned order. The Cross Objection was also disposed of accordingly.