2018 (9) TMI 1514 - AT - Service Tax

Declared service or not? - Unscheduled Inter-change charges (UI) - Sub-Section (e) of Section 66E of the Finance Act, 1994 - whether Service Tax liability arises on the UI Charges received by the appellant? - Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. Held that - This Declared Service covers those cases where service provider has agreed to take on himself an obligation to refrain from an Act. The UI Charges have been received by the appellant only in those cases where the buyer has drawn more electricity than what was scheduled for him - such an act cannot be considered as agreeing to an obligation to refrain from supply of electricity. The receipt of UI Charges has arisen in connection with transmission of electricity, which has been undertaken by the appellant. It cannot be lost sight of that all components of billing undertaken are in connection with the electricity transmitted and supplied by the appellant. The charges being part of this activity which finds place in the negative list in services, it cannot be said that it amounts to any kind of service. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Service Tax liability on Unscheduled Inter-change charges (UI) received by the appellant.

Analysis:
The appellant, engaged in manufacturing iron and steel products and electricity generation, appealed against the Order-in-Appeal demanding Service Tax on UI charges. The Department argued that UI charges fall under Declared Service as per Section 66E (e) of the Finance Act, 1994. The lower authorities ordered payment of Service Tax, leading to the appeal.

The appellant contended that UI charges were part of the tariff billed per Central Electricity Regulatory Commission's orders. They argued that transmission of electricity falls under the negative list entry of Section 66D(k), which exempts it from Service Tax. The appellant emphasized that they did not agree to refrain from transmission but received UI charges as per regulations.

The Department cited CBEC Circular No. 192/02/2016-ST, clarifying Service Tax on fines and penalties not applicable to UI charges. However, they insisted that UI charges were a declared service subject to Service Tax. After hearing both sides, the crux of the dispute was whether UI charges incurred Service Tax liability. The Revenue authorities viewed it as a Declared Service under Section 66E (e), implying an obligation to refrain from an act.

The Tribunal analyzed that UI charges arose from electricity transmission by the appellant and were part of the billing related to electricity supply. Since transmission of electricity is in the negative list of services, it was deemed not to constitute a service liable to Service Tax. The Tribunal concluded that receiving UI charges did not imply agreeing to refrain from supplying electricity, thus setting aside the impugned order and allowing the appeal.