2019 (3) TMI 186 - AT - Service Tax

Nature of activity - trading or service? - distribution of electricity - whether the electricity can be considered as goods or not - Held that - The issue is no more res-integra in view of the ruling by Hon ble Supreme Court in the case of State of A.P. vs. National Thermal Power Corpn. Ltd. 2002 (4) TMI 694 - SUPREME COURT OF INDIA . The Hon ble Supreme Court has held that electricity is goods and, therefore, the transaction between the appellant and the companies with whom the appellant is having power purchase agreement is sale and purchase of goods - thus, there is no service involved in the transaction - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether banking charges are considered as consideration for providing service under Section 65B (44) of Finance Act, 1994?
- Whether the demand of Service Tax on the appellant is justified for the period from 2009-10 to 2013-14?
- Whether the appellant is providing service to companies with captive power generation plants based on the retention of 12.5% charges?

Analysis:
1. Issue 1: Banking charges as consideration for providing service
The appellant, a subsidiary of a power corporation, entered into power purchase agreements with private companies generating surplus power. The dispute arose when the Revenue treated the banking charges deducted by the appellant as consideration for providing services, leading to a demand of Service Tax. The Commissioner upheld the demand, considering the banking charges as service consideration. However, the appellant contested, arguing that the transactions were merely sale and purchase of goods, citing the Supreme Court ruling that electricity is goods. The Tribunal concurred with this argument, holding that the transactions were indeed sale and purchase, not involving any service. Consequently, the impugned order was set aside, and the appeal was allowed.

2. Issue 2: Justification of Service Tax demand
The demand of Service Tax amounting to &8377;2,01,90,176 on the appellant for the period from 2009-10 to 2013-14 was based on the Revenue's interpretation of banking charges as consideration for services. However, the Tribunal's decision to classify the transactions as sale and purchase of goods rendered the demand unjustified. The Tribunal's ruling in favor of the appellant nullified the Service Tax demand, emphasizing that no service element was involved in the transactions.

3. Issue 3: Appellant providing service based on charge retention
The Revenue argued that the appellant was providing service to companies with captive power generation plants due to the retention of 12.5% charges. This contention was based on the premise that the appellant's retention of charges implied service provision. However, the Tribunal's analysis, guided by the Supreme Court's classification of electricity as goods, concluded that the transactions were purely sale and purchase, negating any service provision by the appellant. As a result, the Tribunal allowed the appeal and granted the appellant consequential relief as per law.

In conclusion, the judgment by the Appellate Tribunal CESTAT ALLAHABAD clarified that the transactions between the appellant and companies with captive power generation plants were not subject to Service Tax, as they constituted sale and purchase of goods, not involving any service element. The ruling emphasized the classification of electricity as goods by the Supreme Court, leading to the setting aside of the impugned order and the allowance of the appeal in favor of the appellant.