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2019 (11) TMI 1353 - AAR - GSTClassification of supply of services - naturally bundled services - composite supply/principal supply - supply of services such as connection, re-connection, supervision of the works, erection of poles, sub-stations, transmission lines etc., - supply of meters etc., to the consumers for the purpose and during the course of supply of electricity to them are naturally bundled - exempt services - supplies made to the consumers through contractors and third parties for the purpose of transmission or distribution of electricity or sale of electrical energy - exempt services or not - HELD THAT - The applicant being a distribution licencee of electricity is of the view that various other activities or services rendered for which they charge separate recoveries from their customers are naturally bundled with distribution of electricity and accordingly those services are also exempted under entry 25 of Notification no.12/2017 - Central Tax (Rate) dated 28.06.2017 wherein Transmission or distribution of electricity by an electricity transmission or distribution utility - In the present case, the exemption is only for Transmission or distribution of electricity only and not to any other services for which separate charges are fixed and collected. For a supply to be considered as a composite supply, its constituent supplies should be so integrated with each other that one is not supplied in the ordinary course of business without or independent of the other. In other words, they are naturally bundled - Merely because the provider of service is bound by a statute to provide the related supplies together with supply of electricity, it would not make the said supplies composite unless they are naturally bundled. Further, any service cannot become a composite merely because they are provided by the same supplier to the same service provider - the distribution and supply of electricity only is exempted and the other services are not exempted and also not naturally bundled to become composite supply, and any other services provided are taxable. The works under the schemes DDUGJY/ IPDS/ADSMS referred by the applicant fall under the works contract; and covered under entry no. (ii) of S. No. 3 of the table of notification no. 11/2017-Central Tax (Rate), Dated - 28th June 2017 as amended from time to time and corresponding notifications under APGST Act, 2017; and the applicable rate of tax is 18% (9% under Central tax and 9% State tax). Whether the supply of services such as connection, re-connection, supervision of the works, erection of poles, sub-stations, transmission lines etc., and supply of meters etc., to the consumers for the purpose and during the course of supply of electricity to them are naturally bundled and thus form part of the composite supply of principal activity of supply of electrical energy? - Whether the supply of services such as connection, re-connection, supervision of the works, erection of poles, sub-stations, transmission lines etc., and supply of meters etc., to the consumers for the purpose and during the course of supply of electricity to them can be treated as part of principal supply of transmission or distribution of electricity which is exempted? - Whether the above supplies made to the consumers through contractors and third parties for the purpose of purpose of transmission or distribution of electricity or sale of electrical energy are also exempted? - HELD THAT - The Transmission or distribution of electricity by an electricity transmission or distribution utility is only exempted vide entry no. 25 of the Notification No. 12/2017- Central Tax (Rate) New Delhi, the 28th June, 2017. Any service, other than transmission or distribution of electricity, rendered by the applicant is not covered in the said entry for claiming exemption. Services rendered apart from transmission or distribution of electricity are taxable. Whether the works executed under Deendayal Upadhyay Gram Jyoti Yojna for Rural Electrification ( DDUGJY ), Integrated Power Development Scheme ( IPDS ) and Restructured Accelerated Power Development and Reforms Program supplies made through contractors are liable to 12% GST since they are executed under grants provided by central government and no commercial activity is involved with regards these works? - whether the execution of the Agricultural Demand Side Management Scheme (AGL) works are liable to 12% GST since they are executed for the purpose of non-commercial? - HELD THAT - The activities referred by the applicant are not covered in the Notification No.24/2017-Central Tax (Rate), dated 21.09.2017 for availing concessional rate of 12% GST rate and the applicable rate of tax is 18% (9% under Central tax and 9% State tax). Whether the supply of services and goods made by the applicant through contractors by way of construction, erection, commissioning, or installation of infrastructure for extending electricity distribution network up to the tube well of the farmer or agriculturist for agricultural are exempted vide Notification No.14/2018- Central Tax (Rate) dated 26.07.2018? - HELD THAT - The Applicant is only entitled for the benefit of NIL rate of GST under SI. No. 10A of Notification no. 12/2017-Central Tax (Rate), dated 28.06.2017, amended by notification no. 14/2018-Central Tax (Rate), dated 26.07.2018 for the stated works and not for the contractors providing services to the applicant.
Issues Involved:
1. Whether the supply of services related to electricity distribution forms a composite supply. 2. Taxability of services provided by contractors for government schemes. 3. Applicability of concessional GST rates for specific government schemes. 4. Exemption status of services provided to farmers for agricultural purposes. Detailed Analysis: 1. Composite Supply of Electricity Distribution Services: - Issue: Whether services like connection, re-connection, supervision, erection of poles, and supply of meters are naturally bundled and form part of the composite supply of electricity. - Discussion: The applicant argued that these services are ancillary and naturally bundled with the principal activity of electricity supply, hence exempt from GST. They cited various legal precedents and the definition of "composite supply" under Section 2(30) of the GST Act. - Findings: The authority concluded that the exemption notification (Entry No. 25 of Notification No. 12/2017) only covers "Transmission or distribution of electricity" and not other services, which are thus taxable. The services are not naturally bundled as they can be provided independently and are charged separately. 2. Taxability of Services Under Government Schemes: - Issue: Whether services provided under schemes like DDUGJY, IPDS, and ADSMS are liable to 12% GST. - Discussion: The applicant contended that these schemes are for public welfare, funded by the government, and should attract a concessional GST rate of 12% as per Notification No. 24/2017. - Findings: The authority held that the works under these schemes are commercial and industrial in nature, and thus, the concessional rate does not apply. The applicable GST rate is 18%. 3. Exemption for Agricultural Services: - Issue: Whether services for extending the electricity distribution network to farmers' tube wells are exempt under Notification No. 14/2018. - Discussion: The applicant argued that these services should be exempt as they are provided for agricultural use. - Findings: The exemption under Notification No. 14/2018 applies only to services provided directly by the electricity distribution utility, not to services provided by contractors. Therefore, contractors' services are not exempt. Conclusion: 1. Composite Supply: Only the transmission or distribution of electricity is exempt. Ancillary services like connection, re-connection, and supervision are taxable. 2. Government Schemes: Services under DDUGJY, IPDS, and ADSMS are not eligible for the concessional 12% GST rate and are taxable at 18%. 3. Agricultural Services: The exemption applies only to services provided directly by the electricity distribution utility, not to contractors. Ruling: - Composite Supply: Ancillary services are not part of the composite supply of electricity and are taxable. - Government Schemes: Services under DDUGJY, IPDS, and ADSMS are taxable at 18%. - Agricultural Services: Only services provided directly by the utility are exempt; contractors' services are taxable.
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