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TMI Blog2019 (1) TMI 1092X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the transmission or distribution for electricity are exempt from tax under Entry 25 of Notification No.12/2017 dated 28.6.2017; C. In the alternative this Hon'ble Court may be pleased to declare that charges such an application fee, meter rent, testing fee, etc collected by the Petitioners are part of composite supply of which principal supply is the actual supply of electricity and therefore the entire composite supply is exempt from tax under Entry 25 of Notification No.12/2017 dated 28.6.2017; D. Without prejudice to the above and in the alternative this Hon'ble Court may be pleased to declare that the clarification issued in para 4(1) of the impugned Circular No.34/8/2018-GST dated 1.3.2018 (annexed at Annexure A) by the Government of India would at the most be applicable prospectively and for the period prior to 1.3.2018 the learned Respondents will be bound by the previous circular dated 7.12.2010. E. This Hon'ble Court may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other writ or order directing the learned Respondents to drop proceedings sought to be initiated on the basis of the impugned circular by issuing summons date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oners start distribution of electricity to the consumer. The petitioners are required to charge price for distribution of electricity in accordance with tariffs as fixed by the appropriate commission from time to time and as per the conditions of the licence. Since the billing of such distribution would depend upon actual consumption of electricity, an electric meter is required to be placed at the premises of the customer. The petitioners collect monthly meter rent of such meter, in the bill for electricity consumption itself, as determined by the State Electricity Regulatory Commission. 2.4 Section 45 (3) of the Electricity Act specifically provides that charges for electricity may include charges for actual electricity supplied as well as rent or other charges in respect of any electric meter or electrical plant, provided by the distribution licensee. Apart from such rental or other charges in respect of electric meter, section 46 of the Electricity Act empowers the State Commission to authorize the distribution licensee to charge from a person, requiring supply of electricity, any expenses reasonably incurred in providing any electric line or electrical plant used for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication No. 32/2010-Service Tax was issued on 22.6.2010, exempting taxable service provided to any person by a distribution licensee/franchisee for distribution of electricity. In the meantime, the petitioners as well as other distribution/transmission companies received show cause notices proposing to impose tax under the Finance Act on various charges collected by such companies, in respect of the activities relating to transmission and distribution of electricity for the periods prior to the issuance of the exemption notifications dated 27.2.2010 and 22.6.2010. Representations came to be made to the Government for intervention since the entire sector of transmission/distribution companies bona fide believed that no taxes are required to be paid under the Finance Act on activities relating to transmission and distribution of electricity. Pursuant thereto, the Government of India issued trade notice on 20.7.2010 under section 11C of the Central Excise Act, 1944 read with section 83 of the Finance Act, whereby it was provided that service tax payable on the taxable services relating to transmission and distribution of electricity, which was not being levied in accordance with the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d power on the Government to grant exemption. In exercise of such powers, the Central Government has issued Notification No. 12/2017 dated 28.6.2017 providing for list of exempted services. Identical notifications have been issued under the State Goods and Services Tax Act by the respective State Governments. By virtue of Entry 25 of Notification No. 12/2017, transmission or distribution of electricity by an electricity transmission or distribution utility is taxed at nil rate. It is the case of the petitioners that as such the legal position as prevailing under the Finance Act was continued even under the Goods and Services Tax Acts and tax leviable on service of transmission or distribution of electricity by an electricity transmission or distribution utility was exempted from tax under the GST Acts. The petitioners, therefore, neither collected nor paid tax under the GST Acts with effect from 1.7.2017 on the charges collected for activities directly connected with transmission and distribution of electricity in accordance with the provisions of the Electricity Act and the GERC Regulations. Thereafter, the Government of India has issued the impugned circular dated 1.3.2018, clari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies that are directly and closely connected to the distribution or transmission of electricity. It was pointed out that, in fact, the charges such as meter rent and other similar charges are specifically included in the charges for electricity as per the provisions of the Electricity Act, and that even other miscellaneous charges relating to the activity of transmission or distribution are required to be collected by the petitioners in accordance with the provisions of the Electricity Act and the GERC Regulations. Such activities are mandatorily required to be carried out by the petitioners for the purpose of supply and distribution of electricity and, in fact, it is not even possible to supply electricity without undertaking such activities. It was contended that, all charges, such as application fee, meter rent, testing fee etc. are towards the service of transmission and distribution of electricity and, therefore, the clarification to the effect that they would not be covered by entry relating to exemption of transmission or distribution of electricity is contrary to express words as well as intent of the exemption notification and, therefore, bad and illegal. 3.1 It was conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egated for the purpose of GST. It was submitted that the fact that these services are being regulated by the GERC shows that they are composite services, and hence, exemption would also apply to such services. 3.5 Referring to the impugned summons dated 28.3.2018, it was submitted that the proposed period is from financial year 2012-2013 to financial year 2017-2018. It was submitted that the period prior to 1.7.2012 relates to the pre-negative list regime; the period from 1.7.2012 to 30.6.2017 relates to the negative list regime; and the period from 1.7.2017 onwards relates to the GST regime. 3.6 Insofar as the first period is concerned, it was submitted that vide exemption notification dated 27.2.2010 and 22.6.2010, transmission as well as distribution of electricity respectively came to be exempted from the whole of the service tax leviable under section 66 of the Finance Act. It was submitted that these services, namely, the related services were also exempt by virtue of the exemption notifications issued in the past. It was submitted that if the respondents intend to revoke such exemption, it has to be done prospectively by a notification and not by a clarificatory circular. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of business with the services of transmission and distribution of electricity would be treated as a provision of the single service, which gives the bundle its essential character, namely, transmission and distribution of electricity. It was submitted that since all these services are bundled together in the ordinary course of business, they would, therefore, continue to be exempted even under the negative list regime. On the question as to whether the services are naturally bundled, the attention of the Court was invited to the GERC Notification No. 9/2005 to point out that the charges are required to be levied for all these services are duly fixed by GERC. It was submitted that whether the services are bundled in the natural course, the test is direct and close nexus. It was submitted that in this case, under section 43 of the Electricity Act, these services are required to be mandatorily provided to the consumers, therefore, they are all activities which are directly connected with distribution and transmission of electricity and are covered by the exemption without any support of any notification or circular. It was contended that all the services, which are now sought to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " as envisaged under section 2 (30) of the Act. 3.11 Reference was made to the definition of "principal supply" as defined under section 2 (90) of the Act, which provides that "principal supply"means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary. It was submitted that, therefore, the distribution and transmission of electricity is the principal supply which constitutes the predominant element of the composite supply and the related/ancillary services form part of that composite supply. It was submitted that, therefore, even by virtue of the provisions of section 8 (a) of the CGST Act, the related/ancillary services to transmission and distribution of electricity would be covered by the exemption notification. 3.12 It was argued that for the purpose of determining the liability on a composite supply section 8(a) of the CGST Act requires there should be a principal supply; it prescribes a rate clause; but does not fix the rate but merely categorises the rate. The provision does not require that the principal supply should attract levy of tax. Referring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition, Mr. Ankit Shah, learned Senior Standing Counsel for the respondents No. 1, 2 and 4 raised a preliminary objection to the maintainability of the petition on the ground that the petition is directed against a summons issued by the respondent authorities. Reliance was placed upon the decision of the Madras High Court in the case of Media Graphics v. Commissioner of Customs, Chennai, 2018 (359) ELT 172 (Mad.), wherein the court had declined the prayer to set aside the summons. Reliance was also placed upon the decision of the Madras High Court in the case of K. Elumalai v. Commissioner of Customs, Chennai, 2017 (355) ELT 241 (Madras), for the proposition that a writ petition challenging a summons is not maintainable. It was submitted that the respondent authorities have powers to issue summons and that the summons is, therefore, not illegal and, consequently, cannot be subject matter of challenge in a writ petition. 4.1 On the merits of the case, it was submitted that the exemption notifications, exempting the services in question from liability of service tax, were issued prior to the coming into effect of the negative list regime inasmuch as all these circulars and notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtracted herein below: "66-E. The following shall constitute declared services, namely- (a) to (d) xxxx (e) agreeing to the obligation to refrain from an act, or to tolerate an act or situation, or to do an act;" However, on perusal of the averments made in the affidavit-inreply, it appears that reference has been made to this provision in the context of the services provided to MEGA, in respect of which, the learned counsel for the petitioner has submitted that they would appear before the respondent authorities and respond to the summons. Therefore, it is not necessary to enter into the merits of this submission. 4.4 The learned Senior Standing Counsel submitted that the related services are not included in the negative list and cannot be considered as services bundled with the services of transmission and distribution of electricity and furthermore, would not fall within the ambit of composite services under section 8 of the CGST/SGST Acts by considering the services of transmission and distribution of electricity as principal supply and that the petition being devoid of merits, be dismissed and the petitioners be directed to respond to the impugned summons. 5. Mr. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not fall within the purview of such notifications. It was submitted that section 66F of the Finance Act cannot be read to expand the exemption provision and that merely because some services may be naturally bundled with exempted services, would not make such services exempt from liability to tax. It was submitted that while the purpose of the Electricity Act is to govern the supply and distribution of a commodity, the taxability would be governed by the taxing statute; therefore, merely because supply and distribution is governed by a statute, the same would not expand the scope of the exemption notification. 5.3 Next, it was submitted that it is settled law that exemption provisions are required to be interpreted strictly and in case of doubt the benefit goes to the State. In support of such submission, the learned counsel relied upon the decision of the Supreme Court in the case of Commissioner of Customs v. Dilipkumar and Company, (2018) 95 taxman.com 327 (SC), for the proposition that an exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extend exemption to non-exempt service. Further, as per the definition of "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. It was contended that the supply of the subject services may not necessarily be supplied so as to provide services of transmission and distribution of electricity. It was submitted that similar provisions were part of the Finance Act, 1994 and, hence, it is not a new concept under the CGST Act. Reliance was placed upon a decision of the Authority for Advance Rulings, Rajasthan in TP Ajmer Distribution Ltd., (2018) 95 taxmann.com 61 (AARRajasthan), to submit that the said authority has held that various services including meter renting services are chargeable under GST as per the impugned circular dated 1.3.2018. 5.6 It was, accordingly, urged that the petitioner is not entitled to exemption from payment of service tax in respect of the related/ancillary services and that the petition being devoid of merits deserves to be dismissed. 6. In rejoinder, Mr. S. N. Soparkar, learned counsel for the petitioner, submitted that the clarif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial year 2017-18, which is clearly in terms of the impugned circular dated 1.3.2018, item-4 whereof clarifies that services by way of transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST under Notification No.12/17-CT(R) No.25; the other services such as (i) application fee for releasing connection of electricity; (ii) rental charges against metering equipment; (iii) testing fee for meters/ transformers, capacitors etc; (iv) labour charges from customers for shifting of meters or shifting of service line; (v) charges for duplicate bill provided by DISCOMS to consumers are taxable. Thus, it is crystal clear, that the impugned summons, except to the extent the same relates to services provided to MEGA, has been issued on the basis of the impugned circular. It appears that the respondents for the entire duration of the negative list regime seem to have proceeded on the basis that these services stand included in the transmission and distribution of electricity and, therefore, have not raised any demand till date. However, now, taking shelter behind the impugned circular, the impugned summons has been issued seeking do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Insofar as the first phase is concerned, the respondents do not dispute that the related/ancillary services to transmission and distribution of electricity are exempt from payment of service tax. The dispute, therefore, relates to the period of the negative list regime and the CGST/SGST regime. 11. Insofar as the second phase, namely, the negative list regime is concerned, with effect from 1.7.2012, section 65B of the Finance Act, 1994 came to be amended and service tax became leviable on all services, other than those services specified in the negative list. Admittedly, transmission and distribution of electricity by an electricity transmission or distribution utility, finds place in the negative list and, is therefore, not exigible to service tax. 12. The first question that arises for consideration is whether services relating to transmission and distribution of electricity fall within the ambit of clause (k) of section 66D of the Finance Act and, are therefore, exempt. In this regard, it may be noted that prior to the coming into force of the negative list regime, goods and services were exempted by virtue of notifications issued in exercise of powers under sub-section (1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectricity". However, while for the prenegative list phase, the respondents considered the services related to transmission and distribution of electricity as exempt under the exemption notifications, for the negative list regime and the GST regime, they seek to exclude such services from the ambit of transmission and distribution of electricity. From the affidavits-in-reply filed on behalf of the respondents, there is nothing to show as to how the very services, which stood included within the ambit of transmission and distribution of electricity now stand excluded. The sole refrain of the respondents is that in view of the fact that the exemption notification stands rescinded, the clarification also stands rescinded. What is lost sight of is that the clarification was only in respect of electric meters, whereas all related services were included within the ambit of transmission and distribution of electricity and given the benefit of the exemption notifications. Moreover, the clarificatory circular merely clarifies the stand of the Government as regards what would stand included within the meaning of "transmission and distribution services" namely, essential activities having dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te supply where exemption from service tax has been granted in respect of the principal supply. 17. Section 66F of the Finance Act lays down the principles of interpretation of specified descriptions of services or bundled services and reads thus:- "66F. Principles of interpretation of specified descriptions of services or bundled services - (1) Unless otherwise specified, reference to a service (herein referred to as main service) shall not include reference to a service which is used for providing main service. Illustration. - The services by the Reserve Bank of India, being the main service within the meaning of clause (b) of Section 66-D, does not include any agency service provided or agreed to be provided by any bank to the Reserved Bank of India. Such agency service, being input service, used by the Reserve Bank of India for providing to main service, for which the consideration by way of fee or commission or any other amount is received by the agent bank, does not get excluded from the levy of service tax by virtue of inclusion of the main service in clause (b) of the negative list in Section 66-D and hence, such service is leviable to service tax. (2) Where a serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is relevant for the present purpose provides that if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which gives such bundle its essential character. The explanation thereof defines "bundled service" to mean a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. 20. The facts of this case are required to be examined in the light of the above statutory provisions. In this case, we are concerned with transmission and distribution of electricity being the main services and application fee for releasing the connection for electricity; rental charges against metering equipment; testing fee for meters/transformers, capacitors etc.; labour charges from customers for shifting of meters or shifting of service lines; charges for duplicate bills provided by DISCOMS to consumers being related services. The question is whether an element of provision of these services is combined with an element or elements of provision of the main service of transmission and distribution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lectricity by him in pursuance of section 43 shall be in accordance with such tariffs fixed from time to time and conditions of his licence. (2) The charges for electricity supplied by a distribution licensee shall be - (a) fixed in accordance with the methods and the principles as may be specified by the concerned State Commission; (b) published in such manner so as to give adequate publicity for such charges and prices. (3) The charges for electricity supplied by a distribution licensee may include - (a) a fixed charge in addition to the charge for the actual electricity supplied; (b) a rent or other charges in respect of any electric meter or electrical plant provided by the distribution licensee. (4) Subject to the provisions of section 62, in fixing charges under this section a distribution licensee shall not show undue preference to any person or class of persons or discrimination against any person or class of persons. (5) The charges fixed by the distribution licensee shall be in accordance with the provisions of this Act and the regulations made in this behalf by the concerned State Commission." 21. On a plain reading of section 43 of the Electric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... electric plant are elements of service which are naturally bundled in the ordinary course of business, with the single service of transmission and distribution of electricity which gives the bundle its essential character. The only related service which does not fall within the ambit of the definitions of electric line and electric plant is the meter used for ascertaining the quantity of electricity supplied to any premises. However, insofar as installation of electricity meter and hire charges collected in respect of electricity meters are concerned, by the circular dated 7th December, 2010, the Government of India has clarified that supply of electricity meters for hire to the consumers is an essential activity having direct and close nexus with transmission and distribution of electricity and therefore, is covered by the exemption for transmission and distribution of electricity extended under the relevant notifications. Evidently therefore, all the services related to transmission and distribution of electricity are naturally bundled in the ordinary course of business of the petitioner and are required to be treated as provision of the single service of transmission and distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingle service which results in highest liability of service tax. Accordingly, where the services are naturally bundled in the ordinary course of business and the single service which gives such bundle its essential character is exempt from tax, the entire bundle will have to be treated as provision of such single service. 25. Thus, insofar as the phase relating to the negative list regime is concerned, the services in question would fall within the ambit of bundled services as contemplated under subsection (3) of section 66F of the Finance Act, and would have to be treated in the same manner as the service which gives the bundle its essential character, namely, transmission and distribution of electricity and, would therefore, be exempt from payment of service tax. 26. Insofar as the phase relating to the CGST/SGST Acts regime is concerned, section 8 of the CGST Act makes provision for tax liability on composite and mixed supplies and postulates that the tax liability on a composite or a mixed supply shall be determined in the manner provided in clauses (a) and (b) thereunder. Clause (a) says that a composite supply comprising two or more supplies, one of which is a principal sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax liability of a composite or a mixed supply shall be determined in the manner provided thereunder. In a given case, the tax liability may be nil, but that would not take such service out of the purview of section 8 of the Act, which would be attracted if the supply is either composite or mixed in nature, notwithstanding that the end result may be nil tax liability. 28. While on behalf of the petitioners it has been contended that the services rendered by them are in the nature of composite supply, on behalf of the respondents it has been contended that the same are in the nature of mixed supply within the meaning of such expression as contemplated in section 2(74) of the CGST Act and would, therefore, fall within the ambit of clause (b) of section 8 of that Act which provides that a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax. Mixed supply has been defined under section 2(74) of the CGST Act to mean two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with transmission and distribution of electricity. This circular only provides an interpretation of when a service would stand included in another service, namely, when such service is an essential activity having direct and close nexus with the exempted activity. Therefore, the fact that the exemption notifications came to be rescinded has no relevance inasmuch as all that the circular clarifies is what according to the Government of India would stand included in another service. Such interpretation would not change merely because such exemption is now granted under some other provision. - The meaning of "transmission and distribution of electricity" does not change either for the negative list regime or the GST regime. Accordingly, the services which stood included within the ambit of transmission and distribution of electricity during the pre-negative list regime cannot now be sought be excluded by merely issuing a clarificatory circular, that too, with retrospective effect. By the clarificatory circular, the respondents seek to give a different interpretation of the very same services as against the clarification issued for the pre-negative list regime. - From the very ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service of transmission and distribution of electricity which gives the bundle its essential character. - The term "taxability" means liability to taxation. Thus, the term taxability would take within its sweep not being taxable also inasmuch as liability to taxation would also mean not being liable to any tax. Thus, the liability to tax of a bundled service has to be determined in the manner provided under sub-section (3) of section 66F of the Finance Act. If the services are naturally bundled in the ordinary course of business, the bundle of services shall be treated as provision of the single service which gives the bundle its essential character and where the services are not naturally bundled in the ordinary course of business, the same is required to be treated as provision of the single service which results in highest liability of service tax. Accordingly, where the services are naturally bundled in the ordinary course of business and the single service which gives such bundle its essential character is exempt from tax, the entire bundle will have to be treated as provision of such single service. - In respect of the period falling under the negative list regime, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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