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TMI Blog2019 (11) TMI 1353X X X X Extracts X X X X X X X X Extracts X X X X ..... made, a reference to the CGST Act, would also mean a reference to the same provision under the APGST Act. Further, henceforth, for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST or AP GST Act would be mentioned as being under the GST Act. 3. BRIEF FACTS OF CASE: 3.1 M/s. Southern Power Distribution Company of Andhra Pradesh Limited., (referred to as 'Discom' or 'APSPDCL', for brevity) is a state-owned company having 'Distribution Licence' as defined in Electricity Act, 2003, and are engaged in distribution of electricity to consumers and also in transmission of electricity from sub-stations. 3.2 As a distribution licensee under Section 2 (17) of the Electricity Act, 2003, main activity of APSPDCL is supply of electricity and for this purpose engages in other ancillary activities in connection and in relation to supply of electricity. Some of the activities it is engaged in and are in connection with supply of electricity to the consumers are mentioned below: (a) Granting electricity connections including re-connection and also supply of equipment such as meters. (b) Creation of distribution and transmission systems. (c) Maintena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided by central government and no commercial activity is involved with regards these works? (e) If the answer to the above questions at (A), (B) and (C) is 'NO', 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? (f) 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 purpose are exempted vide Notification No.14/2018- Central Tax (Rate) dated 26.07.2018? 5. APPLICANT'S INTERPRETATION OF LAW AND FACTS: 5.1 The applicant submits that as mentioned in the Memorandum of Association, their objectives are supply of quality electricity to the consumers and execution of various infrastructure projects through contractors. The activities of Discom are controlled by Electricity Regulation Commission established both at central and state levels under the Electricity Regulatory Commissions Act, 1998 for the purpose of rationalization of electricity t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission of electricity are exempted under Notification No.11/2010-ST. In the recent case of Narasa Reddy v. UOI and Others in W.P. No.23639/2018 dt.12.12.2018, the Hon'ble High Court of Andhra Pradesh held that all services provided to a distribution licencee are outside the purview of service tax under Notification No.32/2010-ST dt.22.06.2010. However, the applicant was registered with service tax for the purpose of payment of service tax under reverse charge mechanism for certain services received by it as required under Section 68 (2) of the Act and was accordingly discharging service tax and filing returns. 5.6 Even after introduction of GST, the supplies are continued to be exempt. Entry No.25 under heading 9969 in Notification No.12/2017-Central Tax dt.28.06.2017 stipulates that 'transmission or distribution of electricity by an electricity transmission or distribution utility' attracts nil rate of tax i.e., the exclusion from service tax provided in Finance Act, 1994 is continued even in GST regime. All supplies of services and goods made by Discom are in relation to or incidental to main supply of electricity and this supply is exempted from GST. 5.7 The Discom fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch as Deendayal Upadhyay Gram Jyoti Yojna for Rural Electrification ('DDUGJY'), Integrated Power Development Scheme ('IPDS'), Restructured Accelerated Power Development and Reforms Program etc., relating to strengthening of power distribution network and Rural Electrification for public welfare. These welfare schemes are promoted by the Central/ State Government with extension of grants to the Discom. 5.11 Further, Services supplied by electricity distribution utilities 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 use are partially exempted vide Notification No.14/2018-Central Tax (Rate) dt.26-07-2018 amending Notification No.12/2017-Central Tax (Rate) dt.28-06-2017. 5.12 Though all the above activities are in relation to principal supply of electricity which is exempted, the applicant opines that the execution of the above services through third-party contractors are exempted from GST and even if not exempted, they are at least eligible for concessional rate of tax as provided in Notification 24/2017-Central Tax (Rate) dt:21.09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of Gujarat during the course of arguments in the recent case of Torrent Power Ltd vs. UOI 2019-TIOL-15-HC-AHM-GST = 2019 (1) TMI 1092 - GUJARAT HIGH COURT and the Hon'ble High Court had considered the same and then held that this contention of Revenue is not sustainable. The relevant parts of the decision are extracted below: The Revenue's argument on this issue is mentioned in para 4.2 of the judgment which is extracted below: It was submitted that insofar as the GST regime is concerned, these services are not exempted by the notifications issued under section 11 of the GST Act, and hence, when on one service tax is leviable and the other service is exempted, section 8 of the CGST Act would not apply. It was contended that related/ancillary services are not exempted by virtue of any notification under section 11 of the CGST Act and that the impugned circular merely clarifies that these services are not exempted. The decision of the Hon'ble High Court on this point is in para 27 of the judgment which is extracted below: 27. It has been contended on behalf of the respondents that clause (a) of section 8 of the CGST Act would not be applicable where the principa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. They relied on the decision of Hon'ble High Court of Gujarat in the case of M/s Torrent Power Limited. Vs. Union of India = 2019 (1) TMI 1092 - GUJARAT HIGH COURT. They also sought for certain clarifications on the eligibility of exemption on the issues of services under 'Deendayal Upadhyay Gram Jyoti Yojna for Rural Electrification' (DDUGJY), 'Integrated Power Development Scheme' (IPDS) and Restructured Accelerated Power Development and Reforms Program and also Agricultural Demand Side Management Scheme (AGL). The issues are examined hereunder. 7.2 The entry no. 25 of the Notification No. 12/2017- Central Tax (Rate) New Delhi, the 28th June, 2017 reads as follows: 25 Heading 9969 Transmission or distribution of electricity by an electricity transmission or distribution utility. Nil Nil The rate of duty for Transmission or distribution of electricity by an electricity transmission or distribution utility is very clear. Whereas, the applicant's view is that the transmission and distribution of electricity is to be considered as composite supply and other activities for which they charge separate consideration from the customers i.e. supply of services such as connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language; (c) Equally impermissible is an interpretation which does not follow from the plain, unambiguous language of the statute; (d) Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature"; (6) Sarabhai M. Chemicals-{2005 (2) SCC 168 = 2004 (12) TMI 89 - SUPREME COURT}- A three member Bench of the Supreme Court held that "it is well settled that an exemption notification has to be strictly construed" and that "the conditions for taking the benefit of the exemption have to be strictly interpreted" ; (7) Tullow India Operations Ltd.-{(2005) 13 SCC 789 = 2005 (10) TMI 502 - SUPREME COURT} The Apex court held "The principles as regards construction of an exemption notification are no longer res integra: whereas the eligibility clause in relation to an exemption notification is given strict meaning wherefor the notification has to be interpreted in terms of its language, once an assessee satisfies the eligibility clause, the exemption clause therein may be construed lib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attained finality in view of the fact that the Appeal against the said decision by the Government is before the Hon'ble Supreme Court of India. The said decision is examined and found that; (a) The supply of electricity and supply of transmission and distribution of electricity service can be said to be naturally bundled as the supply of electricity is given physical effect by way of transmission or distribution of electricity. A supply which consists of two or more taxable supplies of goods or service or both or any combination thereof, which are naturally bundled and are supplied in conjunction with each other in ordinary course of business, one of which is the principal supply, is a composite supply. The primary elements of a composite supply include that, (i) there should be two or more supplies; (ii) supplies should be naturally bundled; (iii) supplied in conjunction with each other in ordinary course of business In the supply of electricity (i.e. supply of good), the ancillary services such as testing charges, rental charges, labour charges are provided in order to aid the convenient supply of electricity. Supply of electricity is a continuous supply while the ancil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately; (c) It is clear from the above provisions particularly the illustrations given under section 2 (30) [definition of composite supply] that 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. The supplies in question as discussed above may or may not be supplied with each other. They are independent supplies, supplied and paid for only if consumed by the customer. A natural corollary of the above legal provisions and the term naturally bundled used in section 2 (30) would be that the different elements in a composite supply are integral to the overall supply and if one of the elements is removed, the nature of the supply will be affected. However, in case the services in question such as testing of meters are not procured with the supply of electricity or are procured separately from the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is given due to various reasons such as the residential/ industrial premises remaining vacant. (g) In regard to circular No. 131/3/2010-ST dt. 07.12.2010 it is noticed that the said clarification was issued in the context of the positive list service tax regime, where a service in order to be taxable should have been so specified under section 65 (105). This clarification lost its relevance in the negative list where each service was subject to service tax unless included in the negative list of services or exempted. During the GST regime, the service of installation of electricity meter and consequent collection of hire charges for the meter may have nexus with the supply of electricity but is not naturally bundled with supply of electricity, as discussed above. While the practice followed by the Discoms earlier was to compulsorily supply the meter on hire to the consumer, the system has liberalized over years and now a consumer can opt to buy their own meter of specifications approved by CEA/ DERC and accuracy norms as per BIS. This development clearly shows that supply of electric meter on hire is no more naturally bundled with the supply of electricity. It is one of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2 (30) would be that the different elements in a composite supply are integral to the overall supply and if one of the elements is removed, the nature of the supply will be affected. However, the supplies in question as discussed above may or may not be supplied with each other. Supply of electricity may take place without the ancillary charges for testing or shifting of meters or for providing duplicate bills and these services are neither integral to the supply or electricity nor the charges levied are linked to electricity energy charges. The provision of related services such as shifting of lines or meters is infrequent, need based and is provided upon specific request of the consumer at a cost which is independent of energy cost. They are independent supplies, supplied and paid for only if consumed by the customer. Furthermore, in case the services in question such as testing of meters are not procured with the supply of electricity or are procured separately from the supplied of electricity or from a third party, the supply of electricity is not affected in any fashion. Therefore, to say that the services cannot be provided independent of each other would not hold ground, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CCEA approval dated 21.06.2013 for completion of the targets laid down under R-APDRP for 12" and 13th plans by carrying forward the approved outlay for R-APDRP to IPDS. * The objective of the Agriculture Demand Side Management Scheme is to reduce peak demand, shift the time during which electricity is consumed to off-peak hours and to reduce the total quantum of consumption. 7.6 The applicant of the view that; * the Government of India, vide Notification No.11/2017-Central Tax (Rate) dt.28.06.2017 notified the rate of GST applicability on supply of services, under this notification for Heading 9954 the applicable rate of GST is 18% (CGST - 9% & SGST - 9%); the said notification has been amended from time to time and Notification No. 24/2017-Central Tax (Rate) dt.21.09.2017, inserted Entry No. (vi) notified concessional GST rate of 12% (6% CGST & 6% SGST) for the construction services provided to Central Government, State Government, Union Territory, a local authority or a Government Authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of - (a) A civil structure or any other original wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower to the farmers and in rural areas. As far as the commercial nature is concerned, the Discom is providing the services to the rural areas at concessional rate and for farmers it does not charge any amount for the supply of electricity. * The nominal charges it collects from the rural area connections do not make the civil works it creates under the said scheme as commercial nature as upheld in the case of B.G. Shirke Construction Technology Pvt. Ltd. vs. CCE, Pune-III 2014 (33) S.T.R. 77 (Tri- Mum) = 2013 (11) TMI 870 - CESTAT MUMBAI. Further, in the case of CCE & S.T., Allahabad vs Ganesh Yadav 2017 (6) G.S.T.L. 428 (Tri. - All.) = 2017 (5) TMI 1251 - CESTAT ALLAHABAD it was held that when the service is provided under the scheme of the Government for the purpose of welfare of weaker section of the society, such service is not taxable. * The IPDS works are relating to strengthening of sub-transmission & distribution system, including provisioning of solar panels, metering of distribution transformers/ feeders/ consumers/ in the urban areas, and IT enablement of distribution sector and the above discussion squarely applies to these works also. Hence repetition is avoided. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o reduce peak demand & shifting the time during which electricity is consumed to off-peak hours and to reduce the total quantum of consumption are of industrial nature & for commercial purpose and therefore, this situation cannot be called as non-commercial at no stretch of imagination. The above works referred by APSPDCL are for business purpose and the benefit of Concessional Rate of 12% (6% under Central tax and 6% State tax) are any other concessional rate is NOT available to the applicant. As per Section 2 of CGST Act, 2017 and APGST Act, 2017 defines "works contract" as a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract; The composite supply of works contract as defined at Section 2 of CGST Act '2017 and APGST Act, 2017 is treated as supply of service in terms of Serial No.6, Schedule II of CGST Act '2017 and APGST Act, 2017. In view of the above, the said works under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant in the said notification wording, the same cannot be held applicable. Accordingly we pass the following order. RULING (a) 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? (b) 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? (c) 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? Answers to questions (a); (b) & (c) In the facts and circumstances presented by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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