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TMI Blog2019 (12) TMI 1574X X X X Extracts X X X X X X X X Extracts X X X X ..... sumer. It is the same principle that guides in the determination of the question whether the ancillary activities form part of the composite supply or not. On perusal of definition of composite supply, it is clear that the ancillary activities of the appellant such as connection, re-connection, supervision of the works, erection of poles, sub-stations, transmission lines etc., and supply of meters etc., are not naturally bundled with supply of electricity rather they are supplied by and charged for by the appellant only if demanded or consumed by the customers. Thus, the exemption notified for 'transmission and distribution of electricity' cannot be extended to it's ancillary supplies on the pretext of they being a part of composite supply, which is far from true; and they are taxable irrespective of the fact that whether they are supplied by contractors or third parties. 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 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AND SRI NARESH PENUMAKA, MEMBER Authorized Representative : Sri. Y. Srinivasa Reddy, Advocate ORDER M/s. Southern Power Distribution Company of Andhra Pradesh Limited 19-3-65/A, Srinivasapuram, Tirchanoor Road, Tirupati-517503 Andhra Pradesh (hereinafter referred to as appellant) registered under GST Act. The appellant, (referred to as 'Discom' or 'APSPDCL', for brevity) is a state-owned company having 'Distribution License' as defined in Electricity Act, 2003, and engaged in transmission of electricity from sub-stations and distribution of electricity to consumers. The appellant had filed an application before the Appellate Authority for Advance Ruling in ARA-02 dated 16.09.2019, contending the Ruling passed by the Authority for Advance Ruling, A.P vide Ruling AAR NO. 22/AP/GST/2019, Dated 08.07.2019 . As per sub section 2 of section 100 of APGST Act 2017/CGST Act 201, the appeal shall be filed within a period of 30 days from the date on which the ruling sought to be appealed against is communicated to the applicant. But it is observed that the appellant had filed the application on 16.9.2019 with a delay of 23 days from the date of rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough contractors and third parties for the purpose of transmission or distribution of electricity or sale of electrical energy are also exempted? d. If the answer to the above questions is 'NO', 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? 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 petitioner 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 and exempted form payment of GST. (d) Pass orders to the effect that 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. (e) Alternatively, pass orders stating that 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 regard to these works. (f) Orders be passed to the effect that the execution of the Agricultural Demand Side Management Scheme (AGL) works are liable to 12% GST since they are executed for non-commercial purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OL-16-AAAR-GST , it is held that a composite supply comprising of two or more supplies, one of which is a principal supply will be treated as supply of such principal supply. Therefore, GST applicable on the principal supply is applicable for all the services forming part of composite supply. (c) In the case of M/s. Taranjeet Singh Tuteja Brothers 2018-TIOL-262-AAR-GST , it is held that where an applicant has been allotted with a principal work and along with the same, they will be paid for incidental works, since there exists a single contract, the supply should be treated as composite supply. 4) The authority did not follow the judicial discipline and dis-regarded the Hon'ble Gujarat High Court's Order in the case of M/s Torrent Power Ltd., The said decision has not been stayed by the Hon'ble Supreme Court and the Advance Ruling Authority, being a quasi-judicial authority is duty bound to follow the same; 5) Instead of following the Hon'ble Gujarat High Court's order, the Advance Ruling Authority discussed about the merits of the decision taken by the Hon'ble High Court. Further, the decision of the Hon'ble High Court was not even ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 services in question would fall within the ambit of bundled services as contemplated under sub-section (3) of section 66F of the Act, and would have to be treated in the same manner as the service which gives the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above facts in totality, it is observed that merely because the construction has been get done from the contractor/sub-contractor, it will not change the nature or the activity from non-commercial to commercial. Once it comes out that Government has undertaken a project which is non-commercial in nature and not taxable, service received on this account by the Government would not come under the taxability. In above context, judgment quoted by the Commissioner (appeals) and subsequent reference to the Ministry circular will not convert the activity from non-commercial to commercial . 14) The appellant does not provide any supplies to the ultimate consumers directly except supply of electricity and undertakes all supplies such as construction of sub-stations, laying of cables etc., through sub-contractors. If the exemption provided to supply of electricity and its ancillary activities provided through the contractors to the ultimate consumers is not extended to the services as envisaged by the Governments, the policy of non-taxing the electricity gets defeated as held in the above cases. 3. Personal Hearing The Personal Hearing was called on 19th November 2019, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority failed to appreciate Section 8 (a) of the GST Act which deals with the determination of principal supply in a composite supply. 4. The appellant stated that they collect all the monies from the consumers mostly for supply of electrical energy which is exempted. For the purpose of supply of electricity, he needs to create infrastructure and collects amounts for the same. Unless this infrastructure is created, electricity cannot be supplied. Even though the consumers pay amount for the provision of infrastructure, the equipment for which money was paid by the consumers will become property of the appellant as per the Electricity Act, 2003 as can be seen from the GTCS (General terms and conditions of supply) issued by the Electricity Regulatory Commission. Thus, there is no supply of any goods or services to the consumers except supply of electricity as the property in the goods is not transferred to the consumers and the amounts are collected only for facilitating supply of electricity. Even in the balance sheet of the appellant company, the value of these goods for which monies are collected from the consumers is shown in the depreciation account. In this context, the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istribution of electricity or sale of electrical energy are also exempted. The appellant relies on the following entry, while contending his activities as part of the principal supply of transmission or distribution of electricity , which reads as under The entry no. 25 of the Notification No. 12/2017-Central Tax (Rate) New Delhi, the 28th June, 2017 reads as follows: 25 Heading Transmission or 9969 distribution of electricity by an electricity transmission or distribution utility. Nil It is undisputed that the appellant's main activity of transmission or distribution of electricity is rated nil as per the above entry. But the issue to be decided is whether the activities of the appellant as enlisted in the application are taxable or not. In this regard it is pertinent to make a reference to the clarificatory circular issued with regard to the following services as approved by the Fitment Committee to the GST Council in its meeting held on 9th, 10th and 13th January 2018 as under Circular No. 34/8/2018-GST F. No. 354/17/2018-TRU Subject: Clarifications re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only if demanded or consumed by the customers. Thus, the exemption notified for 'transmission and distribution of electricity' cannot be extended to it's ancillary supplies on the pretext of they being a part of composite supply, which is far from true; and they are taxable irrespective of the fact that whether they are supplied by contractors or third parties. In this regard we agree with the decision of the AAR. At the next stage, now we look into the following issues 1) 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. 2) Whether the execution of the Agricultural Demand Side Management Scheme (AGL) works are liable to 12% GST since they are executed for non-commercial purposes. In this context, the appellant contends that the AAR had not examined their alternative plea with regard to av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt through the contractors, even though funded by the Central Government with grants of 60% or by the State Government with REC loan funding, have the main objective of making the organization as commercially viable. It clarifies that the works referred by APSPDCL are for commercial purpose and the benefit of concessional rate of 12% as per the Notification No. 24/2017- Central Tax (Rate) dt.21.09.2017 is not applicable to the appellant. We agree with the decision of the lower authority in this regard. Finally, we look into the question whether the supply of services and goods made by the appellant 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 use are exempted vide Notification No.14/2018- Central Tax (Rate) dated 26.07.2018. The relevant portion of the Notification is mentioned here under (1) (2) (3) (4) (5) 10A Heading 9954 Services supplied by electr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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