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TMI Blog2024 (5) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... ater to the industrial power plant. The appellant was required to pay water charges to the government for the water drawn by it from the government water source at the rates fixed by the Water Department which would be Rs. 5.50/- per cubic meter. In addition, the appellant was also required to pay local fund cess or any other tax as may be fixed by the government. The appellant was required to make its own arrangement at its own cost for drawl of water from the water resource of the government to the plant - The appellant has to pay water rates/water charges depending on the quantity of water drawn by the appellant. The Agreement also deals with a situation where there can be reduction or shortage in the water supply. This clearly means that the Agreement is for supply of water and not mere access to water source. It is, therefore, more than apparent that the Agreement is for supply of water by the government to the appellant and is not for assignment of any right to the appellant to use the natural resources of the government. The appellant is justified in asserting that the Agreement executed between the appellant and the government is for supply of water for which charges are pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April 2016 to June 2017 on the said charges paid by the appellant to the Water Department with interest and penalties. 6. The Commissioner, by the order dated 30.11.2022, confirmed the demand of service tax of Rs. 9,98,36,065/- with interest and imposed penalties on the appellant. The Commissioner noticed that the basic issue that arose was whether the Government of Madhya Pradesh had provided taxable service of assignment of the right to use natural resources i.e. water from the Rihand Reservoir to the appellant as per the Agreement or was it a supply of water by the Government to the appellant. The relevant findings recorded by the Commissioner in the impugned order are as follows: 27.1 As regards the services provided by the government, I find that the scope of taxable services provided by the Government/Local Authority to the business entities has been expanded vide budget 2016-17. One of the key amendment introduced vide Union budget 2016- 17 is that the service tax has been made applicable on any service provided by the Government (excluding specified services) which was earlier limited to support services . This amendment was brought into force from 01.04.2016 vide Notifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or specified purposes as per the terms and conditions imposed by the Government and the monetary consideration determined by the Government and agreed upon by such person. In present case, the access to the natural water sources viz. Rihand Reservoir has been permitted by the Government of Madhya Pradesh to the Noticee and allowed drawl of specified quantity of water for non irrigation purpose for specified period for which the monetary consideration is charged in the form of water charges. The machinery and equipments required for drawl of water and arrangements like pipe lines etc for its conveyance up to their plant has been installed by the Noticee, which are open to inspection by the Government at any time and are under its control. As such, the Government has performed the service of assignment of the right to use water by way of permission for drawl of water from the water from the water body for non irrigation use within their plant which is a taxable service. Accordingly, I find that present case is not of supply of water by the Government to the Noticee as contended by the Noticee, but it's a case of supply of water by the Noticee to themselves after the Government ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r plant of the Noticee and remaining water is drained out. I also find that there is no such clause in the agreement that the water will be returned to the Government after specified period. Hence I find that there is no merit in the contention of the Noticee which is liable for rejection. xxxxxxxxxx 31. The Noticee has also contended that even if the activity of drawl of water is a service, then also it is exempted under Notification No. 25/2012-ST, dated 20.06.2012as amended vide Notification No. 22/2016-ST, dated 13.04.2016 in terms of Sr. No. 39 which is reproduced as under; 39. Services by Government, a local authority or a governmental authority by way of any activity in relation to any function entrusted to a municipality under Article 243 W of the Constitution. The contention of the Noticee is that water supply for domestic, industrial and commercial purposes is one of the functions entrusted to the municipality under Article 243 W. Since the Government has provided the service of supply of water to the Noticee, it is exempted from payment of service tax in terms of Sr. no. 39 of Notification No. 25/2012-ST, dated 20.06.2012 as amended by Notification No. 22/2016-ST, dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be subjected to service tax as it does not amount to supply of services but it is in fact supply goods defined under section 65B(25) of the Finance Act, 1994 [the Finance Act]; (v) The activity carried out by the department under the Agreement constitutes a transfer of right to use the water and is, therefore, a deemed sale in terms of article 366(29A) of the Constitution; (vi) The invocation of extended period of five years in the present case is erroneous and untenable in law; and (vii) Penalty cannot be imposed on the appellant on the ground of alleged non-disclosure of the correct value of taxable services under section 77 and 78 of the Finance Act. 8. Shri S.K. Meena, learned authorised representative appearing for the department, however, supported the impugned order and made the following submissions: (i) The access to the natural water source namely Rihan Reservour has been permitted by the Government of Madhya Pradesh to the appellant and drawl of specified quantity of water has been allowed for non-irrigation purpose for specified period for which monetary consideration is charged in the form of water charges. The machinery and equipments required for drawl of water ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the Notification dated 13.04.2016 is limited to one time charges for assignment of right to use such natural resources only; (iii) The contention of the appellant that it is a case where there is a transfer of right to use the water by the Government to the appellant, which would be deemed sale in terms of article 366 (29A) of the Constitution cannot be accepted for the reason that most of water gets consumed in the thermal power plant and only the remaining water is drained out. Thus, it would not be a case involving transfer of effective control and possession of the goods since in the present case some of the goods are not returned after the specified period is over. 11. To appreciate the contentions that have been advanced by the learned counsel for the appellant and the learned authorised representative appearing for the department, it would be appropriate to reproduce the relevant portions of the Agreement dated 05.10.2013 executed between the appellant and the Water Department and the same are reproduced below: Agreement Form for Supply of Water to Industrial Power Plant Form-7A (See Rule 71-A) xxxxxxxxxxxx Whereas the company has applied to the Government for permissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... damages or losses due to any event of Force Majeure. (6 to 9) xxxxxxxxx (10) The arrangements for measurements of water drawn by the company from the said water source shall be made by the company in such a manner as may be directed by the Government or Executive Engineer, Water Resources Division No.-2, Singrauli (M.P.) (hereinafter referred to as the Executive Engineer). xxxxxxxxxx. (11) In the event of there being a shortage of water in the said Government water source, the Executive Engineer shall serve a notice on the company explaining the possibility of the antificipated shortage. The company shall in such circumstances reduce the consumption of water and will furnish to the Executive Engineer, a weekly return showing the actual quantum of water drawn by it. xxxxxxxxxx 25.1 The agreed programme for water drawl from Rihand Reservoir shall be as follow :- S.No. Effective dated of water drawl Programme for Commissioning of Power Unit Quantity of water drawl per month Unit Commissioned Total units under operation 1. 1.1.2013 1 unit of 660 MW 660 MW 2. 1.5.2013 1 unit of 660 MW 1320 MW 3. 1.9.2013 1 unit of 660 MW 1980 MW 4. 1.1.2014 1 unit of 660 MW 2640 MW 5. 1.5.2014 1 unit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges shall be as agreed upon between the State government and the company and fixed in accordance with the rules made under the Act. Rule 71A also provides that water may be supplied with the prior permission of the State government for any industrial purpose to a private person at the rates not less than the rates specified in Column (3) of the Table. 17. The Title of the Agreement also shows that it was for supply of water to the industrial power plant. The appellant was required to pay water charges to the government for the water drawn by it from the government water source at the rates fixed by the Water Department which would be Rs. 5.50/- per cubic meter. In addition, the appellant was also required to pay local fund cess or any other tax as may be fixed by the government. The appellant was required to make its own arrangement at its own cost for drawl of water from the water resource of the government to the plant. The Agreement also specifically provided that the government has not given any guarantee for the uninterrupted supply of water during and the government also would not be responsible for non supply or inadequate supply of water as a result of any event of Force ..... X X X X Extracts X X X X X X X X Extracts X X X X
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