State Industries Promotion Corporation of Tamil Nadu Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
The appeal before CESTAT Chennai concerned whether the appellant, a State industrial development corporation, was liable to pay service tax on the 50% capital cost collected upfront from industrial allottees for establishing water supply infrastructure in industrial estates. The appellant grants industrial plots on 99-year leases and requires each allottee to enter into a separate water supply agreement. Under this arrangement, allottees pay a one-time upfront amount equal to 50% of the capital cost of the water supply infrastructure, while the appellant bears the remaining 50%. Separate annual water charges are collected based on actual consumption.
The department alleged that, for the period October 2014 to September 2015, the development charges and the 50% capital cost for water supply were taxable as “Support Services” under Section 65B(49) of the Finance Act, 1994. While adjudicating the matter, the Principal Commissioner dropped the demand relating to development charges but confirmed the service tax demand on the 50% capital cost for water supply, along with interest under Section 75 and penalty under Section 76(1), leading to the present appeal.
The appellant argued that the upfront amount represented recovery of the cost incurred for creating water supply infrastructure and was distinct from recurring water charges, which were based on actual consumption. It contended that the department had incorrectly assumed that the capital cost was determined by the quantity of water supplied. The appellant further submitted that the reliance placed on Jaisu Dredging & Shipping was misplaced because that decision dealt with different facts. It also argued that Section 104 of the Finance Act, 1994 exempted one-time upfront amounts, including amounts described as “premium, salami, cost, price, development charge or by whatever name called,” and that the expression “by whatever name called” covered the water supply capital cost. The appellant also pointed out that, for earlier periods from July 2012 to September 2014, the department itself had dropped identical demands by holding that the 50% capital cost was exempt under Section 104, and therefore the same benefit should be extended for the present period.
