Case Law Details
In re Tamil Nadu Generation. & Distribution Corporation Limited (GST AAR Tamil Nadu)
The Tamil Nadu Generation & Distribution Corporation Limited (TANGEDCO) sought clarification on the GST liability concerning various charges collected in connection with the distribution of electricity. This ruling provides insights into the taxability of different utility charges under GST regulations.
Scope of the Application: TANGEDCO’s application falls within the purview of Section 97(2) of the CGST/TNGST Act, making it admissible for advance ruling under Sections 97(2)(b) and (e). The application queries the GST liability on multiple charges collected by TANGEDCO in relation to electricity distribution.
GST Exemption for Electricity Supply: As per Notification No.12/2017-CT(Rate) dated 28.06.2017, services related to transmission or distribution of electricity by authorized utilities are exempt from GST. TANGEDCO qualifies as an electricity transmission or distribution utility, and thus, the charges directly associated with electricity transmission or distribution are exempt from GST.
Exempted Charges: Charges such as belated payment surcharge, dishonored cheque service charge, and network/wheeling charges are integral to electricity transmission or distribution and are exempt from GST.
Taxable Charges: Certain charges, including application fees, meter rent, testing fees, etc., are deemed taxable as they are not directly related to the transmission or distribution of electricity. Board Circular No. 34/8/2018-GST clarifies the taxability of these ancillary services.
Composite Supply Analysis: While TANGEDCO argued for considering all services as part of a composite supply with electricity distribution, not all charges qualify as naturally bundled with the principal supply. Some charges are infrequent, need-based, and provided independently of electricity distribution, hence not constituting a composite supply.
Conclusion: Based on the ruling, charges directly related to electricity transmission or distribution are exempt from GST, while ancillary charges are taxable at the prevailing rate. TANGEDCO must ensure proper categorization of charges and compliance with GST regulations in line with the ruling provided.
This ruling provides clarity on the GST treatment of utility charges in the context of electricity distribution, offering guidance for TANGEDCO and similar entities operating in the sector.
Also Read AAAR Ruling in above: In re Tvl Tamilnadu Generation And Distribution Corporation Limited (GST AAAR Tamil Nadu); Order in Appeal No. AAAR/7/2024 (AR); 06/06/2024
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU
M/s Tamil Nadu Generation. & Distribution Corporation Limited, 144, Anna Salai, Chennai 600 002 (hereinafter called as “the Applicant”) are registered under the GST Acts with GSTIN: 33AADCT4784E1ZC. 2.1 The Applicant submitted a copy of challan evidencing payment of application fees of Rs. 5,000/- each under sub-rule (1) of Rule 104 of CGST Rules 2017 and SGST Rules 2017.
2.2 In their application for Advance Ruling, the Applicant has stated that ,-
> TANGEDCO, which is fully owned by the State, is a distribution licensee in terms of section 14 read with section 131 of the Electricity Act, 2003, and was made responsible for Generation and Distribution of Electricity.
> As per section 2(17), distribution licensee is one authorized to operate and maintain a distribution system for supplying electricity to the consumers.
> As per section 2(19), “distribution system” means the system of wires and associated facilities between the delivery points on the transmission lines or the generating station connection and the point of connection to the installation of the consumers”.
> Section 42(1) mandates that “It shall be the duty of a distribution licensee to develop and maintain an efficient, coordinated and economical distribution system in his area of supply and to supply electricity in accordance with the provisions contained in this Act’.
> As per section 12, “no person shall transmit, distribute or trade in electricity unless he is authorized to do so by a license issued under section 14, or is exempt under section 13.”
> In this regard various charges are recoverable by the Licensee (TANGEDCO) from the consumers as specified in the Electricity Supply Code notified in terms of the Electricity Act by the Tamil Nadu Electricity Regulatory Commission (the Commission or TNERC, for short) which is constituted under section 82.
> Similarly as per section 46 of the Electricity Act, 2003, the State Electricity regulatory Commission may by regulations (Tamil Nadu Electricity Distribution code), authorize a distribution licensee to charge from a person requiring supply of electricity any expenses reasonably incurred in providing any electrical line or electrical plant used for the purpose of that supply.
> The above charges apart, section 86(l)(e) enjoins the Commission to “promote cogeneration and generation of electricity from, renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee”.
> Accordingly, Tamil Nadu Electricity Regulatory Commission (Grid interactive Solar PV Energy Generating Systems) (GISS) Regulations, 2021 have been notified
> Regulation 4(i-a) Charges recoverable by tire licensee in the Tamil Nadu Electricity Supply Code 2004 (Notification No. TNERC/SC/7/1 Dated 21-07-2004 as amended-
“(i-a) The Wheeling charges/Network charges shall be payable by the HT/LT consumer category in accordance with the rates as the Commission may fix time to time for different category of consumers (to recover the cost incurred by the Licensee for its distribution wire business).
Provided that the wheeling charges/Network charges may be denominated in terms of RS/kWh or Rs/kVAh or Rs/kW/month or Rs/kVA/month for the purpose of recovery from the Distribution network user or any such denomination as my be stipulated by the Commission.”
> The Explanatory statement under the amendment notification dated 28.05.2021 states-
3. Therefore it is proposed that the Distribution network cost arrived by the Commission shall have to be recovered under separate head i.e. ‘wheeling charges/network charges. Such charges is applicable to all LT & HT category consumers at the rate fixed by the Commission time to time towards its Distribution wire business.
> As per section 2(76), “wheeling” means the operation whereby the distribution system and associated facilities of a transmission licensee or distribution licensee, as the case may be, are used by another person for the conveyance of electricity on payment of charges to be determined under section 62″.
> Therefore,
(a) The charges for wheeling / network charges are paid by a third party (distribution network user) requiring supply of electricity by using the licensee’s distribution system and associated facilities. Network charges / wheeling charges are charged on the distribution network user. The Commission fixes such charges with a view to recover the distribution network cost.
(b) The above charges may be denominated in terms of Rs/kWh (or) Rs/kVAh (or) Rs./kW/month (or) Rs./kVA/month or any such denomination for the purpose of recovery from the distribution network user.
(c) Section 42(2) mandates the Commission to specify the extent of open access in successive phases and in determining the charges for wheeling, to have due regard to all relevant factors.
(d) In this context the provisos in section 42(2) are also relevant. The provisions in this section enable the charging of a surcharge in addition to the charges for wheeling. Such surcharge is mandated to be utilised to meet the requirements of current level of cross subsidy within the area of supply of the distribution licensee.
(e) Further sub-section 42(4) provides that “Where the State Commission, permits a consumer or class of consumers to receive supply of electricity from a person other than the distribution licensee of his area of supply, such consumer shall be liable to pay an additional surcharge on the charges of wheeling as may be specified by the State Commission, to meet the fixed cost of such distribution licensee arising out of his obligation to supply”.
> Section 181(2)(i) states that “In particular and without prejudice to the generality of the power contained in sub-section (1), such regulations may provide for all or any of the following matters, namely: (p) reduction of surcharge and cross-subsidies under the third proviso to sub-section (2) of section 42; (q) payment of additional charges on charges of wheeling under subsection (4) of section 42; (r ) guidelines under sub-section (5) of section 42; (u)methods and principles by which charges for electricity shall be fixed under sub-section (2) of section 45;”. Section 181 enables the Commission to make regulations consistent with this Act and the rules generally to carry out the provisions of this Act.
> From the above, it is expressly clear in so many words that network / wheeling charges, surcharge, and additional surcharge are charges for distribution of electricity.
> The Applicant, however, out of abundant caution, is charging GST on few miscellaneous charges relating to HT consumers like cross subsidy surcharge, wheeling charges, etc. In respect of LT services, GST is levied on few miscellaneous charges from August 2021.
> On the above analysis of the provisions and the nature and character of the network / wheeling charges, cross subsidy surcharge, and additional surcharge, are charges for distribution of electricity by the applicant -distribution licensee.
> They have been levying GST on application fee, meter rent, testing fee and labour charges for shifting of meter and service lines for HT and LT consumers from July 2017; From billing month of Oct 2020 onwards, they are levying GST on miscellaneous charges relating to HT consumers like harmonic compensation charges, excess demand charges etc. From Nov 2020 onwards they are levying GST on few miscellaneous charges relating to HT consumers like cross subsidy surcharge, wheeling charges etc., In respect of LT services, GST is levied on few miscellaneous charges from August 2021; Also they are collecting GST on the estimate charges for Additional load, reduction in load, DCW, Network charges etc.
> Type of charges, and the service rendered as specified in the Electricity Supply Code (the Code, for short) specified in terms of the Electricity Act by the Tamil Nadu Electricity Regulatory Commission (the TNERC or the Commission, for short) are as follows:
(1) Application fee
The Licensee shall collect registration charges from LT/HT consumers for the following, at the rates specified by the Commission from time to time, (a) Application for new HT/LT services, (b) Application for addition/reduction of demand/load in respect of HT and LT Services, (c) Application for temporary service, (d) Application for conversion of a service from LT to HT and vice versa, (e) Application for shifting of HT/LT services. (1) Application for shifting of lines/structures/ equipments under Deposit Contribution’ Works for LT/HT. (g) Application for change of tariff, (h) Application for replacement of defective meters.
(2) Meter rent
Meter rental charges shad be payable by the consumer, unless the consumer elects to purchase a meter, in accordance with the rates as the Commission may Ex from time to time for different categories of consumers. The Licensee shall, besides meter rent where payable, correct charges towards changing of meters and boards, testing of meters, testing of installations, inspection charges etc., at the rates specified by the Commission from time to time.
(3) Testing fee
Under the provisions of the TN Electricity Supply Code, 2004, in Regulation 4(2), the charges for testing of equipments/installation is recoverable by the Licensee from the consumer.
(4) Harmonic compensation charges
Clause 4(1)(iv) in the Code states as follows:
Where any equipment installed by a consumer generates harmonics, the consumer shall provide adequate harmonic suppression units to avoid dumping of harmonics into Licensee’s distribution system and the Licensee is at liberty to provide suitable metering equipment to measure the harmonic level pursuant to such harmonic. Where the consumer fails to provide such units, he shall be liable to pay compensation at such rates as the Commission may declare from time to time.
(5) Capacitor Compensation charge
In the case of existing LT service connections (which are not coming under the purview of power factor incentive/disincentive scheme)] with connected load of motors of 3 HP and above or for using welding transformers (irrespective of their rating), the consumer shall install adequate capacitors within a period of two months from the date of issue of notice issued by the licensee in this connection and shall be Hon”ble to pay a compensation charge of ten percent of the price of electricity supplied to him for the preceding four months of consumption till such time adequate capacitors are installed; and where inadequate capacitors are installed or where some of the capacitors are defective, the ten percent shall be reckoned proportionate to the extent of inadequacy or defect, as the case may be.
(6) Estimate charges for additional load or reduction in load
Chapter 7 of the TN Electricity Distribution Code
45(1) (ii) Extension, improvement or alteration to service lines to meet any additional demand will be charged on the same basis. In each case, the consumer will be furnished with an estimate of the cost of the work and this amount is payable in advance. On completion of the work, a bill for the actual amount payable will be forwarded to the consumer and any difference shah be paid by the consumer or will be refunded by the Licensee as the case may be.
(7) Excess contracted load charges
These charges are applicable to the subsidized category of Agricultural service connection., which need to be regulated with a view to (i) comply with the contracted load until the cross subsidy from other sources are eliminated and a viable tariff is implemented for agricultural services, (ii) comply with the directives of Government towards restriction on exploitation of ground water for irrigation and environmental constraints.
(8) Belated payment surcharge
All bills are to be paid in the case of HT consumers, within the due date specified in the bill and in the case of LT consumers, within the due date and notice period specified in the consumer meter card. Where any HT/LT consumer or local bodies neglect/fail to pay any bills by the due date or last day of the notice period, they shall be liable to pay belated payment surcharge on the outstanding amount.
(9) Service/Line, structure and equipments shifting charge
The cost of shifting service/line, structure and equipments shall be borne by the consumer and shall pay estimated cost of shifting in advance in full. After completion of work, a revised estimate shall be prepared with a copy to the consumer based on actual cost of materials, loading, unloading, transport and erection charges and difference between the estimate and actuals shall be collected or refunded accordingly.
(10) Name transfer charge
Every application for transfer of name, consequent to the death of the consumer or in other cases such as sale including auction sale/registered lease of property or any other lawful occupation etc., should be with a fee, as specified by the Commission.
(11) Reconnection charge
The Licensee shall collect reconnection charge from LT/HT consumers at the rates specified by the Commission from time to time.
(12) Consumer Meter card replacement charge
The Licensee shall collect charges at the rate specified by the Commission for replacement of consumer meter card if lost or damaged only not if the card is used up and replacement is necessary.
(13) Dishonoured cheque service charge
The Licensee shall collect service charges as specified by the Commission from time from the consumer, when a cheque given by consumer is returned by the Bank for any reason whatsoever.
(14) Charges for restoration of cheque payment facility
The Licensee shall collect service charges as specified by the Commission from time from the consumer, when a cheque given by consumer is returned by the Bank for any reason whatsoever.
(15) Excess demand charge and excess energy charge during restriction and control of supply
The maximum demand charges for HT supply shall be based on the actual recorded demand at the point of supply or at 90% of the demand quota as fixed from time to time through restriction and control measures whichever is higher. In case the maximum recorded demand is in excess of the quota fixed shall be charged at rates specified by the Commission. The energy consumption over and above the energy quota fixed shall be charged at the rate specified by the Commission in respect of such class of consumers upon whom the restriction and control measures apply. The services which draw electricity from TNEB Grid for using welding sets during the restricted hours shall be charged at the rates specified by the Commission.
(16) Labour charges for shifting of meters or shifting of service lines
As provided under Regulation 5(11) of the Supply Code, the Licensee is authorized to collect charges for its Meter related works carried out for the consumers.
(17) Excess demand charge and excess energy charges
As per clause 5(2) in the Code, whenever the consumer exceeds the sanctioned demand, excess demand charge in the case of HT supply, the maximum demand charges for any month shall be based on the KVA demand recorded in that month at the point of supply or such percentage of sanctioned demand as may be declared by the Commission from time to time whichever is higher. The exceeded demand shall alone be charged at double the normal rate.
For services with contracted demand less than or equal to 18.6 KW (25 HP), whenever the consumer’s connected load exceeds the contracted demand, tire licensee shall install meters with demand recording facility and bring the consumer under the scope of excess demand chargeable category. After installation of the meter, if the recorded demand is in excess of contracted demand, the existing demand, shall, after intimation to the consumer, be revised to the level of recorded demand and all relevant charges applicable for extension of additional demand shall be included in the next bill. No excess demand charge is leviable till such time the licensee installs meter with demand recording facility and bring the consumer under tire scope of excess demand chargeable category.
For the remaining LT services [other than domestic / agricultural services or LT services with contracted demand equal to or less than 18.6 KW (25 HP)], when the contracted demand is in excess of 18.6KW (25HP) and for such of those consumers whose contracted demand is less than 18.6 KW (25HP) but opted for having meters with demand recording facility, the excess demand charges shall be as detailed in paragraph 5(2) of the Code.
(18) Charges for providing CMRI data
This is a Meter related charged and as provided under Regulation 5(11) of the Supply Code, the Licensee is authorized to collect charges for its Meter related works carried out for the consumers.
(19) Recoveries from consumers for damage to board properties
Section 136 of the Electricity Act, which deals with theft of electric lines and materials states that if an electric line, material or meter is cut or removed or taken away by whomsoever or if they store, or possess or carry away without the consent of the licensee/owner, shall be punishable with imprisonment and/or with a fine.
Further amendment to the Electricity Supply Code, in regulation 5, the sub regulation 12 read as
(h) Application for repair or replacement of licensee’s properties damaged due to dashing of vehicles etc., by the third parties chargeable under Deposit Contribution Works basis.
(20) Changing meter at the request of the consumer
This is a Meter related charged and as provided under Regulation 5(11) of the Supply Code, the Licensee is authorized to collect charges for its Meter related works carried out for the consumers.
(21) Inspection charges
This is a Meter related charged and as provided under Regulation 5(11) of the Supply-Code, the Licensee is authorized to collect charges for its Meter related works carried out for the consumers.
(22) Levy of charges for reduction in demand
Chapter 7 of the TN Electricity Distribution Code
45(1) (ii) Extension, improvement or alteration to service lines to meet any additional demand will be charged on the same basis. In each case, the consumer will be furnished with an estimate of the cost of the work and this amount is payable in advance. On completion of the work, a bill for the actual amount payable will be forwarded to the consumer and any difference shall be paid by the consumer or will be refunded by the Licensee as the case may be.
(23) Changing/Shifting of meter board/LTCT box/HT box due to damage or for accommodating additional safety features
The changing/shifting of meter board/meter box is carried out by the applicant at the request of the consumer for reasons like alteration, safety etc. This is being done by the Applicant whenever such requests comes from the consumer within the stipulated time after collecting charges determined for that activity.
(24) Replacement of burnt meter
This is a Meter related charged and as provided under Regulation 5(11) of the Supply Code, the Licensee is authorized to collect charges for its Meter related works carried out for the consumers.
(25) Temporary disconnection at the request of the consumer
A charge is applicable whenever a request for temporary disconnection involved under 5(6)(2) of the Supply code. Request for temporary disconnection is the discretion and wish of the consumer for certain reasons and for a certain period.
(26) Charges for furnishing certified copies of documents to consumer
These charges are collected for furnishing certified copies to the consumers, as per Regulation 17(9)(c) of the TN Electricity Supply code.
(27) Additional surcharge
An open access customer, receiving supply of electricity from a person other than the distribution licensee of Iris area of supply, shall pay to the distribution licensee an additional surcharge on the charges of wheeling, in addition to wheeling charges and cross-subsidy surcharge, to meet out the fixed cost of such distribution licensee arising out of his obligation to supply as provided under sub-section (4) of Section 42 of the Act.
(28) Tariff change
No charge is collected at present.
(29) Dismantling charges
The estimated cost for shifting a new service connection will cover 10% of the present value of the dismantled and reusable materials towards charges for dismantling and charges for loading, unloading, transport to new site/store.
> In addition to the advance ruling sought regarding GST on network / wheeling charges, cross subsidy surcharge, and additional surcharges which are charges for distribution of electricity charged by the applicant as determined by the Commission, advance ruling is sought on the liability to the levy of GST on the above cited charges. The write-up on the said charges is as follows
(30) Wheeling Charges
Wheeling charges payable to Distribution Licensee, by an open access customer shall be determined by the Commission. Where a dedicated distribution system used for open access has been constructed for exclusive use of an open access customer, the wheeling charges for such dedicated system shall be worked out by the Licensee and got approved by the Commission and shall be borne entirely by such open access customer till such time the surplus capacity is allotted and used by other persons or for other purposes. In case intra state transmission system or distribution system is used by an open access customer in addition to inter-state transmission system, transmission charges and wheeling charges as fixed and approved by the Commission shall be payable for use of intra-state system in addition to payment of transmission charges for inter-state transmission.
In regulation 68, under sub-regulation 3, it is stated that ‘charges for actual electricity supplied, Fixed charges/Demand charges and Wheeling charges/Network charges are tariff related charges and the Commission shall determine these charges on application from the Distribution licensee. These charges are proposed to ensure tire recovery of Distribution network cost under appropriate head from the consumers.
(31) Cross subsidy surcharge
If open access facility is availed of by a subsidizing consumer of a Distribution Licensee, then such consumer, in addition to transmission and/or wheeling charges, shall pay cross subsidy surcharge as determined by the Commission. Cross subsidy surcharge determined on per unit basis shall be payable, on monthly basis, by the open access customers based on the actual energy drawn during the month through open access. The amount of surcharge shall be paid to the distribution licensee of the area of supply from whom the consumer was availing supply before seeking open access.
2.3 The Applicant, in their interpretation of law stated that,-
> Network / wheeling charges, cross subsidy surcharge, and additional surcharge are charges for distribution of electricity. The other charges are also charges collected for distribution of electricity as each charges are detailed above
> According to SI. No.25 in the Notification No.12/2017-CT(Rate) dated 28.06.2017 read with paragraph 2(z) of the definitions thereunder, transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST. “Electricity transmission or distribution utility means, distribution or transmission licensee under the Electricity Act, 2003 or any other entity entrusted with such function by the Central Government or, as the case may be, the State Government (read with corresponding notifications under SGST/IGST/UTGST Acts).
> Similarly, with regard to the various other charges (detailed above) prescribed under the Electricity Act, and the regulations made thereunder, Estimate charges for Additional load/reduction in load, Excess contracted load charges, Excess demand charge and excess energy charge during restriction and control of supply, Excess demand and Excess energy charges are for the electricity supply which are exempt both under Sl.No.25 in the Notification No.12/2017-CT(Rate) dated 28.06.2017 as also SI, No. 104 in the Notification 11/2017-CT(Rate) dated 28.06.2017.
> Paragraphs 10, 10.1, and 10.2 in Board circular 178/ 10/2022-GST dated 03 August 2022 refers in this regard. The circular pertinently states that “the minimum fixed charges/capacity charges and the variable/energy charges are charged for sale of electricity and are thus not taxable as electricity is exempt from GST.” The above charges, as detailed above are charges for the supply of electricity and are exempt from GST.
> Dishonored cheque service charge does not attract GST in the light of paragraph 7.3 in the said circular dated 03 August 2022.
> Belated payment surcharge does not attract GST in the light of paragraph 9 in the said circular dated 03 August 2022.
> While discussing the “late payment surcharge fee”, paragraph 9 in the above cited circular states that “Even if this service is described as a service of tolerating the act of late payment, it is an ancillary supply naturally bundled and supplied in conjunction with the principal supply, and therefore should be assessed as the principal supply.”
> Similarly in paragraph 7.1.6 in the said circular, Board has explained that “Such amounts paid for acceptance of late payment, early termination of lease or for pre-payment of loan or the amounts forfeited on cancellation of service by the customer as contemplated by the contract as part of commercial terms agreed to by the parties, constitute consideration for the supply of a facility, namely, of acceptance of late payment, early termination of a lease agreement, of pre-payment of loan and of making arrangements for the intended supply by the tour operator respectively. Therefore, such payments, even though they may be referred to as fine or penalty, are actually payments that amount to consideration for supply, and are subject to GST, in cases where such supply is taxable. Since these supplies are ancillary to the principal supply for which the contract is signed, they shall be eligible to be assessed as the principal supply, as discussed in detail in the later paragraphs. Naturally, such payments will not be taxable if the principal supply is exempt.”
Applying this principle of ancillary supplies,-
1 Application fee
2 Meter rent
3 Testing fee
4 Harmonic compensation charges
5 Capacitor Compensation charge
6 Service / line, structure arid equipments shifting charge
7 Name Transfer charge
8 Reconnection Charge
9 Consumer Meter Card Replacement Charge
10 Labour charges for shifting of meters or shifting of service lines
11 Charges for providing CMRI data
12 Recoveries from consumers for damage to board properties
13 Changing Meter at the request of the consumer
14 Inspection charges
15 Levy of charges for reduction in demand.
16 Changing/shifting of meter board/LTCT box/HT box due to damage or for accommodating additional safety features.
17 Replacement of damaged/burnt meter
18 Temporary disconnection at the request of the consumer.
19 Charges for furnishing Certified Copies of documents to Consumer
are all ancillary to the principal supply of electricity. But for the fact of the applicant distributing electricity, the very need for charging the above would not arise. These are ancillary supplies naturally bundled and supplied in conjunction with the principal supply of electricity supply as per tire Code notified by the Commission under the Electricity Act, and therefore should be assessed as the principal supply, namely, distribution of electricity and supply of electrical energy.
> Section 50 of the Electricity Act, 2003 states that:
“The State Commission, shall specify an electricity supply code to provide for recovery of electricity charges, intervals for billing of electricity charges, disconnection of supply of electricity for non-payment thereof, restoration of supply of electricity; measures for preventing tampering, distress or damage to electrical plant, or electrical line or meter, entry of distribution licensee or any person acting on his behalf for disconnecting supply and removing the meter; entry for replacing, altering or maintaining electric lines or electrical plants or meter and such other matters.”
Accordingly, the Commission has specified the Electricity Supply Code in which all the above charges recoverable by the licensee are specified. Distribution of electricity is necessarily a bundle of activities and cannot be a single activity of distribution simpliciter.
> All the above charges are, therefore, ancillary to the principal supply of electricity naturally bundled and supplied in conjunction with each other in the ordinary course of business and are to be treated as tire principal supply for determining the tax liability.
3.1 The State jurisdictional Officer vide his letter dated 26.06.2023, has submitted that,-
> TANGEDCO is responsible for transmission and distribution of electricity as distribution licensee in terms of section 14 read with section 131 of the Electricity Act, 2003.
> In order to transmit and distribute electricity, the Applicant is effecting various supply and claiming as exempted.
> They are collecting various types of charges from their customer for providing different types of services and implement regulatory mechanism with respect to electricity consumption.
> The Applicant is already charging TNGST for application fee, meter rent, testing fee, labour charges for shifting of meter and service lines for HT and LT consumers, network/wheeling charges, cross subsidy surcharge, harmonic compensation charges and excess demand charges which are ancillary supply to principle supply of electricity.
> The services supplied by the applicant is pertaining to value added services under ‘electricity consumption’ as additional/facilitation and to implement regulatory mechanism to charge the electricity from the consumers.
> This cannot be treated as service under transmission and distribution of electricity and hence the said fist of services are liable to be taxed under TNGST Act, 2017.
3.2 The Centre jurisdiction Officer has not submitted any remarks and hence it is construed that there no proceedings pending/decided on the issue related to the question raised by the applicant.
4.1 The Applicant, after consent, was given an opportunity to be heard in person on 10,08.2023. Shri V Ravindran, Advocate, who is the Authorized Representative of the Applicant appeared for the hearing and he reiterated the submissions made in their application. The AR also submitted additional submissions during the personal hearing, wherein it was stated that,-
> They perform various activities with charges payable by the consumers as statutorily fixed; Section 45(3) of the Electricity Act, 2003, states that the charges for electricity supply may include a fixed charge and rent or other charges in respect of any electric meter etc. provided by the licensee, and such charges are in accordance with the said Act.
> Under section 46 ibid, they are authorized by tire State Electricity Regulatory Commission to charge from a person requiring supply of electricity any expenses reasonably incurred in providing electric line or electrical plant for supply of electricity.
> Wheeling/network charges fixed by the said Commission payable by the consumers; As per Section 2(76) ibid, ‘wheeling means using the Applicant’s distribution system and associated facilities by another person for conveyance of electricity on payment of charges determined under Section 62.
> They invite attention to paras 7.1.6, 9 & 10 in Board’s Circular No. 178/ 10/2022-GST dated 03.08.2022.
> They relied on the ruling of AAR, Karnataka in the case of Chamundeswari Electricity Supply Corporation Limited, wherein it was held that wheeling charges are exempt from the levy of GST.
> They also relied on decision of the Hon’ble High Court of Rajasthan in the case of Jodhpur Vidyut Vitran Nigam Ltd Vs UOI and concurred with the law held by the Hon”ble High Court of Gujarat in the case of Torrent Power Ltd. Vs UOI.
4.2 The Applicant was asked to submit a write-up about all the activities listed in the application for which they charge the consumers. Meanwhile, the State Member for Advance Ruling Authority was changed and hence one more personal hearing was given to the Applicant on 14.11.2023. Shri V Ravindran, Advocate, who is the Authorized Representative of the Applicant appeared for the hearing and reiterated the submissions made in their application as well as in the previous hearing. The AR also submitted a copy of the CESTAT order issued in their own case, wherein certain activities carried out by them and their taxability were discussed in the said order, the decision of which is in their favour. Later, vide their mail dated 24.11.2023, the Applicant submitted detailed write-up about charges collected by them(the details of which are given in the para 2.2 above).
DISCUSSION AND FINDINGS:
5.1. We have carefully considered the submissions made by the Applicant in their application, submissions made during the personal hearing, additional submissions and the comments furnished by the State Tax jurisdictional Officer.
5.2 In terms of Section 97(2) of the CGST/TNGST Act, questions on which advance ruling is sought under the Act, falls within the scope of Section 97(2) (b) & (e) of the CGST/TNGST Act, 2017, and therefore the application is admissible.
5.3. The Applicant has sought Advance Ruling with the question that whether the various charges collected by them(29 charges list in para 2.2 above) along with network/wheeling charges, cross subsidy surcharge and additional charges are leviable to GST and further stated that these are charges for distribution of electricity and collected in connection with supply of electricity.
5.4. As per Section 2(102) of the CGST Act, 2017,
‘Services’ means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form., currency or denomination for which a separate consideration is charged. ‘
Based on the above definition, we find that supply of electricity is a service, which falls under SAC 9969. Further, Notification No.12/2017-CT(Rate) dated 28.06.2017, states that –
|
Sl.no. |
Chapter, Section, Heading, Group or Service code | Description of Services | Rate (per cent) | Condition |
| 25 | Heading 9969 | the services provided by way of transmission or distribution of electricity by an electricity transmission or distribution utility | NIL | NIL |
As per clause 2(z) of the said notification-
‘Electricity transmission or distribution utility’ means the Central Electricity Authority; a State Electricity Board; the Central Transmission utility or a State Transmission utility notified under the Electricity Act, 2003(36 of 2033); or a distribution or transmission licensee under the said Act, or any other entity entrusted with such function by the Central Government or, as the case may be, the State Government.’
From the submissions made by the Applicant, we find that TANGEDCO, the Applicant, is a distribution licensee in terms of section 14 read with section 131 of the Electricity Act, 2003 and they are authorized to operate and maintain distribution system for supplying electricity to the consumers. Thus they are undoubtedly ‘Electricity transmission or distribution utility’ and the transmission or distribution of electricity services provided by them is exempt from GST as per the Notification No.12/2017-CT(Rate) dated 28.06.2017,
5.5.1. As per their submissions, the Applicant, in the course of providing service for distribution of electricity, also provide other services for which they collect charges as detailed in para 2.2 above. These charges collected by the Applicant are before us to decide their taxability. We first take up ‘wheeling/network charges’. It was stated by the Applicant that as per section 2(76),
“wheeling” means the operation whereby the distribution system and associated facilities of a transmission licensee or distribution licensee, as the case may be, are used by another person for the conveyance of electricity on payment of charges to be determined under section 62″.
Further we find that the Explanatory statement under the amendment notification dated 28.05.2021 states –
“Therefore it is proposed that the Distribution network cost arrived by the Commission shall have to be recovered under separate head i.e.’wheeling charges/network charges. Such charges is applicable to all LT & HT category consumers at the rate fixed by the Commission time to time towards its Distribution wire business. “
From the above, we find that the service provided by the Applicant to the users as ‘wheeling/network charges’ are only for providing the service of transmission of electricity and hence charges collected form the part of consideration for the same single service. Further it is seen that the charges are on the basis of the energy input to the system. Hence the wheeling/network charges collected is for the service of transmission of electricity and hence covered under the exemption stated in the notification cited supra.
5.5.2. Further, we find that the Applicant has cited Board’s Circular No. 178/ 10/2022-GST dated 03.08.202, wherein clarification regarding taxability in the case of has been issued in respect of dishonoured cheque charges and belated payment charges. In para 7.3 of the said Circular, it is stated that –
‘7.3 The fine or penalty that the supplier or a banker imposes, for dishonour of a cheque, is a penalty imposed not for tolerating the act or situation but a fine, or penalty imposed for not tolerating, penalizing and thereby deterring and discouraging such an act or situation. Therefore, cheque dishonor fine or penalty is not a consideration for any service and not taxable. ‘
Regarding belated payment charges, in para 9 of the said Circular, it is stated that-
9. The facility of accepting late payments with interest or late payment fee, fine or penalty is a facility granted by supplier naturally bundled with the main supply…. Even if this service is described as a service of tolerating the act of late payment, it is an ancillary supply naturally bundled and supplied in conjunction with the principal supply, and therefore should be assessed as the principal supply.
In para 10 of the said Circular, regarding price charged for electricity, it has been clarified that –
10. The price charged for electricity by the power generating companies from the State Electricity Boards (SEBs)/ DISCOMS or by SEBs/DISCOMs from individual customers has two components, namely, a minimum fixed charge (or capacity charge) and variable per unit charge.
10.2 Both the components of the price, the minimum fixed charges/capacity charges and the variable/ energy charges are charged for sale of electricity and are thus not taxable as electricity is exempt from GST.
We find force in the Applicant’s contention regarding charges collected for dishonoured cheque and belated payment. Based on the circular cited, the charges collected for dishonoured cheque are not taxable and charges collected for belated payments are naturally bundled with the main supply, i.e. transmission of electricity, which is exempted and thereby these charges are also exempted.
5.5.3. Based on the discussions held in the above paras, we are of the considered opinion that the following charges collected for the services rendered by the Applicant are directly or closely related to transmission or distribution of electricity and therefore we hold that these charges will be completely exempted as per Notification No.12/2017-CT(Rate) dated 28.06.2017:
(8) Belated payment surcharge (BPSC)
(13) Dishonoured cheque service charge
(30) Network/wheeling charges
5.6.1. We find that Board has issued a circular regarding taxability on the certain charges collected by DISCOMs. Hence, it is. pertinent to see the Circular No.34/8/2018-GST dated 01.03.2018 issued by the CBIC, wherein it was stated that-
|
Sl.no. |
Issue | Clarification |
| 4. | (1) Whether the activities carried by DISCOMS against recovery of charges from consumers under State Electricity Act are exempt from GST? | (1) Service by way of transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST under Notification No.12/2017-CT(Rate) dated 28.06.2017, SI. 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 lines; v. charges for duplicate bill; provided by DISCOMS to consumer are taxable. |
From the above circular, we find that said 5 services, which are other than the service by way of transmission or distribution of electricity by an electricity transmission or distribution utility are taxable. We End that the intention of the circular is to keep away those services which are only ancillary in nature and not closely or directly related to transmission or distribution of electricity from being exempt from GST. In this regard, we find that the Applicant has relied on the decision of the Hon’ble Gujarat High Court, in an identical issue in the matter of Torrent Power Ltd. Vs UOI[Order dated 19.12.2018 in R/Special Civil Application Mo.5343 of 2018|, wherein the exclusion clause of the para 4(1) of the said circular has been struck down as ultra vires to Section 8 of the CGST Act, 2017 as well as Notification No.12/2017-CT(Rate) dated 28.06.2017|sl.no.25]. However, it has been ascertained that the order has not been accepted by the Commissionerate concerned and a SLP(C) No. 1943.1/2019 has been filed by the Board before the Hon’ble Supreme Court. Accordingly, the said decision of the Hon”ble High Court cannot be cited as a precedent in the present case since the issue has not reached finality. Thus, we hold that the following charges are taxable based on the Board’s circular cited supra:-
(1) Application fee
(2) Meter rent
(3) Testing fee
(9) Service/line structures and equipment shifting charge
We are of the considered opinion that the following charges collected for the services rendered by the Applicant are only ancillary services, akin to the one included in the exclusion clause of para 4 of the Board’s No.34/8/2018-GST dated 01.03.2018 and thereby taxable:-
(11) Reconnection charge
(16) Labour charges for shifting meters or shifting of service lines
(18) Charges for providing CMRI data
(23) changing/shifting of meter board/LTCT box/HT box due to damage or for accommodating additional safety features
(26) Charges for furnishing certified copies of documents to consumer
(29) Dismantling charge.
5.6.2. We find that the Applicant has also argued that the charges stated by them are for those supplies which are ancillary supplies naturally bundled and supplied in conjunction with the principal supply of electricity supply as per the Code notified by the Commission under the Electricity Act, and therefore should be assessed as the principal supply, namely, distribution of electricity and supply of electrical energy. From this argument, we observe that the Applicant is bringing the entire gamut of services under composite supply. We find that as per GST law, whether a supply consisting of two or more goods or services or both, is composite supply or not is given under Section 8 of CGST Act, 2017, which states that –
8. Tax liability on composite and mixed supplies.- The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:-
(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and
(b) 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.
Under Section 2(30) of the CGST Act, 2017, ‘composite supply’ has been defined as-
(30) composite supply} means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;
Illustration.- Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;
From the above definition, we find that for a supply to be considered as a composite supply, it constituent supplies should be so integrated with each other that one is not supplied in ordinary course of business without or independent of other. In other words, they are naturally bundled, and if supply of one service is removed, then the nature of service will be affected. We find that not all services rendered by the Applicant for which they charge, are naturally bundled with the main service i.e. transmission or distribution of electricity.
5.6.3. We are of the considered opinion that the following charges collected for the services rendered by the Applicant are only ancillary services, which can be considered as value added services under ‘electricity consumption’ as additional/facilitation services, some of which are on the request of the consumers, and to implement regulatory mechanism with respect to electricity consumption:-
(4) Harmonic compensation charges
(5) Capacitor compensation charges
(6) Estimate charges for Additional load or reduction in load
(7) Excess contracted load charges
(10) Name transfer charge
(12) Consumer Meter card replacement charge
(14) Charges for restoration of cheque payment facility
(15) Excess demand charge and excess energy charge during Restriction and control of supply
(17) Excess demand and Excess energy charges
(19) Recoveries from consumers for damage of Board properties
(20) Changing meter at the request of the consumer
(21) Inspection charges
(24) Replacement of burnt/damaged meter
(25) Temporary disconnection at the request of the consumer
(27) Additional surcharge
(28) Tariff change
(31) Cross subsidy surcharge
We find that the above services are not naturally bundled with the principal supply i.e. transmission/distribution of electricity. The main supply may take place without above ancillary charges. The provision of service such as consumer meter card replacement charge, excess contracted load charges, Temporary disconnection charges at the request of the consumer etc. are infrequent, need based and provided upon specific request of the consumer at a cost which is independent of the cost for service of the main supply. The main supply, i.e. supply of electricity is not affected even if any of the services above are not rendered. Moreover, we also notice that independent suppliers can also provide these services separately, in which case these services can never be termed as composite supply as they are not naturally bundled with the main service. These charges may have nexus with the supply of electricity but then they are not naturally bundled. Therefore, we hold that the above services are not composite supply and thereby charges for the above services will be taxed at the appropriate prevailing rate, i.e. 18% GST(CGST 9% ‘ SGST 9%) as per Notification 11/2017-CT(Rate) dated 28.06.2017,
Based on the above discussions, we rule as under:
RULING
The charges collected by the Applicant for the following activities rendered by TANGEDCO for effecting the distribution of electricity as distribution licensee in terms of the various provisions of Electricity Act, 2003 and the regulation thereunder are exempted from GST as per entry No.25 of the Notification No.12/2017-CT(Rate) dated 28.06.2017, as per discussions held in paras 5.5.1 to 5.5.4 above :-
(8) Belated payment surcharge (BPSC)
(13) Dishonoured cheque service charge
(30) Network/wheeling charges
All the other charges listed in para 2.2 above, except the 3 charges mentioned above, are liable for GST at the appropriate prevailing rate, i.e. 18% GST (CGST 9% + SGST 9%) as per Notification 11/2017-CT(Rate) dated 28.06.2017, based on the discussions held in para nos 5.6.1 to 5.6.3 above.
