In re Tamil Nadu Generation and Distribution Corporation Limited (GST AAR Tamilnadu)
A. GST applicability on the transactions between TANGEDCO Ltd. & TANTRANSCO Ltd.
1. GST is applicable on the following as the same are ‘supply of goods’ to TANTRANSCO:-
a. Supply of Operation and maintenance materials used in the regular day to day functioning; and
b. Transfer of capital Assets
2. GST is applicable on the deployment of employees to TANTRANSCO as the same is supply of Service
3. GST is not applicable on the following as the same are transaction in money:-
a. Transactions of physical fund flow between the companies by the way of repayment of existing loan, availment of fresh loans, etc. on actual basis without any interest component on such fund flow.
b. Income such as transmission charges, Scheduling and Systems Operating charges, Reactive Energy Charges, etc. received from open access consumers by the applicant and adjusted through payable to TANTRANSCO.
4. The exemption under SI.No. 25 of Notification No. 12/2017-C.T.(Rate) dated 28.06.2017 as amended is not applicable to the below stated transactions between TANGEDCO Ltd and TANTRANSCO Ltd, namely-
a. Supply of Operation and maintenance materials used in the regular day to day functioning as the same is ‘Supply of Goods’;
b. Transfer of capital Assets as the same is declared as ‘Supply of Goods’;
c. Deployment of Employee under their role and related fund flow T-not a service involving distribution of electricity exempted in the said entry;
5. On the non-payment of long term open access transmission charges payable to TANTRASCO, no ruling is offered as the applicant is not the person supplying the service and Advance Ruling is a decision in relation to the supply undertaken by the applicant as per Section 95(a) of CGST/TNGST Act 2017.
B. Applicability of GST on Deposit Contribution Works
Depository Contribution Works is classifiable under SAC 99873 and the applicable rate of tax is CGST @ 9% as per SI.No. 25 of Notification No. 11/2017-C.T. (Rate) dated 28.06.2017 and SGST @ 9% as per SI.No. 25 of Notification No. II (2)/ CTR/ 532(d-14)/2017 vide G.O. (Ms) No. 72 dated 29.06.2017 as amended and the same is not exempted.
C. Whether TANGEDCO ltd can be considered a “ Government Entity”
TANGEDCO is a ‘Government Entity’ as defined under Notification No. 11/2017-C.T. (Rate) dated 28.06.2017 as amended and 12/2017-C.T.(Rate) dated 28.06.2017 as amended by Notification No. 31/2017-Central Tax (Rate) dated 13.10.2017 and Notification No. 32/2017-C.T.(Rate) dated 13.10.2017 effective from 13.10.2017
D. Applicability of GST on Transmission Charges for Natural Gas.
The applicability of GST on the Transmission Charges billed by GAIL is not answered as not admitted, under sub-section (2) of section 98 of the CGST Act, 2017 and the TNGST Act, 2017 read with Section 95(a) of the Act.
Read AAAR Order: One-Day Appeal Filing Delay Due to Staff Shortage & Tax Concept Unfamiliarity: AAAR Tamil Nadu Condoned
FULL TEXT OF ORDER OF BEFORE THE AUTHORITY OF ADVANCE RULING, TAMILNADU
Note : Any Appeal against the Advance Ruling order shall be filed before the Tamil Nadu State Appellate Authority for Advance Ruling, Chennai under Sub-section (1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated.
At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.
M/s. Tamil Nadu Generation and Distribution Corporation Limited, Administrative office at 144, Anna Salai, NPKRR Maaligai, Chennai-600002 (hereinafter called the Applicant or TANGEDCO) is engaged in the generation and distribution of electricity. They are registered under GST vide GSTIN 33AADCT4784E1ZC. They have preferred an application seeking Advance Ruling on the following:-
1. GST applicability on the transactions between TANGEDCO Ltd. & TANTRANSCO Ltd
2. Applicability of GST on Deposit Contribution Works
3. Whether TANGEDCO ltd can be considered a ” Government Entity”
4. Applicability of GST on Transmission Charges for Natural Gas.
The Applicant submitted 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.
2.1 The Applicant is a subsidiary of Tamil Nadu Electricity Board Limited (TNEB Ltd), which is 100% owned by Government of Tamil Nadu. TNEB Ltd is an investment Company only, no other business transactions are being carried out. TANGEDCO is an Electricity Distribution utility under Electricity Act, 2003. As per the provisions under the Section 131 of the Electricity Act, 2003, TNEB was restructured on 1.11.2010 into TNEB Limited; Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO); and Tamil Nadu Transmission Corporation Limited (TANTRANSCO). TANGEDCO is in the service of Generating and Distributing (sale of) Electricity in the state of Tamil Nadu & TANTRANSCO Ltd is in the business of Transmission of Electricity. TANGEDCO has its own stations for the purpose of generating electricity like Thermal Stations Ennore (ETPS), Mettur I (MTPS-I), Mettur II (MTPS-II), North Chennai I (NCTPS-I), North Chennai II (NCTPS-II), Tuticorin (TTPS)), Hydro Stations (Kundah, Kadamparai, Erode and Tirunelveli), Non-Conventional Energy sources (Wind Energy, Solar Energy etc.) and Gas Turbine Stations (Basin Bridge (BBGTPS), Thirumakottai (Kovilkalappal) Power Station (TKGTPS), Kuttalam Power Stations (KGTPS), Valuthur Power Station (VGTPS)) and has been distributing the generated electricity to various consumers throughout the State of Tamil Nadu, since the time it has been established.
2.2 TANGEDCO LTD. & TANTRANSCO LTD. are two subsidiary companies of TNEB Ltd. (Holding company), and both are registered utilities for distribution and Transmission of Electricity respectively under the Electricity Act, 2003. TANGEDCO and TANTRANSCO enter into transactions between them in the course of generation, transmission, and distribution of electricity in Tamil Nadu. The following are the Inter Company Transactions between TANGEDCO and TANTRANSCO:
2.2.1 Receipt of TANTRANSCO’s income in TANGEDCO Bank A/c:
Certain income such as transmission charges, Scheduling and System Operating Charges, Reactive Energy Charges etc. from open access consumers are received by TANGEDCO directly in its bank account and later on adjusted through payable to TANTRANSCO with a Journal Voucher.
2.2.2 Transfer of Capital Assets by TANTRANSCO to TANGEDCO:
The cost of completed capital assets of 33 KV and below by TANTRANSCO are transferred to Distribution Circles of TANGEDCO and booked as receivable from TANGEDCO in TANTRANSCO books and payable in TANGEDCO books.
2.2.3 Allotment of Funds:
Separate funds are allotted by TANTRANSCO to nodal circles ie. General Construction Circles(GCC) and SE/operation circles of TANTRANSCO from TANTRANSCO Bank A/c. The excess over requirement of funds is transferred from TANGEDCO Bank A/c and booked as receivable from TANTRANSCO in TANGEDCO’S Books, The funds requirement of TANTRANSCO in respect of circles other than nodal circles is being met out by TANGEDCO’s funds and booked as receivable from TANTRANSCO.
2.2.4 Movement of Materials:
Similarly any material drawn from TANGEDCO stores by TANTRANSCO and from GCC stores by TANGEDCO is treated as payable and receivable in respective company books.
2.2.5 Movement of employees:
For the employees transferred from TANGEDCO to TANTRANSCO and vice versa, their outstanding liabilities are treated as payable and receivable in respective company accounts.
The applicant has stated that the transactions are in the course of generation, transmission and distribution of electricity. This activity of transmission, or distribution of electricity by an electricity transmission or distribution utility is exempt under SI.No. 25 of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017 with corresponding exemption for SGST. The applicant has sought Advance ruling to confirm that the above said activity is exempt under SI.No.25 of Notification No.12/2017-Central Tax (Rate)
2.3 The applicant has stated that Under the Electricity Act, 2003 (Central Act 36 of 2003) the State Electricity Regulatory 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 nonpayment thereof, restoration of supply, tampering, distress or damage to electrical plant, electric lines 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 plant or meter. Under section 50 of the said Electricity Act, 2003, read with section 181 thereof and all other powers enabling in that behalf, the Tamil Nadu Electricity Regulatory Commission has specified and published, the Tamil Nadu Electricity Supply Code (the Code, for short). The code is available at (https://www.tangedco.gov.in/linkpdf/Consolidated%20Regulations.pdf). Among other things, the charges, recoverable by the Licensee from the consumers are prescribed in the said code. Under clause 5 in the Code (page 10 in the above web-link), dealing with Miscellaneous charges – under sub-clause 6 dealing with Service / line, structure and equipments shifting charge (please see page 18 in the Code) -it is prescribed that “The cost of shifting service / line, Structure and equipments shall be borne by the consumer. The consumer shall pay the estimated cost of shifting in advance in full. The copy of the estimate shall be given to the consumer. The shifting work will be taken up only after the payment is made. The Code further prescribes that “After completion of the work a revised estimate shall he prepared with a copy to the consumer based on the actual cost of materials, loading, unloading, and transport and erection charges. If the original estimate cost is more than the revised estimate, the balance shall be refunded to the applicant/consumer within 3 months. If the original estimate cost is less than the revised estimate, the difference shall be collected from the applicant/ consumer”
2.3.1 The Applicant has submitted that no GST is attracted on the above charge for the reasons below:-
i) Charges are part of the valuation for exempted supply
a) GST u/s 9(1) is on the value determined under section 15. GST on “Transmission or distribution of electricity by an electricity transmission or distribution utility” is exempt under SI. No. of notification No. 12/2017- Central Tax (Rate) dated 28.06.2017. Supply of electrical energy is exempt under SI. No. 104 in Notification No. 2/2017- Central Tax (Rate) dated 28.06.2017. U/s 15, value of supply shall include charges levied under any law for the time being in force, as also incidental expenses and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services.
b) Charges in question are prescribed under law in force.
ii) The charges are part and parcel of electricity supply under the Electricity Act 2003
a) Under the Code, the charges are actual cost of materials, loading, unloading, and transport and erection charges. Therefore, these are not any service independent of the supply of electrical energy or transmission and distribution of electricity.
b) These charges are statutorily included in the value of supply as stated in (1) above.
c) Supply of electricity, unlike other goods / services, presupposes erection and creation transmission and distribution equipment and cables. What is “transport” for physical goods, is “transmission and distribution” for electricity or electrical energy.
d) Under definition 2(hh) in the Code as also u/s 2(17) of the Electricity Act, 2003 “distribution licensee” means a licensee authorized to operate and maintain a distribution system for supplying electricity to the consumers in his area of supply. Under 2(s) “Supply “in relation to electricity, means the sale of electricity to a license or consumer. U/s 2(15) of the Electricity Act, 2013 ” Consumer” means any person who is supplied with electricity for his own use’by a license or the Government or by any other person engaged in the business of supplying electricity to the public under the ACT or any other law for the time being in force and includes any person whose premises are for the time being connected for the purpose of receiving electricity with the works of a license, the Government or such other person as the case may be:” U/s 2(19) “distribution system” means the system 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 consumers;” Therefore, the applicant has stated that the connection with electrical works, operation and maintenance of distribution are part of the supply of electricity.
In light of the above, the applicant has requested to confirm the legal position that the charges in question are ones levied under the law in force as part and parcel of the exempted supply of electrical energy by transmission and distribution under the Electricity Act and the Tamil Nadu Electricity Supply Code notified under the said Act.
2.4 The Third question raised by TANGEDCO is Whether TANGEDCO can be considered a “Government Entity”. The statement of relevant facts submitted by the applicant for the question raised above is as follows:-
i. They are a subsidiary of “TNEB Ltd”, which is 100% owned by Government of Tamil Nadu. TNEB Ltd is an investment Company only, no other business transactions are being carried out. TANGEDCO is an Electricity Distribution utility under Electricity Act, 2003.
ii. As per the provisions under the section 131 of the Electricity Act, 2003, TNEB was restructured on 1.11.2010 into TNEB limited; Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO); and Tamil Nadu Transmission Corporation Limited (TANTRANSCO). TANGEDCO is in the service of Generating and Distributing (sale of) Electricity in the state of Tamil Nadu & TANTRANSCO Ltd is in the business of Transmission of Electricity.
iii. TANGEDCO Ltd. is a body with 100 per cent participation by way of equity or control, to carry out a function entrusted by the State Government of Tamil Nadu and hence it needs to be recognized as “Government entity” for the purposes of GST provisions, (Acts, Rules and notifications issued there under).
As per Notification 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 31/2017-Central Tax (Rate) dated 13.10.2017, their establishment is to be treated as Government Entity. In the light of the facts, status and functions of TANGEDCO, the applicant has requested to confirm if they would be regarded as “Govt. Entity” more specifically for the purposes of Notification No. 11/2017 CTR, Notification No.12/2017 and Notification No. 13/2017 as amended by Notifications cited in terms of clause (b) of Sec.97 (2) the CGST Act, 2017.
2.4 Finally, the applicant has requested to clarify the applicability of GST on transmission Charges on Natural Gas. The statement of relevant facts submitted by the applicant is as follows:-
TANGEDCO has Gas Turbine Stations (GTS) at Kuttalam, Ramnad and Kovilkalapal. In Kuttalam, Ramnad and Kovilkalapal zones, GAIL receives gas from ONGC at the respective CTPs of ONGC and injects into GAIL’s pipeline and transports the gas to the Delivery Point (door step) of TANGEDCO GTS which is within TANGEDCO’s premises. The risk and title of the gas from GAIL shall be passed on to TANGEDCO at the delivery point of TANGEDCO. i.e. GAIL first transports gas from ONGC CTP to TANGEDCO’s Delivery Point and then sells gas to TANGEDCO. Thus GAIL provides Transmission (Service- charges Transmission Charges) and Gas (Goods – charges Gas Price and Marketing Margin) to TANGEDCO. GAIL’s bill includes (a) Gas Price (declared by MoP&NG which is payable to ONGC) , (b) Transmission Charges and (c) applicable GST on Transmission Charges (18%), (d) Marketing Margin (as applicable for APM/Non APM) and TN VAT. (5%) on (a+b+c+d). VAT is applicable as Natural Gas is out of GST and Transmission by Pipe service is taxable to GST. Title passes only at TANGEDCO’s premises. The transmission up to that point was no supply of service to TANGEDCO. GAIL is transmitting gas to the sale point for the purpose of selling to TANGEDCO. In the context of these facts, the transmission costs, it is felt, that may form part of the price of the gas being sold to TANGEDCO, since Transmission is not a standalone activity, but is with reference to the supply of goods (gas supply) and hence it is a composite supply of gas and its transmission.
In this context, TANGEDCO has requested to clarify whether supply of natural gas is a taxable supply or not. The applicant has also submitted that Section 2(108) of the CGST Act defines that “taxable supply” means a supply of goods or services or both which is leviable to tax under this Act”. Section 9(2) states that levy of central tax on supply of natural gas, among other goods, shall be levied from such date as may be notified. Therefore, until such date, supply of natural gas is not leviable to Central Tax, and its supply is not taxable supply. Further Section 2(30) defines “Composite Supply” as a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both” and the applicant is of the view that supply of natural gas and supply of a service of its transmission do not amount to “composite Supply” as per the definition. The applicant has also stated that after the 101st amendment to the constitution, production and manufacture of natural gas attracts Central Excise Duty and its sale attracts VAT. The applicant also submits that that term “turnover” defined as per Section 2(41) of Tamil Nadu VAT ACT as the aggregate amount for which goods are brought or sold or delivered or supplied or otherwise disposed of in any of the ways referred to in Clause(33) by a dealer either directly or through another…” Explanation II to this sub-section provides that “Subject to such conditions and restrictions, if any, as may be prescribed in this behalf-(i) the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of, or before the delivery thereof”. Thus, the applicant has submitted that in terms of the above provisions, the transmission of gas by GAIL is part of the amount for which goods are sold.
3.1 The authorized representative of the applicant was heard in the matter on 21.06.2018. They stated that there are various activities between TANGEDCO and TANTRANSCO. The detailed write-up of each of them along with the financial transactions for all substantiated by invoices, all MOUs, any tripartite agreements, IT returns, Balance Sheets, Statement of accounts of both TANGEDCO and TANTRANSCO, Invoice 85 contract for DCW with reference to the code given, Memorandum, Article of Association to justify government entity, Contract, invoice with GAIL were undertaken to be submitted. They also stated that their activities were exempted in the Service Tax regime and will submit case laws under Service Tax regime. As these activities were required for transmission and distribution of electricity which is exempt, their activities are also exempt under GST.
3.2 They furnished a written synopsis and a List of Case laws relied upon by them. In the synopsis, the applicant, inter-alia, stated as follows:-
I. GST applicability on the transactions between TANGEDCO & TANTRANSCO
The transaction between TANGEDCO and TANTRANSCO are in the course of generation, transmission and distribution of electricity. This activity of transmission or distribution of electricity by an electricity transmission or distribution utility is exempt under SI.No.25 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 with corresponding exemption for SGST. ARA is requested to answer the above question, in terms of Sec.97 (2)(b) of the CGST Act, 2017, in favour of the applicant by confirming that the transactions between the two electricity transmission and distribution utility would be exempted from GST as per the notifications cited.
II. Non-Applicability of GST on Deposit Contribution Works (DCW)
It is submitted that the Central Board of Excise & Customs, vide its Circular No. 131/13/2010 ST dated 07.12.2010, had clarified that activity having direct and close nexus with transmission and distribution of electricity is covered by exemptions and the same is followed by the Commissioner (Appeals), Coimbatore in Order in-Appeal No. 064/2018 dated 19.03.2018 and has requested ARA to answer the above question, in terms of Sec.97(2)(b) of the CGST Act, 2017, in favour of the applicant by confirming that no GST would be payable on Deposit Contribution Works (DCW).
III. Whether TANGEDCO can be considered a “Government Entity”
Section 2(88) of the CGST Act, 2017, defines the term “person” in such a way that it includes also the Central Government, State Government and a Local authority within its ambit. Further, as per Section 2(17) of said act, the term “business” includes any activity or transaction undertaken by the Central Government, State Government and a Local authority. Thus, intention of law is very clear unless otherwise exempted, the Government entities will be treated at par with private parties as far the GST compliances are concerned. Many of the services to or by the Government entities have been exempted. For example, the following Notifications refer:-
