Madhya Pradesh Poorva Kshetra Vidyut Vitran Co. Ltd. Vs Principal Commissioner (CESTAT Delhi)
Conclusion: All the services related to transmission and distribution of electricity were bundled services, as contemplated under section 66F(3) of the Finance Act, and were required to be treated as a provision of a single service of transmission and distribution of electricity, which service was exempted from payment of service tax. Thus, it was not possible to sustain the levy of service tax on the amount collected by assessee for late payment surcharge, meter rent and supervision charges.
Held: Assessee was a wholly owned undertaking of the Government of Madhya Pradesh and was engaged in the distribution of electricity in the eastern area of the State. The period of dispute was from July, 2012 to March, 2017 and the dispute raised in this appeal was as to whether service tax was payable on the amount of late payment surcharge, meter rent and supervision charges received by assessee from the electricity consumers. It was held that the “transmission or distribution of electricity by an electricity transmission or distribution utility” was included in the negative list of services in section 66D(k) of the Finance Act, 1994 and so the power charges collected from the consumers of electricity were exempted from levy of service tax. It is clear from the judgment of Gujarat High Court that the activities that were related/ancillary to transmission and distribution of electricity would be exempt from payment of service tax since transmission and distribution of electricity. Also, all the services related to transmission and distribution of electricity were bundled services, as contemplated under section 66F(3) of the Finance Act, and were required to be treated as a provision of a single service of transmission and distribution of electricity, which service was exempted from payment of service tax. Thus, it was not possible to sustain the levy of service tax on the amount collected by assessee for late payment surcharge, meter rent and supervision charges.
FULL TEXT OF THE CESTAT JUDGEMENT
Madhya Pradesh Poorva Kshetra Vidyut Vitran Co. Ltd.1 has sought the quashing of the order dated March 1, 2019 passed by the Principal Commissioner, CGST and Central Excise, Bhopal2 by which the demand of service tax has been confirmed with interest and penalty.
2. The period of dispute is from July, 2012 to March, 2017 and the dispute raised in this appeal is as to whether service tax is payable on the amount of late payment surcharge, meter rent and supervision charges received by the appellant from the electricity consumers.
3. The appellant is a wholly owned undertaking of the Government of Madhya Pradesh and is engaged in the distribution of electricity in the eastern area of the State. The “transmission or distribution of electricity by an electricity transmission or distribution utility” is included in the negative list of services in section 66D(k) of the Finance Act, 19943 and so the power charges collected from the consumers of electricity are exempted from levy of service tax.
4. The officers of the Directorate General of Central Excise Intelligence collected information that the appellant charged late payment surcharge in the electricity consumption bills issued to the customers and recovered the same in case the customers made payment after the due date mentioned in the bill. Further investigation revealed that during the period from July, 2012 to March, 2017, the appellant had recovered late payment surcharge but service tax was not paid even though the amount was liable to service tax as it was a “declared service” defined under section 66E(e) of the Finance Act. The officers also noticed that the appellant was collecting meter rent from the consumers and since only “transmission and distribution of electricity” was covered under the negative list and not services related to “transmission and distribution of electricity”, nor it was exempted under any Notification, as was the case prior to the introduction of the negative list, transfer of goods by way of hiring or leasing without transfer of right to use such goods would be a „declared service‟ under section 66E(f) of the Finance Act. It was also noticed that the appellant was collecting supervision charges and collecting lease rent from the customers on which service tax was chargeable, but the appellant did not pay service tax. Accordingly, a show cause notice dated April 24, 2018 was issued to the appellant to show cause why service tax on the aforesaid amount collected by the appellant should not be levied with interest and penalty.
5. The appellant filed a reply on February 12, 2019 to the aforesaid show cause notice mentioning therein that neither the appellant was required to pay service tax on the aforesaid amount collected towards late payment surcharge, meter rent, supervision charges or lease rent, nor could the extended period of limitation contemplated under the proviso to section 73 (1) of the Finance Act be invoked.
6. The Principal Commissioner, however, confirmed the demand of service tax with penalty and interest by order dated January 30, 2019.
7. The relevant portion of the order passed by the Principal Commissioner in regard to late payment surcharge is as follow:
“33…………….. The Service tax law was revamped in June 2012 and was replaced by a „negative list‟ concept as a result of which all “activities” undertaken for some consideration were made subject to service tax except those service activities which are either specified in the negative list or are specifically excluded from the definition of term „service‟. An important aspect to be noted here is that the term „activity‟ has not been defined. However, the Education Guide so issued by the Tax Research Unit, Central Board of Excise and Customs, Ministry of Finance, seems to suggest that an „activity‟ could be both active as well as passive; meaning thereby that it would not only include “acts or deeds done” but would also include “forbearance to act”. Further, the impugned issue of taxability on receipt of the amounts of Late Payment Surcharge (LPS) charged by the noticee from the customers had been examined with reference to section 66E(e) of „the Act‟ and it was observed that the empowerment of the noticee to collect late payment surcharge is for the reason that there has been a delay and the same would be tolerated, but for a price of course, as per-determined and agreed upon and the „noticee‟ agreed to accept these amount in lieu to refrain from an act, or to tolerate an act. Hence, the amount of such receipt is appropriately classifiable under the definition of the service declared under section 66E(e) of the Finance Act, 1944.”
8. In regard to the amount collected by the appellant towards the meter rent, the Principal Commissioner observed as follows:
“38……………… After inception of Negative List only the service namely “transmission and Distribution of Electricity” are covered under the negative list and other service beyond the scope of activities of the transmission and distribution of electricity whether or not related to the said service are neither covered under the negative list nor exempted vide any notification as was the case prior to the introduction of negative list. Also, sub-clause 44 of Section 65B of the Finance Act, 1994(viz. the Act which regulates the levy and collection of Service Tax in India and referred to as „the Act‟) defines the term „service‟ with a very wide amplitude to mean „any activity carried out by a person for another for consideration, and includes a „declared service‟. The said definition is subject to certain exclusions like transactions in goods or immovable property or transactions in money and actionable claims. An important aspect to be noted here is that the term „activity‟ has not been defined. Further, “transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods” are notified as Declared Service as per clause (f) of Section 66E. Therefore the amounts of meter rent received by the „noticee‟ is correctly classifiable under the category of taxable service and is appropriately liable for payment of service tax.”
9. In regard to the amount collected by the appellant towards supervision charges, the Principal Commissioner observed as follows:
“41………. After inception of Negative List only the transmission and Distribution of Electricity” are covered under negative list and services related to the transmission and distribution of electricity neither covered under the negative list nor exempted vide any notification as was the case prior to the introduction of the negative list. The issue was examined in the light of provision of Section 66D of „Act‟ which specified the services which were out of the purview of the Service Tax provision and the amount so collected by the „noticee‟ in the form of Supervision Charges neither found entry in Section 66D of the Act nor exempted vide mega exemption notification no. 26/2012-ST dated 20.06.2012 as amended. Therefore the amount of supervision charges received by the „noticee‟ is clearly liable for payment of service tax. Now, after determining the issue of taxability of receipt against supervision charges, it‟s the turn now to arrive the quantification of the said service.”
10. In regard to the amount collected towards lease rent, the Principal Commissioner observed as follows:
“42. Next issue which comes in the array of charges raised, is non-payment Service tax on lease rent charges received by the noticee from their customers during the period under investigation. Since, the said service is squarely covered under Renting of Immovable Property service which is declared service as per clause (a) of Section 66E of the „Act‟. I , therefore, hold the noticee liable to discharge service tax short/not paid on the taxable value as received by them towards “Lease rent charges” from the customers as service rendered under Section 65B(44) of the Finance Act, 1994, under the provision of section 73(1) of the Act, ibid.”
11. It would be seen that the Commissioner has confirmed the demand of service tax on „late payment surcharge‟ under section 66E(e) of the Finance Act by holding that the same is a consideration received by the appellant “for tolerating an act of electricity consumers by receiving the payments after the prescribed due date for payment of electricity bills; the Commissioner has confirmed the demand of service tax on „meter rent‟ under section 66E(f) of the Finance Act by holding that the same is a consideration received by the appellant for transfer of goods by way of hiring; and the Commissioner has confirmed the demand of service tax on „supervision charges‟ collected from the electricity consumers by holding that the same is a taxable service since it is not covered under any exemption.
12. It needs to be noted that the lease rent amount was deposited by the petitioner after issuance of the show cause notice and so it has not been challenged in this appeal. However, the appellant has challenged the imposition of penalty on the lease rent amount.
13. It is against this order of the Principal Commissioner that the present appeal has been filed.
14. Shri Rajeev Kumar Agarwal, learned counsel appearing for the appellant has made the following submissions to assail the aforesaid order :
(i) The Principal Commissioner committed an error in holding that service tax was required to be paid on the amount collected towards late payment surcharge, meter rent and supervision In support of the submission reliance has been placed on a decision of the Gujarat High Court on Torrent P0ower Limited vs. Union of India4
(ii) The extended period of limitation could not have been invoked in the facts and circumstances of the present case ; and
(iii) Neither penalty could have been imposed nor interest could have been recovered.
15. Shri Vivek Pandey, learned Authorized Representative appearing for the Department, however, supported the impugned order and made the following submissions:
(i) Declared service is a deeming provision enacted by Parliament and as per definition, it need not be an activity carried out by one person for another;
(ii) At the time of signing the contract, both the parties planned and agreed to tolerate any breach of contract through the payment of liquidated damages. Hence, the consideration is both intentional and at the desire of the parties;
(iii) The Constitution Bench of the Supreme Court in Fateh Chand Balkishan Das5 held that reasonable compensation for a breach of contract has to be proportionate to the actual injury suffered, which means injury tolerated since the word ”suffering” is synonymous to ”tolerating”.
(iv) A case of compensation or damages for breach of a contract always involves one party tolerating/suffering an injury. Hence, the claim of the appellant in the present case that their contract is not for tolerating anything is fundamentally wrong;
(v) In this connection, reliance has also been placed upon the decision of the Delhi High Court in XL Energy Limited Vs. Mahanagar Telephone Nigam Limited6.
16. The submissions advanced by the learned counsel for the appellant and the learned Authorized Representative of the Department have been considered.
17. The issue that arises for consideration in this appeal is whether the appellant is providing taxable service by way of collecting amount under the following headings:
