Taxable services provided for transmission and distribution of electrical energy is exempt from service tax

Tamil Nadu Generation And Distribution Corporation Limited Vs Commissioner Of GST & Central Excise (CESTAT Chennai)

CESTAT Chennai held that all taxable services provided for the transmission and distribution of electrical energy are exempt from the liability to service tax during the impugned period. Accordingly, demand of service tax, interest and penalty set aside.

Facts- Based on intelligence, it revealed that the appellant TANGEDCO had been collecting fees/charges from the developers of windmills for processing their registration/application /name transfer from their Wind Energy Generators for the services provided which it appeared is classifiable under the category of ‘Business Auxiliary Service’; Consultancy charges for preparation of field feasibility report etc. to establish wind farms at notified sites in the State which services are classifiable under the category of ‘Consultant Engineer Service’; fee from non-employees towards participation in the training/workshop conducted by them at their training institute, which are classifiable under ‘Commercial Coaching and Training’ and the appellant had also let out their vacant land on rental lease to M/s. GMR Vasavi Power Corporation for setting up their diesel engine-based power plant at Basin Bridge, Chennai and the lease rental income received from M/s. GMR Power Corporation appeared to be taxable under the taxable category of ‘Renting of Immovable Property Service’.

The appellant had not registered themselves with the department nor had they paid service tax even after qualification of accounts by statutory auditors on non-payment of service tax liability. It therefore appeared that they had suppressed relevant facts from the knowledge of the department and contravened the aforesaid provisions of law with an intention to evade payment of service tax. Hence periodic Show Cause Notices were issued to the appellant demanding service tax. After due process of law, the adjudicating authorities under the above Orders-in-Original confirmed the service tax demand along with interest and imposed penalties under various provisions of Finance Act, 1994.

Conclusion- Held that all taxable services provided for the transmission and distribution of electrical energy are exempt from the liability to service tax during the impugned period. The sole purpose of the impugned activities as described above are ‘for’ ensuring the transmission and distribution of electricity. These services are not provided independently and are part of the appellant’s statutory functions and are hence done ‘for’ transmission and distribution of electric power to various consumers located within the state of Tamil Nadu in terms of the provisions of the Electricity Act, 2003. Without the said services being rendered transmission and distribution of electricity would be impaired. This being so the activities though being taxable services are covered by the exemption notifications stated above prior to 1.7.2012, and from the said date they figure in the negative list as per Section 66D(k) of the Finance Act 1994. Hence the appeal succeeds.

FULL TEXT OF THE CESTAT CHENNAI ORDER

These appeals are filed by the appellant Tamil Nadu Generation and Distribution Corporation Ltd. (TANGEDCO) against the above Orders-in-Original (impugned orders).

Brief facts of the case in all these appeals are that the appellants are providers of various services viz. ‘Business Auxiliary Service’, ‘Consulting Engineering Service’, ‘Renting of Immovable Property Service’ and ‘Commercial Training or Coaching Service’. The appellants are registered under the category of ‘Management or Business Consultant Service’. Based on intelligence regarding non-payment of service tax on amount collected towards processing and transfer fees from wind energy generators, an investigation was taken up by the officers of Survey, Intelligence and Research (SIR) Wing of the Commissionerate. Investigation revealed that the appellant TANGEDCO had been collecting (i) fees / charges from the developers of windmills for processing their registration / application / name transfer from their Wind Energy Generators from 2008 to 2011 – 12, from 2012 – 13 to 2014 – 15 and from 2015 – 16 and 2016 – 17 for the services provided which it appeared is classifiable under the category of ‘Business Auxiliary Service’. (ii) Consultancy charges for preparation of field feasibility report etc. to establish wind farms at notified sites i.e. Tirunelveli and Udumalpet in the State which services are classifiable under the category of ‘Consultant Engineer Service’. (iii) A fee from non-employees towards participation in the training / workshop conducted by them at their training institute, which are classifiable under ‘Commercial Coaching and Training’ from 2010 – 11 onwards. (iv) The appellant had also let out their vacant land on rental lease to M/s. GMR Vasavi Power Corporation for setting up their diesel engine-based power plant at Basin Bridge, Chennai and the lease rental income received from M/s. GMR Power Corporation appeared to be taxable under the taxable category of ‘Renting of Immovable Property Service’ from 2010- 11 onwards. The appellant had not registered themselves with the department nor had they paid service tax even after qualification of accounts by statutory auditors on non-payment of service tax liability vide Sl. No. 8 in Notes to Accounts in Balance Sheets for the disputed period. It therefore appeared that they had suppressed relevant facts from the knowledge of the department and contravened the aforesaid provisions of law with an intention to evade payment of service tax. Hence periodic Show Cause Notices were issued to the appellant demanding service tax. After due process of law, the adjudicating authorities under the above Orders-in-Original confirmed the service tax demand along with interest and imposed penalties under various provisions of Finance Act, 1994. The show cause notice wise duty involved are tabulated below.

Aggrieved by the impugned orders the appellant is before us in appeal.

3. No cross-objections have been filed by the respondent-department.

4. We have heard Shri V. Ravindran, learned counsel for the appellant and Smt. Anandalakshmi Ganeshram, learned Superintendent (AR) for the Revenue

4.1 Learned Counsel for the appellant has stated that the appellant is a 100% Government of Tamil Nadu owned public sector undertaking formed under Section 131 of the Electricity Act, 2003 as an Electricity Generation and Distribution Utility and its primary functions are generation, transmission and distribution of electricity to various consumers located with the state of Tamil Nadu in terms of the provisions of the Electricity Act, 2003. Taxes on the consumption or sale of electricity fall under Sl.No.53 in List II in the Seventh Schedule to the Constitution. ‘Transmit’ as defined under section 2(74) of The Electricity Act, 2003 ‘means conveyance of electricity by means of transmission lines and the expression “transmission” shall be construed accordingly’. Prior to 1.7.2012, services for transmission of electricity, or for distribution of electricity were not liable for the levy of service tax. In this connection, he has drawn attention to the Govt. of India Notifications 11/2010-ST dated 27.02.2010, 32/2010 ST dated 22.06.2010 and to Notification No. 45/2010-ST dated 20.07.2010. He stated that from 1.7.2012, Section 66D(k) of the Finance Act 1994 covered transmission or distribution of electricity by an electricity transmission or distribution utility in the negative list. He further stated that when the first SCN was issued all the relevant facts were in the knowledge of the authorities. Later on, while issuing periodic show cause notices the same/similar facts could not be taken as suppression of facts on their part, hence the extended period could not have been evoked. He has cited several case laws in their favour and prayed that the appeals may be allowed, with consequential relief in all the three appeals, as per law.

4.2 The learned AR Smt. Anandalakshmi Ganeshram, Supdt. (AR) submitted that the contention of the appellant is not acceptable. In this regard, the Commissioner has held that the assessee, though being a Government Department should have declared the value of services and even if they are of the belief that their services are exempted they should have approached the department for clarification. Hence, the extended period has been rightly invoked in the order. She stated that the exemptions are specific to services related to transmission and distribution of electricity only and do not exempt taxable services in relation to generation of electricity or in general the services provided by an authorized transmission and distribution utility. She further reiterated the points given in the impugned orders. She prayed that the impugned orders may be sustained and appeals may be rejected.

5. We have carefully gone through the appeal and heard the rival contentions. The issue as per Revenue pertains to the non-payment of service tax towards services related to ‘Business Auxiliary Service’, ‘Consulting Engineering Service’, ‘Renting of Immovable Property Service’ and ‘Commercial Training or Coaching Service’ rendered by the appellant. The appellant while not specifically denying the activities has stated that all services have been rendered in connection with transmission or distribution of electricity and were not liable for the levy of service tax during the entire period of the demand, which by the impugned orders covers the period from 2008-09 to 2017 i.e. both under the negative list regime and prior to it. We hence examine whether the activities of the appellant relate to transmission and distribution of electricity and are exempted from service tax or not.

6. The appellant has relied on the following table listing the notifications that were in force during the pre-negative list period of the service tax levy exempting all activities provided for transmission and distribution of electricity:

The Apex Court in M/S. Peekay Re-Rolling Mills (P) vs The Assistant Commissioner & Anr [Appeal (civil) 2653 of 2006/ 2007 (219) E.L.T. 3 (S.C.)] held:

“In our opinion, exemption can only operate when there has been a valid levy, for if there was no levy at all, there would be nothing to exempt. . . . . exemption does negate a levy of tax altogether. Despite an exemption, the liability to tax remains unaffected, only the subsequent requirement of payment of tax to fulfill the liability is done away with.”

Hence transmission and distribution of electricity are taxable services that have been exempted from service tax. The question is whether the activities sought to be subject to service tax levy by the impugned orders viz. ‘Business Auxiliary Service’, ‘Consulting Engineering Service’, ‘Renting of Immovable Property Service’ and ‘Commercial Training or Coaching Service’ are activities used ‘for transmission’ of electricity or ‘for distribution’ of electricity, so as to be also eligible for the said exemptions.

7. The appellant has also provided a table that ‘tests’ the impugned activities for eligibility for the exemption from Service Tax under the notifications:

Unlike the table made by the appellant the exemption only uses the phrase ‘for distribution’ and ‘for transmission’ and ‘relating to’. The terms should normally be understood to encompass the entire process necessary in transmitting and distributing electricity to their customers. In its judgment in the case of State of Haryana v. Dalmia Dadri Cement Ltd [AIR 1988 S.C. 342], pertaining to the Sales Tax Act it was held by the Hon’ble Apex Court that from a plain reading of the relevant clause it is clear that expression “for use” means intended for use. Thus the word ‘for’ appearing in the notifications are to be construed as expressions of width and amplitude which cover within its scope any activity which is rendered in connection with the main activity of transmission and distribution of electricity. While examining a similar phrase the Hon’ble Bombay High Court in the case of ONGC v. CCE, Raigad [2013 (32) S.T.R. 31 (Bom.)] has held that – “where the legislature or its delegate uses the expression “in or in relation to”, its object and purpose is to widen the scope and purview of its entitlement”. A similar treatment has to be given to the word ‘for’ in the context of the notifications. It would not suffice to examine the form of the activity sought to be classified in isolation. The guiding factor would be to examine it in conjunction with the real nature and substance of the main activity i.e transmission and distribution. It has hence to be ascertained whether the activity sought to be classified is an essential activity which is having a direct and close nexus with transmission and distribution of electricity. If so, all these services would be eligible for the exemption otherwise not.

8. We may now examine the judicial precedents in the matter. The impugned order and the submissions made during the hearing by Revenue has not relied on any judgments of superior courts. The appellant has relied on the following judgements presented in a tabular form.

They have further stated that, the Central Board of Excise & Customs has vide its Circular No. 131/ 13/ 2010 – ST dated 07 December 2010, clarified thus “… an essential activity having direct and close nexus with transmission and distribution of electricity, the same is covered by the exemption for transmission and distribution of electricity, extended under the relevant notifications” . This was in the context of service tax on “hire charges” for energy meters installed by Transco and Discom in consumer premises. This cardinal rule they state will apply to all such activities of the Discom. They have further stated that the Hon’ble High Court of Gujarat [Torrent Power Ltd. v. Union of India 2019 (1) TMI 1092] and Hon’ble High Court of Rajasthan [Jodhpur Vidyut Vitran Nigam Ltd v. UOI 2021 (2) TMI 557] had also categorically asserted in favour of the appellant, by applying the said circular to interpret the exemption for transmission and distribution of electricity, not merely on service tax prior to and after Negative List, but also during GST regime.

9. It would now merit to examine the individual activities sought to be taxed by the department. The description of the activity as given by the appellant is mentioned below.

i) Registration / application / name transfer from Wind Energy Generators (WEG): [‘Business Auxiliary Service’], Registration fee, name transfer fee and Installation & tie up fee are fixed as statutory fee for grant of permission for setting up of a wind mill.

ii) Preparation of field feasibility reports etc., to establish wind farms. [‘Consultant Engineer Service’]. The field feasibility report is prepared for the purpose of installation of wind electric generator. It is a mandatory/ statutory document and helps the appellant to monitor the role of the applicant in its capacity as an electric transmission and distribution utility. Without assessing feasibility and hereafter approving the grid tie up the appellant cannot allow the electricity generated by the WEG to enter the grid.

iii) Non-employees for training/workshop. [‘Commercial Coaching and Training’]. The training given to its own employees is without collecting fees. Training for others is done by collecting a nominal fee for meeting the cost of training. The training is given as a part of human resource development as skill upgradation is essential for providing and maintaining proper transmission and distribution of electricity.

iv) Leasing land for power plant. [‘Renting of Immovable Property Service’]. The vacant land of the appellant was given on lease for setting up diesel engine-based power project having 4 units of 49 MW each. The land has been leased out to optimize the generation, transmission and distribution of electricity.

As per the discussions at para 7 and the judgments above it is clear that all taxable services provided for the transmission and distribution of electrical energy are exempt from the liability to service tax during the impugned period. The sole purpose of the impugned activities as described above are ‘for’ ensuring the transmission and distribution of selectricity. These services are not provided independently and are part of the appellant’s statutory functions and are hence done ‘for’ transmission and distribution of electric power to various consumers located within the state of Tamil Nadu in terms of the provisions of the Electricity Act, 2003. Without the said services being rendered transmission and distribution of electricity would be impaired. This being so the activities though being taxable services are covered by the exemption notifications stated above prior to 1.7.2012, and from the said date they figure in the negative list as per Section 66D(k) of the Finance Act 1994. Hence the appeal succeeds.

10. Since the issue has been decided on merits in favour of the appellant the question of paying duty, interest, penalties or of invoking the extended period does not arise.

11. Thus, the impugned order’s No. CHN-SVTAX-001-COM-13-2014-15 dated 29.1.2015, No.CHN-SVTAX-001-COM-97-2016-17 dated 22.2.2017 and No.111/2018 Ch. N. GST (Commr.) 20.11.2018 are set aside and the appeals are allowed with consequential relief, if any, as per law. The appeals are disposed off accordingly.

Pronounced in open court on 22.9.2023