JUNE 20, 2018
By Vijay Kumar
GST on Renting of Electricity Meters?
The Government, (more precisely, the Tax Research Unit in the Department of Revenue in the Ministry of Finance in the Government of India) gave the following clarification in Circular No. 34/8/2018-GST dated 01 03 2018 :
4 (1): Issue: Whether the activities carried by DISCOMS against recovery of charges from consumers under State Electricity Act are exempt from GST?
Clarification: 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 (R), Sl. 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.
This issue, has a great history.
Back to Service Tax Regime :
In 2010, the Government issued two notifications regarding electricity;
1. Notification No. 11/2010-ST, dated 27.2.2010 exempting the taxable service provided to any person, by any other person for transmission of electricity, from the whole of service tax leviable thereon under section 66 of the said Finance Act.
2. Notification No. 32/2010-ST, dated 22.06.2010 exempting taxable service provided to any person, by a distribution licencee, a distribution franchisee, or any other person by whatever name called, authorized to distribute power under the Electricity Act, 2003(36 of 2003), for distribution of electricity, from the whole of service tax leviable thereon under section 66 of the said Finance Act.
So, from 27.2.2010 service for transmission of electricity and from 22.06.2010, service of distribution were exempted. While transmission and distribution companies heaved a sigh of relief, the doubt arose as to what would be the fate of transmission and distribution of electricity before the above exemptions came into existence. Show Cause Notices flew at the speed of light.
The good Government realised the flaw and issued a Section 11C Notification 45/2010-ST exempting the service tax payable on the taxable services relating to transmission and distribution of electricity during the above period, that is, during the period up to 26th day of February, 2010 for all taxable services relating to transmission of electricity, and the period up to 21 st day of June, 2010 for all taxable services relating to distribution of electricity.
This should have set the issue at rest but Show Cause Notices once set in motion refuse to come to a state of rest unless and until quashed by the Tribunal or a higher authority.
While several cases reached the Tribunal and many were decided in favour of the assessees, several cases are still pending. That is one litigation saga. Let it flourish.
In the year 2010 itself, a doubt was raised whether the rent collected on electricity meters would be covered by the above exemptions and the Board clarified in Circular No. 131/13/2010-ST, dated 07.12.2010 :
A doubt has been raised whether renting of electricity meter by a service provider rendering the service of transmission or distribution of electricity, is covered by the exemption available under Notification No. 11/2010-ST dated 27.02.2010 and/ or 32/2010-ST dated 22.06.2010.
2. The matter has been examined. It is a general practice among electricity transmission(TRANSCO) / distribution companies (DISCOM) to install electricity meters at the premises of the consumers, to measure the amount of electricity consumed by them and 'hire charges' are collected periodically. Supply of electricity meters for hire to the consumers being 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.
Eight years later, the same Board clarifies that rental charges on these meters will attract GST. Has anything changed substantially? GST of course.
But there was a major change from 01.07.2012. The negative list came into existence. Transmission and distribution of electricity figured in the negative list but with a slight lethal difference.
Remember the 2010 exemptions were for services provided for transmission of electricity and for distribution of electricity. The negative list of 2012 provided for non-levy of service tax on Transmission or distribution of electricity by an electricity transmission or distribution utility. So, there is an opinion that only transmission and distribution and not the services relating to transmission and distribution will get the benefit of zero tax. Somehow this opinion did not spread like wild fire (as such opinions often do) and the department mostly thought that all services relating to transmission and distribution of electricity are exempted/not taxable, notwithstanding the expression in the Negative List.
Now, the GST regime also exempts "Transmission or distribution of electricity by an electricity transmission or distribution utility" by Sl. No. 25 of Notification No. 12/2017- Central Tax (Rate), dated 28.06.2017 . The words are identical in ‘Negative List' and GST exemption notification.
Are the services relating to Transmission or distribution of electricity liable to Service Tax from 01.07.2012 and GST from 01.07.2017?
This seems to be the issue, the Board has raked up now with its clarification that Service by way of transmission or distribution of electricity is exempt from GST but Rental Charges against metering equipment, is taxable. The conclusion is supply of electricity is not taxable but if you collect rent for that meter, you have to pay GST for that meter. Many of the DISCOMs (that is how distribution companies are affectionately called) could visualise this situation and had stopped collecting rent on electricity meters – actually they stopped supplying meters – the consumers are expected to buy their own meters. But then if there are any charges for installing a new meter, the Board (the Revenue Board not the Electricity Board) would like to get GST on that.
There is another angle to it. Is transmission and distribution of electricity a service or sale of goods. It is by now trite that electricity is goods and it also figures at Sl. No.104 - 2716 00 00 - Electrical energy in the SCHEDULE I: LIST OF GOODS AT NIL RATE of the rate of GST on goods. If electricity is goods, will the distribution of it become a service? Under GST, electrical energy is chargeable to NIL rate and its distribution is exempted. But if there is a rent for the meter, GST appears!
Already litigation has started. The Board issued the clarification that services relating to distribution of electricity would attract GST, on 01.03.2018 and the GST Department in Gujarat issued summons to ‘Torrent Power Ltd' on 28.03.2018 calling for information and documents which includes the petitioner's balance-sheet for the financial years 2012-2013 to 2016 - 2017, bifurcation of income of various services for the same period and the petitioner's bank statements for financial years 2012-2013 to 2017-2018 besides other information. Maybe the department wants to collect Service Tax from 01.07.2012 and GST from 01.07.2017. ‘Torrent Power' is a company engaged in generation, transmission and supply of electricity. The Company has challenged the summons in the Gujarat High Court on the grounds that
when the exemption granted to the electricity companies under the earlier service tax regime has been continued under GST regime, the Government's clarification in connection with the incidental services cannot be changed. In any case, the clarification cannot operate retrospectively and at any rate cannot apply to a period prior to introduction of GST. The action of the authority to call for information for the period as far back as the financial year 2012-2013 is therefore, wholly unjustified.
The High Court has issued notice to the Union of India and ordered "Till further orders, the petitioners shall not have to reply to such summons dated 28.3.2018". (2018-TIOL-33-HC-AHM-GST)
The issue is likely to spread fast to other parts of the country and every assessee in the business of distributing electricity may have to approach their jurisdictional High Courts. Lawyers should be grateful to the Board (Revenue) for providing such lucrative opportunities. Fifteen years back, a Central Excise Officer wanted to resign and set up practice as an advocate. He expressed apprehension with his Chief Commissioner, that with massive simplification, there may not be many cases for the advocates. The Chief Commissioner then told him, "as long as we are here and the department exists, you need not worry, we will provide ample opportunities for litigation."
Is the whole problem because of the intention of the lawmakers or an inconspicuous mistake by a babu which went unnoticed all these years?
In 2010, the Government took a conscious decision that all services relating to transmission and distribution of electricity are exempted from Service Tax. Did they change the policy in 2012 and consciously decide that only transmission and distribution would get exemption and not the incidental and connected services? If so, why? What was the public interest in exempting meter rent in 2010 and not exempting it in 2012. Wasn't it a mistake and the mistake walked into GST in silent glory. All the brilliance of the babus will now be channelized into proving that it was a conscious decision and not a mistake. A couple of days ago, Mr. Arun Jaitley blogged, "The GST after a few weeks of its implementation became problem free and is leading to higher tax collection."
He added, "The tragedy of the honest tax payer is that he not only pays his own share of taxes but also has to compensate for the evader ."