GST - Meaning of 'transmission & distribution of electricity' does not change, either for negative list regime or GST regime - Paragraph 4 (1) of Circular No. 34/8/2018-GST dated 1.3.2018 struck down as ultra vires : HC
By TIOL News Service
AHMEDABAD, JAN 21, 2019: By Circular 34/8/2018-GST ; Dated: March 1, 2018, the CBIC clarified thus -
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4.
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(1) Whether the activities carried by DISCOMS against recovery of charges from consumers under State Electricity Act are exempt from GST?
(2) Whether the guarantee provided by State Government to state owned companies against guarantee commission, is taxable under GST?
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(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 (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.
(2) The service provided by Central Government/State Government to any business entity including PSUs by way of guaranteeing the loans taken by them from financial institutions against consideration in any form including Guarantee Commission is taxable.
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Sr. no. 25 of Notification 12/2017-CTR reads –
Table
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Sl. No.
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Chapter, Section, Heading, Group or Service Code (Tariff)
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Description of Services
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Rate (per cent.)
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Condition
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(1)
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(2)
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(3)
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(4)
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(5)
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25
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Heading 9969
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Transmission or distribution of electricity by an electricity transmission or distribution utility.
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Nil
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Nil
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The petitioner challenges this Circular, paragraph 4(1) as being ultra vires the provisions of the GST Act as well as the notifications issued thereunder. It is also submitted that the Court may declare that charges such as application fee, meter rent, testing fee etc. collected by the petitioners towards activities directly and closely connected with the transmission or distribution of electricity are exempt from tax under Entry no. 25 of Notification 12/2017-CT; that the charges such as application fee, meter rent, testing fee etc. collected by petitioners are part of composite supply of which principal supply is the actualy supply of electricity and, therefore, the entire composite supply is exempt by notification 12/2017-CT, Sr. no. 25; that the paragraph 4(1) of the impugned Circular should be applicable prospectively and for the period prior to 01.03.2018, the previous Service Tax Circular 131/13/2010 dated 07.12.2010 clarifying that the subject services are covered by exemption under notifcation 11/2010-ST and/or 32/2010-ST would apply.
The petitioner also seeks a writ in the nature of mandamus directing the respondent to drop proceedings sought to be initiated on the basis of the impugned Circular dated 01.03.2018 by issuing summons.
The Gujarat High Court considered the detailed submissions and inter alia observed thus –
++ Circular [131/13/2010] only provides an interpretation of when a service would stand included in another service, namely, when such service is an essential activity having direct and close nexus with the exempted activity. Therefore, the fact that the exemption notifications came to be rescinded has no relevance inasmuch as all that the circular clarifies is what according to the Government of India would stand included in another service. Such interpretation would not change merely because such exemption is now granted under some other provision.
++ The meaning of “transmission and distribution of electricity” does not change, either for the negative list regime or the GST regime. Accordingly, the services which stood included within the ambit of transmission and distribution of electricity during the pre-negative list regime cannot now be sought be excluded by merely issuing a clarificatory circular, that too, with retrospective effect. By the clarificatory circular, the respondents seek to give a different interpretation of the very same services as against the clarification issued for the pre-negative list regime.
++ Providing electric line and electric plant are elements of service which are naturally bundled in the ordinary course of business, with the single service of transmission and distribution of electricity which gives the bundle its essential character. …insofar as installation of electricity meter and hire charges collected in respect of electricity meters are concerned, by the circular dated 7 th December, 2010 the Government of India has clarified that supply of electricity meters for hire to the consumers is an essential activity having direct and close nexus with transmission and distribution of electricity, and, therefore, is covered by the exemption for transmission and distribution of electricity extended under the relevant notifications. Therefore, all the services related to transmission and distribution of electricity are naturally bundled in the ordinary course of business of the petitioner and are required to be treated as provision of the single service of transmission and distribution of electricity which gives the bundle its essential character.
++ The services provided by the petitioner are in the nature of composite supply and, therefore, in view of the provisions of clause (a) of section 8 of the CGST Act, the tax liability thereof has to be determined by treating such composite same as a supply of the principal supply of transmission and distribution of electricity. Consequently, if the principal supply of transmission and distribution of electricity is exempt from levy of service tax, the tax liability of the related services shall be determined accordingly.
++ Paragraph 4 (1) of the impugned Circular No. 34/8/2018-GST dated 1.3.2018 to the extent the same reads as under is hereby struck down as being ultra vires the provisions of section 8 of the Central Goods and Services Tax Act, 2017 as well as Notification No.12/2017- CT (R) serial no. 25.
Conclusion:
+ The impugned summons dated 28.3.2018 is set aside to the extent the petitioners are called upon to produce the documents listed at serial No.5 of the annexure thereto, except clause - (vi); income from shifting of HT lines received from MEGA.
+ The respondents shall drop the proceedings under the Finance Act, 1994 as well as under the CGST/SGST Acts sought to be initiated by virtue of the impugned summons to the extent the same is based upon item No.4 (1) of the impugned circular dated 1 st March, 2018.
Incidentally, the Counsel for the respondent revenue requested that the operation of this judgment be stayed for a period of eight weeks. The request was considered and declined.
In passing:
++ GST on Supp ly of Electricity
(See 2019-TIOL-419-HC-AHM-GST)
