2013 (12) TMI 854 - AT - Service Tax

Tribunal excludes electricity charges from assessable value for service tax in renting properties

The Tribunal held that reimbursement of electricity charges from tenants should not be included in the assessable value for service tax for renting ... Inclusion of reimbursements in assessable value for renting of immovable property - supply of electricity as sale of goods and not a taxable service - exemption of value of goods supplied by a service provider from service tax under Notification No.12/03-ST - application of Rule 5 of Service Tax (Determination of Value) Rules, 2006 to reimbursements and costs - classification of electricity under Central Excise Tariff Heading 27 and treatment under Maharashtra VAT Schedule AInclusion of reimbursements in assessable value for renting of immovable property - application of Rule 5 of Service Tax (Determination of Value) Rules, 2006 to reimbursements and costs - Whether amounts recovered from tenants as electricity charges can be included in the assessable value of the taxable service of renting of immovable property - HELD THAT: - The appellants were providers of renting of immovable property and had been levying service tax on rent. Show-cause notices sought to add amounts recovered as electricity reimbursements to the taxable value invoking Rule 5 which treats expenditures incurred by the service provider in the course of providing taxable service as consideration. The Tribunal examined the terms of the lease agreements and the nature of the recoveries and proceeded to consider whether those recoveries are payments for a service comprised within the renting service or are payments for supply of goods (electricity). Having concluded that the recoveries related to supply of electricity (a good) and not to the core renting service, the Tribunal held that such reimbursements cannot be added to the assessable value of the renting-of-immovable-property service under Rule 5. [Paras 2, 8, 9, 10]Amounts recovered from tenants as electricity charges cannot be included in the assessable value of renting-of-immovable-property service.Supply of electricity as sale of goods and not a taxable service - classification of electricity under Central Excise Tariff Heading 27 and treatment under Maharashtra VAT Schedule A - Whether supply of electricity to tenants by the appellants amounts to sale of goods (electricity) rather than provision of a service - HELD THAT: - The Tribunal noted that electricity is specifically covered under Chapter/Heading 27 of the Central Excise Tariff Act and is listed under Schedule A of the Maharashtra Value Added Tax Act as chargeable to nil rate, thereby treating electricity as goods. On the facts, tenants either paid MSEB directly, or the appellants charged tenants on the basis of sub-meter readings, or charged for generator-supplied power at commercial rates. Given the statutory classification of electricity as goods and the manner of recovery, the Tribunal concluded that the supply of electricity in these arrangements amounted to sale of goods and not the provision of a service chargeable under the renting-of-immovable-property head. [Paras 4, 5, 9]Supply of electricity to tenants in the described arrangements amounts to sale of goods and not a taxable service.Exemption of value of goods supplied by a service provider from service tax under Notification No.12/03-ST - Whether the value of electricity supplied by the appellants is exempt from service tax under Notification No.12/03-ST dated 20-6-2003 - HELD THAT: - The Tribunal applied Notification No.12/03-ST which exempts from service tax the value of goods supplied by a service provider to the service recipient. Since the Tribunal had found that the recoveries represented value of goods (electricity), and the appellants had not availed input credit in respect of those goods, the value of such supplies fell within the exemption afforded by the notification. The Tribunal further noted that an earlier adjudication in the same Commissionerate (Order-in-Original dated 28-11-2011) treating electricity as goods had been accepted by Revenue, which reinforced the statutory classification and the applicability of the exemption in the present cases. [Paras 6, 9, 10]The value of electricity supplied by the appellants is exempt from service tax under Notification No.12/03-ST and therefore is not includible in the assessable value of the renting service.Final Conclusion: The Tribunal allowed the appeals, setting aside the impugned orders and holding that amounts recovered from tenants as electricity charges represent supply of goods (electricity) and, being covered by the exemption in Notification No.12/03-ST, cannot be included in the assessable value of the renting-of-immovable-property service for service tax purposes. Issues:1. Whether reimbursement of electricity charges from tenants should be included in the assessable value for the purpose of service tax as a provider of renting of immovable property.Analysis:The appellants were engaged in providing services of renting immovable property and were paying appropriate service tax on rent received from tenants. Show-cause notices were issued alleging that certain amounts received as reimbursement of electricity charges from tenants should be included in the assessable value for service tax. The adjudicating authority confirmed the demand, considering the reimbursement amounts as part of the assessable value.The appellants contended that the electricity charges recovered were not related to the service of renting immovable property. They argued that tenants were supposed to pay electricity charges directly to the Electricity Board, and any charges collected by the appellants were based on actual consumption or for providing backup services. They also highlighted instances where they had to pay electricity charges on behalf of defaulting tenants and subsequently recover the amount.The appellants further argued that electricity should be considered as goods, not a service, as per the Central Excise Tariff Act and the Maharashtra Value Added Tax Act. They relied on a previous order by the Commissioner of Central Excise, Pune III, which held that electricity is goods and not subject to excise duty. The appellants emphasized that the charges collected for electricity should not be included in the assessable value for service tax, citing exemptions under Notification No.12/03 ST dated 20/6/2003.After reviewing the Lease Agreements and relevant laws, the Tribunal found merit in the appellants' contentions. The Tribunal concluded that the electricity charges collected from tenants should not be considered part of the assessable value for service tax as a provider of renting of immovable properties. Consequently, the impugned orders were set aside, and the appeals were allowed.