Electricity distribution service exemption supports unconditional stay where materials and services were separately valued and VAT was paid.

Electricity distribution-related management, maintenance, repair, erection, commissioning and installation services were treated as exempt up to 21.06.2010 under the notification issued under Section 11C of the Finance Act, 1994, and the Tribunal found no basis to tax the material component where the contract separately identified materials and services, VAT had been paid on materials, and there was no evidence of separate recovery of service tax from customers. Mere omission to cite the notification in ST-3 returns was held insufficient to deny the exemption where its applicability otherwise existed. On that basis, the appellant was held to have made out a prima facie case for unconditional stay.

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Issues: Whether the appellant had made out a prima facie case for unconditional stay against the demand of service tax on the entire contract value, including the value of materials, in view of the exemption applicable to electricity distribution related services and the exclusion of material value under the notification relied upon.

Analysis: The appellant was providing management, maintenance, repair, erection, commissioning and installation services for electricity distribution and had been paying service tax only on the service portion reflected in the ST-3 returns. The demand was based on inclusion of the material component in the contract value. The Tribunal noted that up to 21.06.2010 the relevant services were exempt under the notification issued in terms of Section 11C of the Finance Act, 1994, and found no material to support the conclusion that service tax had been separately recovered from customers. It also accepted that the contract showed separate values for materials and services, VAT had been paid on the materials, and mere non-mention of the notification in the ST-3 returns could not by itself justify denial of the benefit where applicability otherwise existed.

Conclusion: The appellant established a good prima facie case for unconditional stay, and the stay application was allowed.

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