2019 (3) TMI 1955 - AAAR - GST

Electricity Distribution Services: Exemptions and Tax Rates under GST

In Re: M/s. Uttrakhand Power Corporation Limited

The Appellate Authority ruled that certain services directly related to the distribution of electricity are exempt from GST, while ancillary services not ... Classification and rate of GST - receipts received by the applicant on the count of distribution of electricity - Checking and testing of meters - Subsequent testing and installation other than initial testing - Disconnection and Reconnection of supply on consumers request or non-payment of bill - Replacement of Meters, Changing of position of meter board at the consumer's request - Checking of Capacitors (other than initial checking) on consumer's request - Charge for providing copy of MRI summary report - Maintenance charge for public lamps - Advance deposit by consumer with application for temporary LT / HT connection - Charge for special meter reading on the request of the Consumer - Service line charges and overhead line charges for release of new LT connection and for enhancement /reduction in sanctioned load - Recovery of cost of burnt meter from the Consumer - Registration cum processing fee - Works charges for release of new HT/EHT connection and for enhancement / reduction in sanctioned load - Security deposits at the time of release of new HT/ EHT connection and for enhancement in sanctioned load - Charges for shifting of service lines and meters etc. - Recovery of damage to material and dismantling charges on expiry of temporary connection - Replacement of Meters, Installation of meter and its subsequent removal in case of Temporary Connections - Supervision charges. HELD THAT:- The issue is squarely covered by Board's Circular 34/8/2018-GST dated 01.03.2018, para 4 of which fully exempts Service by way of transmission or distribution of electricity by an electricity transmission or distribution utility. However, it has also specifically excluded from this exemption, certain other ancillary services which are not directly or closely related to the said service. Thus to determine the taxability of the issues enumerated in the Table-I above, we will be guided by the referred Board's circular. In short, all services which are directly or closely related to generation and distribution of electricity will be completely exempted and any other ancillary service (akin to the ones included in the exclusion clause of the said para 4 of the Board's referred circular, will be taxed at the appropriate prevailing rate. The said clause of the circular has been struck down by Hon'ble Gujarat High Court, in an identical issue in the matter of TORRENT POWER LTD. VERSUS UNION OF INDIA [2019 (1) TMI 1092 - GUJARAT HIGH COURT]. However, it has been ascertained that the order has not been accepted by the concerned Commissionerate and a proposal for filing an appeal has already been forwarded to the Board. Accordingly, the said decision of the Hon'ble High Court cannot be cited as a precedent in the present case since the issue has not reached finality. Further, Charges for distribution and supply of electricity such as fixed charge, demand charge, energy charge, fuel charge adjustment, excess load demand charge, low power factor surcharge, low voltage surcharge/ high voltage rebate, wheeling charge, cross subsidy surcharge and additional surcharge etc., Delayed Payment Surcharge, Assessment against theft and unauthorized use of electricity, Security deposits at the time of release of new LT connection and for enhancement in sanctioned load, Security deposits at the time of release of new HT/ EHT connection and for enhancement in sanctioned load, Checking and testing of meters, Advance deposit by consumer with application for temporary LT / HT connection, Service line charges and overhead line charges for release of new LT connection and for enhancement /reduction in sanctioned load, Works charges for release of new HT/EHT connection and for enhancement / reduction in sanctioned load and Replacement of Meters, Installation of meter and its subsequent removal in case of Temporary Connections are exempt from tax. Issues Involved:1. Classification and rate of GST on various receipts related to the distribution of electricity.2. Divergent views on the taxability of ancillary services provided by the electricity distribution company.Detailed Analysis:1. Charges for Distribution and Supply of Electricity:The applicant sought an Advance Ruling on the classification and rate of GST for various charges related to the distribution of electricity. The charges included fixed charge, demand charge, energy charge, fuel charge adjustment, excess load demand charge, low power factor surcharge, low voltage surcharge/high voltage rebate, wheeling charge, cross subsidy surcharge, and additional surcharge.The Authority observed that intra-state transmission or distribution of electricity by an electric transmission or distribution utility is covered under service code 9969 and attracts GST at 'nil' rate as per Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017.2. Delayed Payment Surcharge:The delayed payment surcharge was also examined, and it was determined to be part of the distribution and supply of electricity, thus attracting a 'nil' rate of GST.3. Ancillary Services:The ancillary services such as checking and testing of meters, subsequent testing and installation, disconnection and reconnection of supply, replacement of meters, checking of capacitors, providing copy of MRI summary report, maintenance charge for public lamps, advance deposit for temporary LT/HT connection, special meter reading, assessment against theft and unauthorized use of electricity, service line charges, security deposits, recovery of cost of burnt meter, registration cum processing fee, works charges, charges for shifting service lines and meters, recovery of damage to material and dismantling charges, and supervision charges were also analyzed.Divergent Views:Per Shri Vipin Chandra:He referred to Circular 34/8/2018-GST dated 01.03.2018, which clarified that services by way of transmission or distribution of electricity by an electricity transmission or distribution utility are exempt from GST. However, other services such as application fees for releasing connection, rental charges against metering equipment, testing fees for meters/transformers/capacitors, labor charges for shifting meters/service lines, and charges for duplicate bills are taxable at 18% GST. He concluded that all services in Annexure-B, except for services at serial numbers 1, 2, 12, 14, and 18, are taxable at 18%.Per Shri Amit Gupta:He argued that all services listed in Annexure-B should be treated as incidental to the transmission and distribution of electricity and should be covered under composite supply, thus exempt from GST. He supported his view with judgments from NOIDA Power Co. Ltd. vs Commissioner of C. Ex., Noida and Paschimanchal Vidyut Vitran Nigam Ltd. Versus Commissioner of Central Excise, Meerut, which held that services related to the transmission and distribution of electricity, including erection, commissioning, installation of meters, and technical testing, are exempt from GST.Ruling:The Appellate Authority reviewed the ruling dated 20.11.2018 and the submissions made during the personal hearing. They found that the services listed at serial numbers 1, 2, 12, 14, and 18 are exempt from GST. Additionally, services at serial numbers 3, 10, 13, 17, and 21 (being directly or closely related to the main service of distribution of electricity) and serial number 16 (mandatory for obtaining electricity) are also fully exempt from GST.However, services at serial numbers 4 to 9, 11, 15, 19, 20, and 22 are ancillary in nature, provided at the specific request of the consumer, and are not compulsory services closely or directly related to the generation or distribution of electricity. These services are leviable to GST at the prevailing rate of 18% (9% CGST + 9% SGST).Conclusion:The ruling was modified to exempt certain services directly related to the distribution of electricity from GST while imposing an 18% GST on ancillary services not directly related to the distribution of electricity.