2019 (3) TMI 821 - HC - Service Tax

Court rules supplying electricity to commercial complex constitutes taxable service under Finance Act, 1994.

Srijan Realty (P) Ltd. Versus Commissioner of Service Tax, Service Tax Commissionerate-II Kolkata And Ors.

The court held that the petitioner's supply of electricity to the occupiers of a commercial complex constitutes a service exigible to tax under the ... Levy of service tax - supply of electricity by the petitioner to the occupiers of “Galaxy Mall”, a commercial complex - Held that:- Under the definitions as obtaining in the Electricity Act, 2003, the petitioner cannot be said to be a generating company. It has not claimed itself to be so. It also cannot be said that, the petitioner is engaged in the supply or trading of electricity as, the definition of ‘supply’ and ‘trading’ does not allow the petitioner to come within the same. The petitioner is not an electricity trader as defined in Section 2(26) of the Electricity Act, 2003. The petitioner does not have a licence to undertake trading in electricity under Section 12 of the Electricity Act, 2003. The petitioner also cannot be said to be engaged in the business of transmission as, the petitioner does not have such a licence. The petitioner is not a person authorised to transmit, supply, distribute or undertake trading in electricity. In view of the definitions as obtaining in the Electricity Act, 2003, therefore, the petitioner cannot be said to be distributing or selling or trading in electricity when, it is receiving high-tension supply from Indian Power Corporation Ltd. and providing low-tension electricity to the occupants of the commercial complex. Sale, trading and distribution being taken out of the contention, the only other thing that remains to describe the activity undertaken by the petitioner, is service. The activity of the petitioner sought to be made exigible to tax does not come within exclusions contained in Section 65B(44). The Finance Act, 1994 provides a negative list of services in Section 66D. If, an activity which does not come within the negative list of services as defined in Section 66D of the Finance Act, 1994, such an activity is to be termed as a service exigible to tax under the Finance Act, 1994. It is the contention of the petitioner that, the activity of the petitioner comes within the negative list of services defined in Section 66D particularly in view of Section 66D(e) and (k). As noted above, the petitioner cannot be said to be indulging in trading of goods or in transmission or distribution of electricity within the meaning of the Electricity Act, 2003. The transaction of the petitioner obtaining high-tension electric supply converting it to low-tension supply, and supplying it to the occupants, raising bills on such occupants and realizing the electricity consumption charges from such occupants, is a service which the petitioner renders and such an activity is exigible to Service Tax under the Finance Act, 1994. Petition dismissed. Issues Involved:1. Whether the supply of electricity by the petitioner to the occupiers of a commercial complex is a service exigible to tax under the Finance Act, 1994.2. Whether the redistribution of electricity by the petitioner constitutes a sale/trading activity or a service.3. The applicability of the Finance Act, 1994 and the Electricity Act, 2003 to the petitioner's activities.4. The relevance of the petitioner's lack of a license to trade in electricity.5. The interpretation of relevant statutory provisions and judicial precedents.Detailed Analysis:Issue 1: Taxability of Electricity Supply under the Finance Act, 1994The petitioner sought a declaration that the supply of electricity to the occupiers of 'Galaxy Mall' is not a service exigible to tax under the Finance Act, 1994. The petitioner argued that redistribution of electricity is a sale/trading activity, not a service, and referred to various legal provisions and judicial precedents to support this claim. The respondents contended that the petitioner is providing a service by converting high-tension electricity to low-tension and supplying it to the occupiers, making the transaction exigible to Service Tax.Issue 2: Nature of Redistribution of ElectricityThe petitioner argued that electricity is a 'goods' and its redistribution constitutes a sale or trading activity. They cited the Central Excise Tariff Act, 1985, and the West Bengal Value Added Tax Act, 2003, which classify electrical energy as goods. The petitioner also referred to judicial precedents, including the Supreme Court's rulings in State of Andhra Pradesh v. National Thermal Power Corpn. Ltd. and Aluminium Co. v. State of Kerala, which recognize electricity as goods capable of being traded. The respondents countered that the petitioner, lacking a license to trade in electricity, is not authorized to sell electricity and is instead providing a service.Issue 3: Applicability of the Finance Act, 1994 and the Electricity Act, 2003The court examined relevant provisions of the Electricity Act, 2003, including definitions of 'electricity,' 'electricity trader,' 'supply,' and 'trading.' The court noted that the petitioner is not a generating company, electricity trader, or licensee authorized to transmit, supply, or trade in electricity. Consequently, the petitioner's activities do not constitute sale or trading under the Electricity Act, 2003. The court also reviewed the Finance Act, 1994, particularly sections defining 'service,' 'goods,' and the negative list of services. The court concluded that the petitioner's activities fall within the definition of service and are not excluded by the negative list.Issue 4: Relevance of Lack of License to Trade in ElectricityThe court emphasized that the petitioner does not have a license to trade in electricity as required under the Electricity Act, 2003. This lack of authorization means the petitioner's activities cannot be classified as trading or sale of electricity. The court rejected the petitioner's argument that unauthorized supply of electricity should be treated as a sale, noting that such an interpretation would violate the provisions of the Electricity Act, 2003.Issue 5: Interpretation of Statutory Provisions and Judicial PrecedentsThe court analyzed various statutory provisions and judicial precedents cited by both parties. It concluded that the petitioner's activities of obtaining high-tension electricity, converting it to low-tension, and supplying it to occupiers constitute a service. The court applied the dominant purpose test from Bharat Sanchar Nigam Ltd. v. Union of India and found that the petitioner's activities are primarily a service, not a sale. The court also distinguished the case from Larsen & Toubro Ltd. v. CCE Customs, noting that the petitioner's activities do not involve an indivisible works contract.Conclusion:The court held that the petitioner's activities of obtaining high-tension electricity, converting it to low-tension, and supplying it to occupiers constitute a service exigible to Service Tax under the Finance Act, 1994. The writ petition was dismissed, and no order as to costs was made.