2019 (3) TMI 821 - HC - Service Tax

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

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 ... Service - sale of electricity as goods - trading of goods - licence to trade in electricity - transmission or distribution of electricity by an electricity transmission or distribution utility - negative list - dominant purpose test - exigible to Service TaxService - sale of electricity as goods - licence to trade in electricity - transmission or distribution of electricity by an electricity transmission or distribution utility - negative list - dominant purpose test - exigible to Service Tax - Classification of the petitioner's activity of receiving high-tension supply, stepping it down and charging occupiers on sub-meter readings as a service exigible to Service Tax rather than sale/trading of electricity. - HELD THAT: - Under the definitions in the Electricity Act, 2003 the petitioner is not a generating company, an electricity trader or a licensee authorised to transmit, distribute or trade in electricity and has not been granted any licence under section 14/12 to undertake trading, transmission or distribution. Although earlier decisions recognise that electricity may be a movable good capable of sale, the Court held that where a person does not possess the statutory authorisation to trade or distribute electricity, the characterisation of the activity as sale/trade would render it violative of the Electricity Act and must be avoided. Service is defined in Section 65B(44) of the Finance Act, 1994 as any activity carried out by a person for another for consideration and the petitioner's activity falls within that definition and does not attract the exclusions in Section 65B(44). The negative list in Section 66D excludes only specified services such as trading of goods and transmission or distribution by an electricity transmission or distribution utility; the petitioner does not fall within those excluded categories because it lacks the statutory licence to trade or to be an electricity transmission/distribution utility. Application of the dominant purpose test, as advanced by the petitioner, does not aid the petitioner on these facts because the activity cannot be characterised as a lawful sale or trade in electricity in the absence of statutory authorisation. Having rejected the characterisation as sale/trading or authorised distribution, the Court concluded that the activity is a service and therefore exigible to Service Tax under Section 66B of the Finance Act, 1994.The petitioner's activity is a service and is exigible to Service Tax; the writ petition is dismissed.Final Conclusion: The Court held that the petitioner's stepping down of high-tension supply and billing occupiers for consumption is a service within the Finance Act, 1994 and not a sale/trading of electricity in view of the petitioner's lack of statutory licence; the writ petition is 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.