2022 (3) TMI 1257 - AT - Service Tax

Tribunal rules in favor of appellant, finding service tax demand unsustainable. Power Grid materials excluded. Electricity distribution services exempt.

The Tribunal ruled in favor of the appellant, finding that the demand for service tax was unsustainable. The inclusion of the value of materials supplied ... Valuation of services - value of material supplied by M/s Power Grid to the appellant free of cost for erection commissioning of transmission lines shall form the part of gross value of services provided by the appellant from payment of service tax or not? - services of erection commissioning and installation provided for distribution of electricity is exempt from payment of service tax or not - show cause notice dated 18.10.2016 for the period April 2011 to March 2015 is barred by limitation or not? Whether the value of material supplied by M/s Power Grid to the appellant free of cost for erection commissioning of transmission lines shall form the part of gross value of services provided by the appellant from payment of service tax or not? - HELD THAT:- The issue has been examined by the Hon’ble Apex Court in the case of UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. [2018 (3) TMI 357 - SUPREME COURT] where it was held that only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax - thus, for the period prior to May 2015 the free supplies of material by the service recipient is not includable in the gross amount of service provided by the service provider i.e. the appellant. Therefore, whole of demand is not sustainable. Whether the services of erection commissioning and installation provided for distribution of electricity is exempt from payment of service tax under Section 66 of the Finance Act, 1994 or not? - HELD THAT:- The said service has been provided by the appellant for distribution of electricity which is exempt from payment of service tax as held by this Tribunal in the case of M/S UP RAJKIYA NIRMAN NIGAM LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, MEERUT-I [2015 (8) TMI 66 - CESTAT NEW DELHI] where it was held that the service tax payable on all services relating to transmission and distribution of electricity provided by the service provider to the service recipient is not required to be paid - thus, the services provided for distribution of power is exempt from payment of service tax. Whether the show cause notice dated 18.10.2016 for the period April 2011 to March 2015 is barred by limitation or not? - HELD THAT:- The appellant has informed to the respondent that they will discharge their service tax liability under Composite Scheme under Works Contract Services and the said activity was known to the respondent during the period of execution of work - the show cause notice issued by invoking extended period of limitation is not sustainable. Accordingly, the whole of demand is barred by limitation. Appeal allowed - decided in favor of appellant. Issues Involved:(a) Inclusion of the value of materials supplied by Power Grid in the gross value of services for service tax purposes.(b) Exemption of services related to erection, commissioning, and installation for the distribution of electricity from service tax under Section 66 of the Finance Act, 1994.(c) Validity of the show cause notice dated 18.10.2016 concerning the period April 2011 to March 2015, considering the limitation period.Detailed Analysis:Issue No. 1: Inclusion of the value of materials supplied by Power Grid in the gross value of services for service tax purposes.The appellant contested the inclusion of the value of materials supplied by Power Grid in the gross value of services for service tax purposes. The Hon'ble Apex Court in the case of Union of India vs. Intercontinental Consultants and Technocrats Pvt. Ltd. (2018) and Commissioner of Vs. Bhayana Builders (P) (2018) held that the value of free supplies by the service recipient is not includable in the gross amount charged by the service provider. The court emphasized that the valuation of taxable services should only include the gross amount charged for providing such services. The court further noted that the amendments to Section 67 of the Finance Act, 1994, which included reimbursable expenses in the valuation, were prospective and not retrospective. Therefore, for the period prior to May 2015, the value of free supplies by Power Grid should not be included in the gross amount for service tax purposes. Consequently, the demand for service tax based on the inclusion of free supplies was deemed unsustainable.Issue No. 2: Exemption of services related to erection, commissioning, and installation for the distribution of electricity from service tax under Section 66 of the Finance Act, 1994.The appellant argued that the services provided for the erection, commissioning, and installation for the distribution of electricity were exempt from service tax. This argument was supported by the Tribunal's decision in the case of U. P. Rajkiya Nirmam Nigam Ltd. vs. Commissioner of Central Excise, Meerut-I, which cited Notification No. 45/2010-ST dated 20.07.2010. This notification exempted all taxable services related to the transmission and distribution of electricity from service tax. Therefore, the Tribunal held that the services provided by the appellant for the distribution of electricity were exempt from service tax under Section 66 of the Finance Act, 1994.Issue No. 3: Validity of the show cause notice dated 18.10.2016 concerning the period April 2011 to March 2015, considering the limitation period.The appellant contended that the show cause notice issued on 18.10.2016 for the period April 2011 to March 2015 was barred by limitation. The Tribunal noted that the appellant had informed the respondent about their intention to discharge service tax liability under the Composite Scheme for Works Contract Services, and this activity was known to the respondent during the execution of the work. Given this information, the Tribunal concluded that the invocation of the extended period of limitation for issuing the show cause notice was not justified. Therefore, the entire demand was considered barred by limitation.Conclusion:In light of the above analysis, the Tribunal found no merit in the impugned order. The demand for service tax was deemed unsustainable due to the exclusion of free supplies from the gross value, the exemption of services related to the distribution of electricity, and the invalidity of the show cause notice due to the limitation period. Consequently, the appeal was allowed with consequential reliefs. The judgment was pronounced on 28.03.2022.