2025 (10) TMI 457 - HC - Service Tax

Petition remanded to Adjudicating Authority to decide whether electricity charges are liable to service tax within three months

Tarc Projects Limited Versus Union of India & Ors.

The HC allowed the petition by remanding the matter to the concerned Adjudicating Authority for determination whether electricity charges collected by the ... Vires of Notification No. 32/2010-ST date 22nd June, 2010 and Clause (k) of the Section 66D of the Act - amount recovered by the petitioner on account of supply of electricity is chargeable to service tax under the Finance Act, 1994 or not - scope of State List as per the VII Schedule of the Constitution of India - HELD THAT:- Considering that the initial notice having been issued only on the issue and the appellate order having not been challenged before this Court though passed during the pendency of this writ petition, this Court is of the opinion that the matter deserves to be remanded to the concerned Adjudicating Authority for decision on the short point as to whether the electricity charges collected by the Petitioner are liable to service tax or not. Moreover, this Court is of the opinion that the petition does not deserve to be decided on merits while exercising writ jurisdiction as analysis on the factual aspects would be required to be made. The Petitioner has prima facie shown that the charges being collected by it were the same as was being charged by the Distribution company. However, the bills etc., would have to be examined before arriving at a finding. Since the Appellate Authority has already remanded the matter the Petitioner deserves to be relegated to the Adjudicating Authority. It is well-settled in law that the High Court, despite being vested with wide and extensive powers under Articles 226 and 227 of the Constitution of India, must exercise such powers within the bounds of judicial discipline and established legal principles. The jurisdiction of the High Court does not extend to reappreciation of evidence or interference with factual findings recorded by the competent authorities. The High Court cannot assume the role of an Appellate Authority for adjudication of disputed questions of fact. The Supreme Court in the decision in The Assistant Commissioner of State Tax & Ors. v. M/s Commercial Steel Limited [2021 (9) TMI 480 - SUPREME COURT], held that 'In the present case, none of the above exceptions was established. There was, in fact, no violation of the principles of natural justice since a notice was served on the person in charge of the conveyance. In this backdrop, it was not appropriate for the High Court to entertain a writ petition. The assessment of facts would have to be carried out by the appellate authority. As a matter of fact, the High Court has while doing this exercise proceeded on the basis of surmises. However, since we are inclined to relegate the respondent to the pursuit of the alternate statutory remedy under Section 107, this Court makes no observation on the merits of the case of the respondent.' The said legal position has also been reiterated by this Court in M/s Sheetal and Sons & Ors. v. Union of India & Anr. [2025 (5) TMI 1609 - DELHI HIGH COURT] and by the Allahabad High Court in Elesh Aggarwal v. Union of India wherein the Allahabad High Court has held that no ground is made for interference on merits in exercise of extra ordinary jurisdiction. The present case is remanded back to the concerned Adjudicating Authority. It is directed that the said Adjudicating Authority shall take a decision within three months in accordance with law - Petition allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether service tax is leviable on amounts collected by the petitioner for supply/sale of electricity to tenants where electricity is procured from a distribution licensee and billed to tenants on sub-metered, per-unit basis. 2. Whether the inclusion/exclusion clauses in Section 66D(k) of the Finance Act, 1994 and Notification No. 32/2010-ST (exempting services provided by authorized distribution utilities) render consumption/sale of electricity chargeable to service tax or affect the petitioner's position. 3. Whether a writ petition under Articles 226/227 is an appropriate forum to decide the taxability on facts where appellate/adjudicatory remedies are available and factual reappreciation is necessary. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Taxability of electricity charges collected from tenants Legal framework: Services chargeable to service tax are those not listed in the negative list (Section 66B and Section 66D of the Finance Act, 1994). The definition of 'service' under Section 65/65B requires an activity carried out by a person for another for consideration. Sale/supply of electricity has been judicially characterized as 'goods' under Article 366(12) of the Constitution in earlier Supreme Court decisions. Precedent treatment: The Court relied on binding Supreme Court authority holding electrical energy to be goods (e.g., CST v. M.P. Electricity Board and subsequent decisions affirming the characterization and its consequences). Decisions recognizing electricity's simultaneous generation/supply/consumption and its attributes as 'goods' were followed. Interpretation and reasoning: The Court noted that if the amounts collected from tenants are purely reimbursement of electricity procured from a distribution company and billed on sub-meter/per-unit basis without any mark-up or additional service component, prima facie such collections mirror sale of goods and are not service consideration. However, where charges are composite (supply of electricity plus attendant services such as maintenance, uninterrupted supply/back-up), the taxability of the composite charge requires factual determination - specifically whether the charge can be split into non-taxable goods component and taxable service component, or whether the composite consideration is exigible as service. Ratio vs. Obiter: Ratio - electricity has been treated as goods by higher authority, and reimbursements mirroring distribution company charges prima facie indicate non-taxability as service. Obiter - observations about the possibility of composite charges being taxable and the need to examine whether the petitioner retained any consideration or provided uninterrupted supply as a distinct service are contingent and factual. Conclusions: The Court declined to decide on merits and held that the question of taxability of electricity charges collected by the petitioner is fact-sensitive and must be adjudicated by the Adjudicating Authority. The petitioner had prima facie shown parity between distribution company tariffs and charges to tenants, but factual verification (bills, sub-meter readings, whether any mark-up or additional service element exists) is required before concluding non-taxability. Issue 2 - Effect of Section 66D(k) and Notification No. 32/2010-ST on taxability Legal framework: Section 66D(k) is a negative list entry exempting transmission or distribution of electricity by an electricity transmission or distribution utility from service tax. Notification No. 32/2010-ST exempts taxable services provided by distribution licensees/distribution franchisees from Section 66 liability. Precedent treatment: The Court treated the statutory text and notification per their plain meaning and followed earlier understandings that these provisions exempt transmission/distribution when performed by authorized utilities; they do not by themselves convert consumption or sale of electricity into a taxable service. Interpretation and reasoning: The Court rejected the petitioner's pressed challenge to the vires of Clause (k) and the notification insofar as those challenges sought to contend that the negative list entry or the exemption notification altered the foundational position that electricity is goods. The Court observed that Section 66D(k) cannot be read to imply that consumption of electricity is generally chargeable to service tax and that the notification does not bear on the contention that electricity is a good. Ratio vs. Obiter: Ratio - clause (k) and the notification do not convert consumption/sale of electricity into a service chargeable to service tax; they operate to exclude transmission/distribution by authorised utilities from service tax. Obiter - observations on nuances of authorization under the Electricity Act and applicability of notification to non-utilities were left to adjudication. Conclusions: The Court held that the challenge to Section 66D(k) and the notification does not sustain the petitioner's contention that sale/consumption of electricity is chargeable to service tax; however, this did not decide the factual question whether the petitioner's activity fell within the exemption or constituted a taxable service. Issue 3 - Appropriateness of writ jurisdiction and remedial course Legal framework: High Court's supervisory jurisdiction under Articles 226/227 is wide but does not permit reappreciation of facts or substituting judicial fact-finding for that of specialized adjudicatory bodies. Where alternate statutory remedies (appeal/remand procedures) exist and factual issues predominate, writ relief should be sparingly exercised (principles in Shamshad Ahmad v. Tilak Raj Bajaj and subsequent Supreme Court holdings). Precedent treatment: The Court applied settled Supreme Court authorities that a writ petition is not ordinarily the forum for resolving disputed factual questions or assessing evidence when alternate remedies are available; intervention is appropriate only in exceptional cases (breach of fundamental rights, natural justice violation, excess of jurisdiction, or challenge to vires). Interpretation and reasoning: Given that the adjudicatory authority and appellate forum were seized (and the Appellate Authority had remitted the dispute on electricity charges back for adjudication), and the issue before the Court required factual determination (comparison of distribution company bills and petitioner invoices; whether mark-up/services existed), the High Court concluded it would be inappropriate to decide the merits in writ jurisdiction. The Court emphasized that the petitioner must establish on evidence whether charges merely reimburse distribution company bills. Ratio vs. Obiter: Ratio - writ jurisdiction should not be used to reappraise factual evidence where specialized adjudicatory processes and appeal remedies exist; factual questions must be remitted for adjudication. Obiter - procedural directions regarding issuance of personal hearing and timelines are ancillary. Conclusions: The Court remitted the matter to the Adjudicating Authority for fresh decision within three months, directed the authority to issue notice for personal hearing, and left all rights and remedies open. The Court expressly declined to rule on the merits. Ancillary conclusions and directions 1. The Court recorded that the petitioner had not pressed the constitutional vires challenge to Section 66D(k) and the notification; that earlier interim/written observations had rejected the contention that those provisions made consumption chargeable; and therefore prayer for striking down those provisions was not entertained on merits. 2. The appellate order remitting the levy issue to the Adjudicating Authority was noted; since that order was not challenged, remittance to the Adjudicating Authority was appropriate. 3. Procedural directive: Adjudicating Authority to decide within three months, issue personal hearing notice to petitioner, and examine factual records (distribution company bills, sub-meter readings, invoices) to determine whether charges are reimbursements for goods or include a taxable service component.