2026 (1) TMI 520 - AT - Service Tax

Transmission utility's pro-rata, development and cable-shifting charges held exempt from service tax; material/contingency costs remanded for recalculation.

Service tax demand on amounts collected by a transmission utility towards pro-rata and development charges was rejected because the charges related to ... Levy of service tax - amounts collected by the appellant from customers in respect of Material Cost, Erection Charges, Contingency charges, Supervision charges, Pro-rata charges and Development charges, Revenue Loss charges, Row charges and on penalty charges collected from contractors/ suppliers - invocation of extended period of limitation. Pro-rata charges - Development charges - HELD THAT:- It is found that these charges are actually collected for development of network for transmission of power which is the responsibility and duty of the appellant being a Transmission utility. It has been clarified by CBIC by issue of various Notifications and Circulars that service of transmission of electricity is exempt from service tax - thus no service tax is liable to be paid on these charges. Erection Charges - HELD THAT:- It is found from explanation of the appellant that these are recovered from the consumers for shifting of overhead cables/ wires which are exempt from service tax in view of CBIC Circular No.123/5/2010-TRU dated 24.05.2010. Cost of material and Contingency Charges - HELD THAT:- The matter has already been remitted to the Adjudicating Authority for re-computation of service tax liability after taking requisite data from the appellant - it is not required to inetrfere with this finding and direct the Appellant to produce required details before the said authority. Invocation of extended period - HELD THAT:- The entire facts were in the knowledge of the department which had issued similar show cause notices to other units of the appellant and therefore, invoking extended period of limitation in this case is not justified. Matter remanded to the Adjudicating Authority to re-compute service tax liability after getting the requisite details/ data from the appellant on material cost and Contingency Charges - appeal allowed by way of remand. Issues: (i) Whether service tax is leviable on amounts collected by the transmission utility under headings such as Pro-rata charges, Development charges and Erection charges (including shifting of overhead cables), and (ii) Whether the matter should be remitted for re-computation of service tax liability in respect of Cost of Materials and Contingency Charges and whether the extended period of limitation can be invoked.Issue (i): Whether service tax is exigible on Pro-rata charges, Development charges and Erection charges recovered by the transmission utility.Analysis: The decision applies the statutory exemption regime and administrative clarifications that treat transmission of electricity and closely related activities as exempt under the negative-list framework and specified notifications/circulars. The analysis distinguishes taxable independent erection/installation of substations from activities and charges that are integral to transmission of electricity or constitute reimbursements. It also applies CBIC Circular No.123/5/2010-TRU and relevant notifications clarifying that shifting of overhead cables and services ancillary to transmission are not taxable, and considers regulatory provisions under the Electricity Act, 2003 and GERC regulations governing pro-rata and development charges as recoveries for network development.Conclusion: Pro-rata charges and Development charges are not liable to service tax. Erection charges relating to shifting of overhead cables/wires as described are not liable to service tax.Issue (ii): Whether the adjudication should be remitted for re-computation of service tax in respect of Cost of Materials and Contingency Charges and whether invocation of the extended period of limitation is justified.Analysis: The adjudicating authorities lacked requisite documentary details to quantify exclusions for Cost of Materials and refunded Contingency Charges; therefore re-computation requires production and examination of documents. The analysis also applies the legal standard on limitation, noting that similar show cause notices were issued and material facts were within departmental knowledge, bearing on the propriety of invoking the extended period.Conclusion: The matter is remitted to the Adjudicating Authority for re-computation of service tax liability limited to normal period after receipt and examination of requisite details on Cost of Materials and Contingency Charges; invocation of extended period is not sustained and any demand arising from re-computation shall be limited to the normal period; interest and penalty to be redetermined accordingly.Final Conclusion: The decision confirms that charges that are integral to or ancillary to the transmission of electricity and recoveries mandated or authorized under regulatory framework are not taxable as separate service, and it directs limited re-computation where documentary quantification is absent while restricting assessment to the normal limitation period.Ratio Decidendi: Under the negative-list regime and applicable notifications/circulars, services that are integral to transmission of electricity, including specified shifting/laying activities and regulatory recoveries for network development, form part of the exempt service of transmission of electricity and are not separately leviable to service tax; where quantification depends on documentary evidence, re-computation is required and assessment cannot be extended beyond the normal limitation period absent justification.