2026 (3) TMI 509 - AT - Service Tax

Supply of electricity to tenants treated as sale of goods, not a taxable service, so service tax demands set aside.

Supply of electricity to tenants via sub meters, charged by units consumed, constitutes sale of goods and not a taxable service; consequently service tax ... Levy of service tax on supply of electricity to tenants - extended period of limitation under Section 73 - best judgment assessment - wilful suppression with intent to evade - renting of immovable property as well as providing maintenance services, electricity and power backup to their tenants/lessee. Supply of electricity to tenants - HELD THAT:- The Tribunal held that electricity falls under the Central Excise Tariff as goods and is not a 'service' for the purposes of Service Tax; earlier decisions of higher courts and Tribunal (including the Division Bench decision in M/s Shipra Estate Ltd [2024 (6) TMI 1414 - CESTAT ALLAHABAD] & Jai Krishan Estate [2024 (6) TMI 1414 - CESTAT ALLAHABAD]) treating supply of electricity as sale of goods were applied. On the facts, electricity was supplied through sub-meters and charged on the basis of units consumed; therefore the demand of Service Tax on such electricity receipts was set aside and the related penalty was also quashed as consequential to the setting aside of the demand. [Paras 14, 15] Demand of Service Tax on electricity receipts set aside and related penalty quashed. Extended period of limitation requires fraud or suppression - HELD THAT: - Relying on the Tribunal's reasoning in G.D. Goenka [2023 (8) TMI 995 - CESTAT NEW DELHI], the Tribunal held that mere self-assessment and discovery of alleged irregularities in audit do not establish wilful suppression, fraud or collusion necessary to invoke the extended limitation; the primary responsibility to scrutinise returns rests with the revenue officer and absence of prior scrutiny does not permit presumption of suppression. As no evidence of the requisite misconduct was found, the extended period was inapplicable and the demands raised under it could not be sustained. [Paras 16, 17, 18, 19, 20] Demands raised by invoking the extended period of limitation set aside and consequent penalties cancelled. Final Conclusion: The appeal is allowed: the demand of Service Tax on electricity receipts was set aside; the invocation of the extended period of limitation for the other CENVAT/Service Tax demands was held impermissible for want of evidence of fraud or suppression, and the consequential penalties were quashed. Issues: (i) Whether service tax is leviable on supply of electricity to tenants by the appellant; (ii) Whether the extended period of limitation under Section 73 of the Finance Act, 1994 could be invoked for demands detected during departmental audit for the period October 2015 to June 2017.Issue (i): Whether service tax is leviable on supply of electricity to tenants by the appellant.Analysis: Electricity is chargeable under chapter heading 2716 of the Central Excise Tariff and thus constitutes goods. The definition of service excludes transfer of title in goods. Tribunal precedents (including Division Bench decision in M/s Shipra Estate Ltd & Jai Krishan Estates Developers Pvt Ltd and ICC Reality (India) Pvt. Ltd. Vs CCE) hold that amounts charged for electricity supplied to tenants amount to sale of goods and not a taxable service. In the present case electricity was supplied through sub meters and charged on the basis of units consumed.Conclusion: Service tax is not leviable on the supply of electricity to tenants; the demand and penalty on this count are set aside in favour of the assessee.Issue (ii): Whether the extended period of limitation under Section 73 of the Finance Act, 1994 could be invoked for demands detected during departmental audit.Analysis: The appellant filed ST-3 returns regularly and operated under self-assessment. Extended limitation may be invoked only upon proof of one of the statutory exceptions such as fraud, collusion, wilful misstatement or suppression with intent to evade. Tribunal precedent in G. D. Goenka Pvt. Ltd. and authorities interpreting Section 72 hold that the responsibility to scrutinise returns and make best judgment assessments rests with the officer; mere detection during audit does not by itself establish the statutory ingredients for invoking extended limitation. No evidence of fraud, collusion or wilful suppression with intent is recorded in the case before the Tribunal.Conclusion: The extended period of limitation cannot be invoked; demands and penalties based on extended limitation are set aside in favour of the assessee.Final Conclusion: The appeal is allowed with consequential reliefs; demands and penalties confirmed by the lower authorities are set aside to the extent found unsustainable, resulting in an overall decision favourable to the assessee.Ratio Decidendi: Supply of electricity charged on the basis of units consumed through sub meters is the sale of goods (not a taxable service), and extended limitation under Section 73 of the Finance Act, 1994 cannot be invoked in the absence of evidence of fraud, collusion, wilful misstatement or suppression with intent to evade.