2026 (3) TMI 1371 - AT - Service Tax

Negative-list exemption for electricity utility services extends to integral ancillary works, while rent-a-cab demand failed on limitation.

Works contract and manpower supply services directly and integrally connected with erection, commissioning, installation, dismantling and construction for ... Taxability of services connected with transmission or distribution of electricity under the Negative List of the Finance Act 1994 and CGST Act - expression “transmission or distribution of electricity” - demand relating to rent-a-cab service - Entity-specific exemption under reverse charge - non-registration and non-payment of service tax - Whether the Works Contract, Manpower Recruitment, and Rent-a-Cab services received by the appellant were used for transmission or distribution of electricity and are therefore non-taxable, or whether, in terms of Section 66F(1) of the Finance Act, 1994, they remain taxable as services used to provide the main service. Transmission or distribution of electricity - Reverse charge exemption - Direct and proximate nexus - HELD THAT: - The Tribunal held that the expression transmission or distribution of electricity in section 66D(k) is of wide amplitude and includes direct and ancillary services integrally connected with that activity. Relying on the High Court decisions in Torrent Power Ltd [2019 (1) TMI 1092 - GUJARAT HIGH COURT] and Jodhpur Vidyut Vitran Nigam Ltd [2021 (2) TMI 557 - RAJASTHAN HIGH COURT] it held that services having a direct, proximate and integral nexus with transmission or distribution cannot be separated merely because tax is demanded from the recipient under partial reverse charge. In the case of an entity-specific exemption available to an electricity transmission utility, the same benefit extends to services received for carrying out that exempt activity. Applying this test, works contract services for erection, commissioning, installation and allied works relating to towers, lines and substations, and manpower services for movement of men and materials and safeguarding operational assets, were found indispensable and integrally connected with transmission and distribution of electricity. [Paras 5, 8, 9, 10, 12] The demand on works contract service and manpower supply service was not sustainable on merits. Rent-a-cab service - Direct and proximate nexus - Extended limitation - HELD THAT: - The Tribunal distinguished rent-a-cab service from the other disputed services and held that hiring of motor vehicles for official use did not have a direct and proximate nexus with transmission or distribution of electricity, and therefore did not qualify for the exemption. Even so, the notice invoking the extended period was held unsustainable. The Tribunal found that the dispute involved complex legal issues and disclosed no deliberate attempt to evade tax. Applying the principle stated in Easland Combines, Coimbatore Vs Collector of Central Excise, Coimbatore [2003 (1) TMI 107 - SUPREME COURT] and reaffirmed in Uniworth Textiles Ltd. Vs Commissioner of Central Excise, Raipur [2013 (1) TMI 616 - SUPREME COURT] it held that mere non-payment or failure to obtain registration, without fraud, suppression or wilful misstatement, is insufficient to justify the extended period. [Paras 12] Though rent-a-cab service was held not exempt, the demand thereon was time-barred. Final Conclusion: The Tribunal held that works contract service and manpower supply service received for transmission and distribution operations were not taxable under reverse charge, while rent-a-cab service was not exempt but the demand on that service was barred by limitation. The impugned order was therefore set aside and consequential relief was granted. Issues: (i) Whether works contract and manpower supply services received for erection, commissioning, installation, dismantling, construction and allied activities connected with transmission and distribution of electricity were covered by the negative-list exemption under section 66D(k) of the Finance Act, 1994. (ii) Whether the demand relating to rent-a-cab service was sustainable when the notice was issued beyond the normal limitation period.Issue (i): Whether works contract and manpower supply services received for erection, commissioning, installation, dismantling, construction and allied activities connected with transmission and distribution of electricity were covered by the negative-list exemption under section 66D(k) of the Finance Act, 1994.Analysis: Section 66D(k) excludes transmission or distribution of electricity by an electricity transmission or distribution utility from service tax. The expression is to be understood in the context of the Electricity Act, 2003, where transmission lines, distribution systems and works include the supporting infrastructure necessary for conveying electricity. The services of works contract and manpower supply were found to be indispensable and integrally connected with the transmission and distribution function. The reasoning adopted the principle that an exemption for a public utility activity extends to direct and ancillary services having a proximate nexus with that activity, and treated such services as falling within the exempt activity.Conclusion: Works contract and manpower supply services were exempt and the demand was unsustainable in favour of the assessee.Issue (ii): Whether the demand relating to rent-a-cab service was sustainable when the notice was issued beyond the normal limitation period.Analysis: Rent-a-cab service was held not to have the same direct and proximate nexus with transmission or distribution of electricity as the other two services. However, the dispute involved a complex interpretational issue and did not disclose suppression, fraud, or deliberate evasion. On that basis, the extended limitation period could not be invoked for the rent-a-cab demand.Conclusion: The rent-a-cab demand was time-barred and unsustainable in favour of the assessee.Final Conclusion: The impugned order was set aside and consequential relief was granted, with the entire demand failing on merits and limitation.Ratio Decidendi: For an electricity transmission or distribution utility, direct and ancillary services having a proximate and integral nexus with transmission or distribution are covered by the negative-list exemption, and where the dispute is interpretational without suppression or wilful default, the extended limitation period cannot be invoked.