TaxTMI 
TaxTMI 
2021 (4) TMI 884
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.... given an opportunity of being heard. 2. Under Section 103 (1) of the Act, this Advance ruling pronounced by the Appellate Authority under Chapter XVII of the Act shall be binding only (a). On the applicant who had sought it in respect of any matter referred to in sub-section (2) of Section 97 for advance ruling; (b). On the concerned officer or the jurisdictional officer in respect of the applicant. 3. Under Section 103 (2) of the Act, this advance ruling shall be binding unless the law, facts or circumstances supporting the said advance ruling have changed. 4. Under Section 104(1) of the Act, where the Appellate Authority finds that advance ruling pronounced by it under sub-section (1) of Section 101 has been obtained by the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void sb-initio and thereupon all the provisions of this Act or the rules made thereunder shall apply to the appellant as if such advance ruling has never been made. At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and ....
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....ing company), and both are registered utilities for distribution and Transmission of Electricity respectively under the Electricity Act, 2003. TANGEDCO and TANTRANSCO enter into transactions between them in the course of generation, transmission, and distribution of electricity in Tamil Nadu. 2.3 The Appellant has sought Advance Ruling on the following questions (i) GST applicability on the transactions between TANGEDCO Ltd. & TANTRANSCO Ltd (ii) Applicability of GST on Deposit Contribution Works (iii) Whether TANGEDCO ltd can be considered a "Government Entity" (iv) Applicability of GST on Transmission Charges for Natural Gas. 3.1 The AAR pronounced a ruling that 1. GST is applicable on the following as the same are 'supply of goods' to TANTRANSCO: a. Supply of Operation and maintenance materials used in the regular day to day functioning; and b. Transfer of capital Assets 2. GST is applicable on the deployment of employees to TANTRANSCO as the same is supply of Service 3. GST is not applicable on the following as the same are transaction in money: a. Transactions of physical fu....
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....in the impugned ruling and the observation in the nature of ruling in paragraph 8.2.5 (though not finding a place in the final paragraph 12 of the impugned ruling). In respect of Ruling in Paragraph 12(1) of the AAR order, the reasoning of the AAR is untenable for the following grounds: i. While discussing levy of GST on electricity, the government has stated that electricity duty was in Schedule 7 of the Constitution (State List) and that the present value chain was exempt from tax (page 14 in the Minutes of the 5^th GST Council Meeting held on 2-3 December 2016 - http://www.gstcouncil.gov.in/sites/default/files/gst%20rates/Signed%20Minutes%20-%205th%20GST%20Council%20Meeting.pdf). Therefore, the above activities which are in the value chain for electricity transmission and distribution are exempt from GST i.e, beyond the purview of GST. ii. Notwithstanding the fact that the Central Government did not have powers to levy tax/duty on electricity, the historical exemption for electricity from service tax and central excise duty too validated the above position. Notification No. 45 ST dated 20.07.2010 directed that service tax payable on all taxable serv....
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....res by TANGEDCO are treated as payable and receivable in respective entities' books. "Consideration" includes any payment made or to be made, whether in money or otherwise, in respect of in response to, or for the inducement of the supply of goods or services. The facts, on the other hand, are that the appellant and Tantransco drew from each other's stores and accounted such stores drawn as receivable / payable as the case may be. v. Construction of sub-station, Buildings, erection of transformers is being carried out by construction circles of either of the company on behalf of other company. Since TANTRANSCO has the general construction circles throughout Tamil Nadu certain specific capital expenditure i.e., Example-Construction of 33 KV Transformers is being done by TANTRANSCO. Very few assets transfers happen from TANGEDCO to TANTRANSCO. For Example 110 KV lines cables and networks 66 KV and above substations and its ancillaries. At the time of segregation of circles, the assets relating to TANTRANSCO may be identified and transferred to the related companies i.e., TANTRANSCO and vice versa. For dealing with this activity, the impugned ruling refers to SI. No.4....
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....l Provident Fund and Contributory Pension Scheme Fund balances of those transferred employees would also be transferred to the respective company books of accounts. All such transfers are accounted based on only actual values. iii. Above facts make it clear that the staff are deployed in an inter-miscible manner as Final Transfer Scheme for employees has not yet been notified by the Government of TN. Consequent to Tamil Nadu Electricity (Reorganisation and Reforms) Transfer Scheme, 2010 published by G.O.(Ms).No.100 dated 19.10.2010 in exercise of the powers conferred by sections 131 and 133 of the Electricity Act, 2003 and in terms of clause 6 of the said Scheme all personnel of the Board (excluding Chairman and Director of the Board)stood transferred to and absorbed in TANGEDCO (the appellant herein) on a provisional basis, subject to finalisation of Employee Transfer scheme by the State Government. The Tripartite Agreement envisaged under the said Scheme has not yet happened. In view of this background, the impugned ruling erred in construing the deployment of the employees of erstwhile TNEB by the newly created Tangedco - the appellant herein - as supply of manpower. ....
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....der their role and related fund flow-not a service involving distribution of electricity exempted in the said entry;" b) This is a ruling from the standpoint of the entry in the cited notification. The non-taxability of these items is already stated in the grounds above. c) Paragraph 8.1 quotes the provisions relating to exemption. It also quotes in the beginning the appellant's clarification that "... transactions being in the course of generation, transmission and distribution of electricity by an electricity transmission or distribution utility is exempt under Sl.No. 25 of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017". In this regard, it may be noted that in terms of G.O.(Ms).No.100 dated 19.10.2010 - clause 11 (6) - being Tamil Nadu Electricity (Reorganisation and Reforms) Transfer Scheme, 2010 - it is stated that "In terms of section 14 read with section 131 of the Act, the Transferee concerned shall he a deemed Licensee for the activities and functions of the Board transferred to them which require licenses, under the provisions of the Act". Under Schedule A Part III "Functions and duties of TANGEDCO", appellant is distribution licensee and has to undertake....
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....er, the charges for which are billed separately from the consumer. The works undertaken are Installation of transformers/lines and other accessories and are in the nature of installation of the structure and equipments classifiable under SAC 99873." The ruling relies on CBIC circular extracted in paragraph 9.3 of the ruling. It brushed aside the Gujarat H.C. striking down the above circular. The ruling states that SLP has been filed against the H.C. decision. The ruling provides no answer to appellant's reliance on Section 15 which is noted in the ruling. Per section 15, the value of the exempted supply of electricity and its distribution would automatically include the value of the incidental expenses and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of or before delivery of goods or supply of services. Thus, the ruling given is erroneous. 5. In respect of the Ruling in paragraph 8.2.5 but not finding place in the final paragraph 12 This ruling is that "8.2.5 Activity of payment of expenses incurred by TANTRANSCO relating to vehicle hire charges, maintenance of sub-stations, salary payments, e....
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....e of the fact that "Taxes on the' consumption or sale of electricity" is in State List and stated that, "electricity duty was in Schedule 7 of the Constitution (State List) and that the present value chain was exempt from tax". The exemption notifications treat the supply of electricity as supply of the goods - "electrical energy" sl. No.104 in 2-CTR/28 June 2017 - and supply of service - "Transmission or distribution of electricity by an electricity transmission or distribution utility" sl. No.25 12-CTR/28 June 2017. b) Historical value chain exemption in the activities of transmission and distribution of electricity in view of the Constitutional position is the crucial backdrop to this entry of GST levy exemption. c) Paragraph 2(z) in the notification 2-CTR/ 28 June 2017 defines that "electricity transmission or distribution utility" means the Central Electricity Authority; a State Electricity Board; the Central Transmission Utility or a State Transmission Utility notified under the Electricity Act, 2003 (36 of 2003); or a distribution or transmission licensee under the said Act, or any other entity entrusted with such function by the Central Government or, ....
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....arry into effect the objects of a licence or sanction granted under this Act or any other law for the time being in force". k) Section 42(1) states that, "It shall be the duty of a distribution licensee to develop and maintain an efficient, coordinated and economical distribution system in his area of supply and to supply electricity in accordance with the provisions contained in this Act". l) Part VIII of the Act deals with "works" of a licensee. In terms of section 67(1), "A licensee may, from time to time but subject always to the terms and conditions of his licence, within his area of supply or transmission or when permitted by the terms of his licence to lay down or place electric supply lines without the area of supply, without that area carry out works such as- (a) to open and break up the soil and pavement of any street, railway or tramway; (b) to open and break up any sewer, drain or tunnel in or under any street, railway or tramway; (c) to alter the position of any line or works or pipes, other than a Math sewer pipe; (d) to lay down and place electric lines, electrical plant and other works; (e) to repair, al....
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....xemption as both the entities are entrusted with the transmission or distribution function by the State Government. s) The powers of taxation under the Constitution with exemption for the value chain noted in the GST Council, and the historical exemption under the service tax notifications emphasize the above position. t) Various other definitions under Electricity Act, 2003, including those specifically highlighted above, would clearly show that transmission or distribution of electricity cannot be a stand-alone service activity, but has to inevitably involve electricity lines, which are inseparable aids to the above the service. 2. Regarding Ruling in paragraph 12(2):- GST is applicable on the deployment of employees to TANTRANSCO as the same is supply of Service. Consequent to Tamil Nadu Electricity (Reorganization and Reforms) Transfer Scheme, 2010 published by G.O.(Ms.).No.100 dated 19.10.2010 in exercise of the powers conferred by sections 131 and 133 of the Electricity Act, 2003 and in terms of clause 6 of the said Scheme all personnel (excluding Chairman and Director of the Board) of the erstwhile Tamil Nadu Electricity Board constituted under sectio....
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....t is subject to GST. Therefore, AAAR may kindly clarify that these payments are fund transfers and are dealings in money which are not subject to GST. DISCUSSION & FINDINGS: 6.1 We have carefully considered the various submissions made by the appellant and the applicable statutory provisions and the case laws cited. We find that the appellant has mainly detailed the circumstances under which a service should be treated as integrally connected with another service, which is exempted and becomes an essential activity having direct and close nexus with the exempted activity so as to be bestowed with the same treatment as the exempted activity under GST. 6.2 The appellant cites the statement of the Secretary of GSTC in the meeting held on 2-3 December 2016 that electricity duty was in Schedule 7 of the Constitution (State list) and the present value chain was exempt from tax. The appellant has interpreted it as a value chain to mean the entire value chain of electricity transmission and distribution. The appellant has contended that therefore the entire value chain of electricity and transmission distribution are much beyond the purview of GST under the constitution. He has fa....
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....resent instance, TANGEDCO is not conveying electricity for TANTRANSCO. Clearly, TANGEDCO is not providing a transmission service to TANTRANSCO. 6.7 Section 2(17) of the Electricity Act defines distribution licensee as a licensee authorized to operate and maintain a distribution system for supply of electricity to consumers in his area of supply. Therefore, the output supply for distribution licensee is electricity to consumers in his area of supply which means that a distribution service from a distribution licensee can be received only by consumers of electricity in the area of supply of the distribution licensing. Operation and maintenance of a distribution system is only a process for delivery of the supply of electricity. 6.8 TANGEDCO is indisputably a generation company and a distribution utility. TANTRANSCO on the other hand is a transmission utility. It is not the case of the appellant that the appellant company is providing transmission services to TANTRANSCO. The appellant contends that the various services extended to TANTRANSCO constitute distribution services. However, as already been stated above, distribution service can be supplied only to consumers in the area....