TaxTMI 
TaxTMI 
TaxTMI 
2023 (6) TMI 529
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....y way of distribution of electricity? (b) Whether the services supplied by the KESCO by way of utility shifting are ancillary to the principal supply of services by way of distribution of electricity? (c) Whether the exemption given under Entry 25 of the Exemption Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 with respect to the services by way of transmission and distribution of electricity is available to the KESCO? (d) If the answer to issue at (c) is Yes, whether the Applicant is liable to pay GST on the activity of utility shifting performed by KESCO or by itself as such utility shifting is an integral part of services supplied by KESCO by way of distribution of electricity which is exempted from levy GST? (e) If the answer to issue at (c) is No, whether the situation faced by the Applicant wherein KESCO has provided only supervision services and not borne cost towards labour and material, shall be governed by provisions of Section 15 (1) or by Section 15(2)(b) of the Central goods and Services fax Act, 2017 read with Section 15 of the Uttar Pradesh Goods and Services Tax Act, 2017 for the purposes of determining transaction value of supply? (f) Whethe....
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.... charges is paid to KESCO separately. UPMRC has adopted second method and was paying supervision charges along with GST to KESCO on supply of supervisions services. Such supervision charges are generally 5% of the total cost incurred towards utility shifting. It may be noted that it is the KESCO who carried out estimation exercise to determine the estimated cost towards "utility shifting". UPMRC has accepted this practice and never raised any issue towards any estimate given by the KESCO and always paid supervision charges on such estimate. c. However, recently, vide letter dated 03.09.2022, titled as "revised Estimate" addressed to Deputy Chief Engineer (Electrical), Overhead Section, Kanpur Metro Rail Corporation Ltd. KESCO has raised a demand of Rs. 11,21,843/- comprising of supervisions charges @5% amounting to Rs. 2,18,257/- and Rs. 9,03,586/- towards GST charged @18%. On perusal of the said letter dated 03.09.2022 it appears that KESCO has charged GST on the total estimated cost, whereas GST should have been charged only on supervisions charges. Letter dated 03.09.2022 is annexed herewith as Annexure-A. d. Reference may be further taken with respect to the Letter No. 781 ....
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....velop and maintain an efficient, co-ordinated, and economical distribution system in its area of supply and to supply electricity. Not only that it is also under obligation to setup a grievance redressal system for consumer complaints. In this respect relevant part of Section 42 of the Electricity Act, 2003 is reproduced asunder: Section 42. (Duties of distribution licensee and open access): --- (1) It shall be the duty of a distribution licensee to develop and maintain an efficient co-ordinated and economical distribution system in his area of supply and to supply electricity in accordance with the provisions contained in this Act. (5) Every distribution licensee shall, within six months from the appointed date or date of grant of licence, whichever is earlier, establish a forum for redressal of grievances of the consumers in accordance with the guidelines as may be specified by the State Commission. Further Section 24 of the Electricity Act, 2003 provides that distribution license can be suspended for the reason for not maintaining efficient distribution system and for complying with the provisions of Electricity Act, 2003 and for other reasons if appropriate commission find....
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.... means any plant, equipment, apparatus or appliance or any part thereof used for, or connected with, the generation, transmission, distribution or supply of electricity but does not include- (a) an electric line; or (b) a meter used for ascertaining the quantity of electricity supplied to any premises; or (c) an electrical equipment, apparatus or appliance under the control of a consumer; A.2 Basis analysis of above provisions, it is submitted that KESCO being a distribution licensee, has a duty to develop and maintain an efficient, co-ordinated, and economical distribution system in its area of supply. It also has the duty to provide uninterrupted supply to the consumers in its supply area. To maintain an efficient and economical distribution system, it is inherent that it also needs to carry out several other functions like diversions, shifting, modification and maintenance of damaged and worn-out electrical lines and other utilities. Reasons for doing utility shifting could be various, but the objective behind such shifting is to operate and maintain a system which is capable of supplying interrupted supply of electricity. Such utility shifting is also done where it poses....
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....ntegral part of such services shall also be taxed at NIL rate. B That the transaction between KESCO and UPMRC is limited to the extent of supply of supervisions services for which consideration is being paid in form of supervisions charges. As the cost towards labour and material involved in utility shifting, is not borne by the KESCO, such cost cannot be included in the transaction value for the purposes of calculating tax payable by relying on Section 15(2)(b) of the CGST Act. B.1 It is submitted that reliance placed on Section 15(2)(b) of the CGST Act, by UPPCL and KESCO while collecting GST on the total estimated cost of deposit work is incorrect. Before one proceed to analyse the Section 15, few crucial facts which must be keep in mind are as under: (i) That the manner in which any deposit work related to utility shifting is to be conducted has to be decided by the KESCO only. In this regards the option to get the deposit work done by UPMRC on its own or through any of its agent but under supervision of KESCO, is agreed by the KESCO. (ii) That the selection of the agency to perform the deposit work is finalised by the UPMRC only. (iii) That the payment to the agency pe....
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....against facility of supervision to be provided by KESCO. This is also supported by the fact that in any of its demand letters KESCO has not demanded cost of labor and material paid by the UPMRC to the agency performing deposit work. All such demand letters are demanding only supervision charges. So, the intention of the parties is quite clear that under supply contract, only services by way of supervision during execution of deposit work by KESCO is the subject to matter of the contract and hence only supervision charges shall be collected from UPMRC which is not disputed by KESCO in any of its demand letters. B.5 It is submitted that Supply contract between KESCO and UPMRC is separate and independent of contract between UPMRC and its vendor who is actually performing deposit work. There is no privity of contract between KESCO and Vendor working for UPMRC. Being so, even if any asset is created resultant to execution of deposit work and ownership of same is vested in KESCO, there is no right and obligation inter se between KESCO and such vendor. Ownership in assets created during deposit work, if any, vests in KESCO only for the purposes of Electricity Act, 2003 and Rule made ther....
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.... supply. The words used "such supply" and 'for the said supply" leaves no doubt that there must be a direct nexus between price paid and subject of supply, resulting to consensus ad idem between supplier and receiver. B.7 It is submitted that Section 15 of the CGST Act, read with relevant rules, provides for determination of value of taxable supply. Section 15 is reproduced as under: "15. Value of taxable supply- (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. (2) The value of supply shall include- (a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier; (b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient o....
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....ntrol a third person; or (viii) they are members of the same family; (b) the term 'Person" also includes legal persons; (c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related" A perusal of Section 15(1) reveals that the value of a taxable supply has been defined in terms of 'transaction value', which presupposes that to determine the value of supply whole transaction need to keep in mind. The price actually paid or payable for a supply can be treated as taxable value of such supply if the parties are not related and price is the sole consideration. The expression "price actually paid or payable" suggests that, transaction value as declared by the supplier has to be accepted by the Revenue if parties are un-related and price is sole consideration. To Question the price declared as transaction value, revenue has to first reject the price declared by the supplier and then has to show that related nature of parties has actually affected the transaction value and price was not the sole consideration. Sub-section (4) provides....
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....rvision services is that had the UPMRC has decided to get the whole deposit work done by KESCO, then KESCO would have paid such amount to the vendor, which UPMRC is paying now, thus as per Section 15(2)(b) such amount should also be come within the net of tax. The reasoning adopted by the KESCO is faulty at various fronts which are listed as under: (a) That the reasoning adopted by the KESO/UPPCL is hypothetical and based on assumptions. It assumes that if UPMRC had decided to get the whole deposit work done by the KESCO, then KESCO would have to pay an amount to the vendor. Being so, the proposal for inclusion of such amount is not based on facts, but a mere assumption. It is well settled that tax cannot be collected on a supply based on assumptions and on hypothetical transactions. In fact, the scope of supply contract entered with KESCO is only provision of supervision services and nothing more. KESCO has never disputed such scope in any of its demand letters where they have charged only supervisions charges and sought to included amount towards material and labour, only at the time of determining GST payable on supervisions charges. Such scope is also in accordance with the ....
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....poses whatsoever connected with supply made by KESCO. In simple terms, the doctrine of privity of contract is that a contract cannot confer rights or impose those obligations arising under it, on any person except the parties to it. The term "parties" may seem simple enough but there are situations where it may become doubtful as to exactly who the parties are and resultantly, who, in the eyes of the law should be liable or should be compensated in event of inevitable breaches that may occur from time to time. It is submitted that KESCO's position does not fall under any of the exceptions to the doctrine of privity of contract. Another important aspect related to the doctrine of Privity of Contract is Assignment of rights and obligations under a Contract. An assignment in law is an act by which one person transfers to another or causes to vest in another his right or title to something before the object of the transfer has become a property in possession of the assignor. In Khardah Company Ltd, V Raymon & Co Ltd AIR 1962 SC 1810 it was observed by the Hon'ble Supreme Court that an assignment of a contract might result by transfer either of the rights or of the obligations t....
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....ould lead to double taxable of the amount paid to the vendor, first in the hands of the vendor and second in the hands of UPMRC, even though supply has been made once only. C.1 Even if, for the sake of argument, though denied, we assume that the amount paid to the third-party vendor by UPMRC is includible in the taxable value for determining the tax chargeable from UPMRC, such an approach would lead to the double taxation of the same amount once in the hands of the third-party vendor and secondly in the hands of the UPMRC, even though supply has been made once only. In other words, supply of services provided by the vendor to the UPMRC shall be taxed twice, which can never be the intention of the legislature. C.2 In the instant case, KESCO has agreed to the arrangement that Deposit work/utility shifting can be get done by UPMRC from a third-party vendor however, such vendor must execute such work under the supervision of KESCO. It is the UPMRC who is supposed to make payment against the supply made by such third-party vendor along with applicable GST on such supply. The supply contract between third party vendor and UPMRC is an independent and stand-alone contract. Now, inclusion....
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....en of tax twice, once in the hands of third-party vendor and secondly in the hands of KESCO. E. That the supply made by way of utility shifting and by way of distribution of electricity, are intrinsically related and supplied in conjunction and in furtherance of achieving the main objective of developing and maintaining of an efficient, economical and co-ordinated distribution system and thus activity of utility shifting or supervising the execution of work of utility shifting by third party vendor has to be treated as a supply ancillary and in furtherance of the main supply of distribution of electricity. E.1 It is submitted that even if we assume that the services like utility shifting provided in relation and in furtherance of supply of transmission and distribution of electricity are per se not covered by the exemption notifications, then such services would form part of ancillary supplies in relation to and in furtherance of main supply namely, transmission and distribution of electricity and taxed accordingly. E.2 It is well settled that where the main activity is exempted from payment of tax, the activities which is incidental and ancillary to the main activity is also ex....
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....nting practice followed by RVPN to conclude that such deposit work will be treated as if done by the RVPN. Relevant part of the judgment is reproduced asunder: "in this transaction, though the expenditure in actual is incurred by the consumer /intending agency but the applicant being the owner of the asset/infrastructure under Regulations, account it in its books by creating asset on the one hand and income on the other hand as a consumer contribution. In other words, we observe that even though the expenditure and the work in actual is done by the consumer/intending agency but the same will be treated as the work has been done by the applicant." F.4 It is well settled that accounting treatment of an amount received in the books of account will not decide or taxability or otherwise. Existence or absence of entries in the books of accounts will not be decisive or conclusive. In the case of Kedarnath Jute Mfg. Co. Ltd vs Commissioner of Income Tax, 1972 SCR (1) 277, where the income tax officer has denied the claim of deduction of the assessee equivalent to the sale tax liability incurred by it before finalisation of income tax assessment, for the reasons that assessee had denie....
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....under any of the provisions of the Act, against the applicant. 6. The application for advance ruling was forwarded to Deputy Commissioner, Central Tax & Central Excise, Division-Lucknow-II vide letter dated 07.02.2023 to offer their comments/views/verification report on the matter. No views/comments has been offered from the on the ground that no proceedings on the question raised in the application is pending or decided in his office under any provision of the Act as communicated vide letter dated 20.02.2023. 7. The applicant was granted a personal hearing on 24.02.2023 which was attended by Shri Hari Bindal, CA and Mr. Akash Deep, the authorized representatives of the applicant during which he reiterated the submissions made in the application of advance ruling. DISCUSSION AND FINDING 8. At the outset, we would like to make it clear that the provisions of both the CGST Act and the UPGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the UPGST Act. Further for the purposes of this Advance Ruling, a reference to suc....