TaxTMI 
TaxTMI 
2023 (6) TMI 529
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....integral part of services supplied by KESCO by 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 ....
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....harges. Under second method all cost towards labour and material is borne by UPMRC and supervision 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 i....
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....pplying electricity to the consumers in his area of supply". It is Submitted that KESCO is under a statutory obligation to develop 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 effi....
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....e or other thing in, on, by or from which any such line is, or may be, supported, carried or suspended; and (b) any apparatus connected to any such line for the purpose of carrying electricity" (22) "electrical plant" 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 o....
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.... under Electricity Act, under GST laws. A.3 As the supply of services by way of transmission or distribution of electricity is taxed at nil rate under Entry 25 of Notification No. 12/2017-Central Tax dated 28.06.2017 activities like utility shifting forming integral 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 t....
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....posit work including supervisions charges or only against supervisions charges) a legal contract comes into existence. The consensus ad idem i.e., meeting of minds is reached when UPMRC accepted the estimated cost of deposit work prepared post survey done by KESCO and agreed to pay the supervision charges 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....
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....de. Deposit made with the supplier for any purpose other than supply of goods or services under consideration, cannot be treated as consideration for said supply, unless reciprocity between deposit made and object of supply is manifested by the supplier by act of applying such deposit as consideration for such 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....
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....(ii) such persons are legally recognised partners in business; (iii) such persons are employer and employee; (iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person,. (vii) together they directly or indirectly control 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 pric....
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....where KESCO is under obligation only to provide supervision services against supervision charges, second with its vendor which is actually performing shifting of utilities under supervision of KESCO. These two supply contracts are not connected and cannot be treated as dependent on each other. It may be noted that in both the contracts UPMRC is the receiver of supply. The reasoning adopted by the KESCO/UPPCL to justify the inclusion of amount payable to the vendor in taxable value of supply by way of supervision 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 assumpt....
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....rvices, such amount would have been liable to be included in taxable value of supervisions charges. As the amount sought to be included was never the liability of KESCO and the same was incurred by UPMRC under a separate contract, such amount be considered for inclusion in taxable value of supply by way of supervisions services by KESCO. (c) That as KESCO has no privity of contract with the vendor who is actually executing the deposit work for UPMRC, the amount paid to such vendor by UPMRC cannot be considered for any purposes 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....
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....upervision charges, KESCO is insisting on inclusion of the cost of labor and material supposedly payable to the vendor had the KESCO has done the deposit work on its own. So, the KESCO is trying to charge and collect GST on an amount which is neither payable to KESCO nor actually been charged and recovered by KESCO. It is obvious that such an amount cannot not be included in taxable value of supply for the reason that such amount does not fall under the definition of consideration. C. That the acceptance of the reasoning adopted by the KESCO would 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 s....
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....ution of deposit work, it shall be eligible for availing ITC of the tax paid to such third party vendor. However, if the KESCO is allowed to include the same amount again in the taxable value for supervisions services only for the purposes of collecting GST, not only it will amount to double taxation but also UPMRC will not be eligible to avail credit of such tax paid to KESCO, as no supply has been made by KESCO against such collection of tax. In nutshell, UPMRC shall be eligible for availing credit of input tax once however, it will be bearing the burden 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 ....
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....mitted that value of supply, in both the cases, where deposit work is done by RVPN itself and where work is executed by the consumer under supervision of RVPN, shall be determined as per section 15(1) of the CGST Act. Further, no reason for not considering or rejecting such submission made on this behalf, is given in the order. F.3 Further, while giving its finding under para 5 (c) Ld. AAR stated that though the expenditure towards material and labour in execution of deposit work, in actual, is incurred by the consumer/intending agency and then relied upon some accounting 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 trea....
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....dgment it has not where specified that taxable value should include cost of assets as per Section 15 (2) (b). It simply stated that "in both the cases as mentioned by the applicant, value shall be the transaction value, that is price actually paid or payable in terms of Section 15 of the GST Act, 2017". As the operative part of the judgment is ambiguous and does not declare the verdict in clear terms, ruling is devoid of having any precedential value. 5. As per declaration given by the applicant in Form ARA-01, the issue raised by the applicant is neither pending nor decided in any proceedings 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....