TaxTMI 
TaxTMI 
2025 (7) TMI 1336
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....e power plant of SAIL-BSL. Such reconstitution was done in order to strengthen the core business activity of SAIL-BSL i.e., manufacturing of iron and steel products. 3. Accordingly, the Appellant entered into a 'Power and Steam Purchase Agreement' dated 18.09.2001 with SAIL-BSL whereby SAIL-BSL agreed to purchase steam and electricity manufactured by the appellant, on captive consumption basis. The relevant extract of the agreement is reproduced below, for ease of reference: "WHEREAS: ..... D) SAIL, which is primarily engaged in the manufacture of iron and steel products, has agreed to purchase power and steam from BPSCL on mutually agreed terms and conditions mentioned hereunder. 1.0 DEFINITIONS In this Agreement the following words/expressions shall, unless repugnant to context or meaning thereof, have the meanings hereinafter assigned to them: - xix) Power: shall mean electrical power. 2.0 SUPPLY OF POWER The power generated by BPSCL at CPP shall be supplied .co SAIL and SAIL shall purchase the same from BPSCL and captive status of CPP during validity of this Agreement will be maintained." 4. The price....
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....riod from 01.03.2005 to 31.03.2016. The present dispute pertains to the period after August, 2009. The details of the impugned Show Cause Notices in this case are as under: - Sl. No. SCN/SOD C. No. Date 1. V(65)(19)74 /BPSCL/Adjn/Ran/10/14112 18.08.2010 2. V(65)(19)23/BPSCL/Adjn/Ran /11/4115 13.04.2011 3. V(65)(19)90/BPSCL/Adjn/Ran/11/12503 19.10.2011 4. V(65)(19)25/BPSCL/Adjn/Ran/12/5177 23.04.2012 5. V(65)(19)156/BPSCL/Adjn/Ran/13/11797 17.04.2013 6. V(65)(42)/BPSCL/Adjn/Ran/2013/2749 24.02.2014 7. V(65)06/BPSCL/Adjn/Bok(Ran-II)/2015/2697 16.04.2015 8. V(65)13/Adjn/BPSCL/SCN/RAN-II/2016/1015 08.03.2016 9. IV(4)30/BPSCL/SCN/Bok-I/17-18/377 18.04.2018 9. During adjudication, the Ld. Principal Commissioner of C.G.S.T., Ranchi Commissionerate, vide the impugned order dropped the demand till August 2009 and confirmed the demand for the impugned period, holding as under: - a. Till August 2009: The definition of 'Business Auxiliary Service' given under Section 65(19) of the Finance Act, 1994 specifically excluded any activity that amounts to manufacture within the meaning of Section 2(f....
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.... note that even the statements recorded by the Department during the course of investigation of Shri A.K. Singh clearly pointed out this fact that the electricity and steam produced by the appellant are being sold to SAIL-BSL and the appellant is not producing the electricity on behalf of SAIL-BSL. The relevant extract of the statement is reproduced below, for ease of reference: "Q.11. From your answer to Question No. 10 it appears that all the cost incurred by your plant for production of steam and electricity are reimbursed by SAIL. Please confirm. Ans: No, the payment is made for the power and steam purchased. Q. 13 In response to Q. No. 9 you have stated that rate of electricity and steam is on cost plus basis i.e. cost incurred for generation of electricity and certain return on equity. Does not it mean that all the cost incurred by your company directly is reimbursed by M/s. SAIL and also for any cost incurred by SAIL Bokaro accounting adjustment is done by first showing/ charging the cost incurred from your company please confirm. Ans. Any cost incurred on behalf of same are if refunded is said to be reimbursement. In this case the cost is....
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.... of goods for, or on behalf of, the client viz M/s SAIL, Bokaro. ...." (ix) Hence, once electricity has been held to be goods and the entire transaction is that of sale of goods, the question of charging service tax on the same, treating it as provision of service, is incorrect and unwarranted. (x) In this regard, the appellant refers to the definition of service coined under the negative list regime under Section 65B(44) of the Finance Act contending that the same specifically excludes transfer of title in goods by way of sale from its ambit. The relevant extract of the definition of service is given below, for ease of reference: "(44) "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include- (a) an activity which constitutes merely,-- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution; or (iii) a transaction in money or actionable claim;" [Emphas....
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....r v. GMK Concrete Mixing Pvt. Ltd. [2015 (38) S.T.R. J113 (S.C.)], wherein it has been held that service tax is not applicable on a contract for sale of goods. The relevant part of the said order is as under: - "4. Heard both sides and perused the records. 5. Record does not reveal involvement of any taxable service aspect in the entire supply of RMC. Rather the contract appears to be a sales contract instead of a service contract. In absence of cogent evidence to the effect of providing taxable service, primary and dominant object of the contract throws light that contract between the parties was to supply ready mix concrete (RMC) but not to provide any taxable service. Finance Act, 1994 not being a law relating to commodity taxation but services are declared to be taxable under this law, the adjudication made under mistake of fact and law fails. 6. Appeal is accordingly allowed." (xv) Reliance is further placed on the following judgments, wherein consideration received towards sale of goods has been held to be out of the ambit of levy of service tax: • Electronics Technology Parks v. Commissioner of Cus., C. Ex. & S.T., Trivandrum [2022 ....
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.... the demand has been confirmed for the underlying period merely on the ground that the rate of duty for electricity has been kept blank under the First Schedule to the CETA, hence, the product being not subject to a duty of excise, cannot qualify as excisable goods. (vi) In this regard, it is imperative to analyze the meaning of the words "as being subject to a duty of excise" given in the definition of the term "excisable goods". It is humbly submitted that the said words do not mean that the product should necessarily be chargeable to duty for being termed as excisable goods. Even if the product falls within the First Schedule to the CETA with blank rate of duty, same is classifiable as excisable goods. (vii) Reliance in this regard is placed on the judgment pronounced in the case of Tamil Nadu (Madras State) Handloom Weavers Co-Operative Society Ltd. v. Asst. Collector, CE, Erode, 1978 (2) E.L.T. J57 (Mad.)] wherein it has been held that the words "as being subject to a duty of excise" in the definition of the term "excisable goods" are only descriptive of the goods specified in the First Schedule, and have no reference to the factum of their liability to duty. Relevant ex....
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....ter of electrical energy as excisable goods does not depend on the actual levy of duty but depends on the description as excisable goods in the First Schedule to the Excise Act. (xi) Further, electricity has been specifically held to be excisable goods in the judgment pronounced in the case of Commissioner of C.Ex. & S.T., LTU, Delhi v. Nangalamal Sugar Complex [2020 (371) E.L.T. 501 (Del.)] wherein by relying upon the amendments made in the Excise Act, it has been held that the judgment passed in the case of Solaris Chemtech (relied upon by the Department in the impugned order for holding electricity as out of the ambit of excisable goods) cannot operate as a precedent, for all times to come, under Article 141 of the Constitution of India. The relevant extract of the judgment is reproduced below, for ease of reference: "48. Though the judgment of the Supreme Court in Solaris Chemtech Ltd. does not set out the period, to which the demand in that case pertained, it is obvious that it was prior to 1st April, 2000, as it dealt with Modvat credit, which was replaced by Cenvat credit with effect from the said date. The position in the Tariff, as it existed during the period ....
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....learly clarified in the Explanation that "....for the purpose of this notification, the expression "exempted goods" means excisable goods which are chargeable to "Nil" rate of duty. Therefore, as rightly contended by the learned counsel for the petitioner, the exemption Notification No. 89/95-C.E. would squarely applicable to the product 'fly ash', which is a waste arise during the course of manufacture of electricity, which is an excisable good chargeable to "nil" rate of duty." (xiii) Similar ratio has also been upheld in the case of Orient Paper & Industries Ltd. v. Orissa State Electricity Board [1989 (42) ELT 552 (Ori.)]. (xiv) Therefore, 'electrical energy' remains qualifiable as excisable goods despite the fact that no rate of duty has been prescribed against the same. The term 'as being subject to' referred to in the definition of 'excisable goods' means the character of the product as excisable and it does not depend upon actual levy of excise duty. (xv) Thus, the appellant submits that the Ld. Principal Commissioner has grossly erred in holding that electricity is not "excisable goods" and accordingly confirming the demand of service tax for the impugned period. ....
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....s to make such payment. In the instant case, since the demand is itself not sustainable, the question of levy of penalty does not arise. Reliance in this regard is placed on the judgment of Collector of Central Excise v. H.M.M. Limited [1995 (76) E.L.T. 497 (S.C.)], wherein it has been held that the question of penalty would arise only if the Department is able to sustain the demand. (ii) Further, penalty is also not imposable in the absence of mens rea on the part of the appellant since the demand was revenue neutral. Reliance in this regard is placed on the decision of the Hon'ble High Court of Gujarat in the case of Commissioner of C.Ex. v. Dineshchandra R. Agarwal [2013 (31) S.T.R. 5 (Guj.)] wherein the penalty was set aside on the ground that the entire demand was revenue neutral. E. Interest is not Recoverable. (i) Where the principal demand itself is not payable, the demand for interest ought to be set aside. (ii) Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the matter of Pratibha Processors v. Union of India [1986 (88) E.L.T. 12 (S.C.)], wherein it has been held that interest is compensatory for the loss of revenue to the exc....
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....reement. (v) Power generation at the captive power plant and its despatch is mutually decided by M/s. BPSCL and SAIL BSL. The management of overall power supply to BSL from BPSCL, is the responsibility of SAIL. Similarly, both of them have shared responsibilities and support services. (vi) Thus, BPSCL took over the existing captive power plant infrastructure of BSL under a business restructuring and reconstruction plan, which involved: • Modernisation and upgradation of power generation units. • Professional management of power and steam generation. • Entering into a Power and Steam Purchase Agreement with SAIL BSL to supply power and steam on a cost-plus basis. (vii) As to how this restructuring helped SAIL, it is submitted as follows: A. Operational Efficiency: • Improved plant load factor and reliability of power supply. • Modernisation of inefficient units with phased capital infusion by BPSCL/DVC. • Focused and expert management under DVC's operational expertise. B. Financial Relief: • Reduced direct financial burden on SAIL for operating and maintaining captive power ....
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....ransaction on the open market. Sale of goods require transfer of property/title in goods in the ordinary course of business (Section 4 of the sale of goods Act, 1930). The appellant generates electricity for captive supply, exclusively for the use of SAIL-BSL. It indicates Service and not sale. The appellant performs the activity for the benefit of SAIL-BSU without necessarily transferring the ownership of the goods. All risks and control remain with SAIL BPSCL manages, operates, and maintains the facility, supplying power and steam to SAIL-BSL, thereby functioning as a facility management and support service. Hence, it is a service and not a sale. (ix) Electricity and steam generation involve manufacturing. Still, when the output is supplied exclusively to a specific consumer (such as SAIL-BSL) and the pricing is on a cost-plus basis, such arrangements are treated as a composite supply of services rather than a pure sale of goods. The landmark case of State of Madras v. Gannon Dunkerley & Co. (1958 AIR 560) established the principle that a works contract cannot be considered a "sale." The Supreme Court ruled that, in a works contract, the primary intention is to carry out work,....
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....fficial profile (https://www.bloomberg.com/profile/company/75605802: IN), the Company's line of business includes the distribution of electric power and steam generation services. This supports the Idea that BPSCL is engaged in providing utility services, not just selling goods. (xiv) Commercially, the present agreement involves the manufacture and sale of electricity and steam. Legally, it is a service, particularly because: • It's a captive supply arrangement. • It's based on a cost-plus model • It involves dedicated infrastructure and operational responsibility (xv) Electricity is a non- excisable good: (a) The Apex Court in the Hon'ble Supreme Court, in the case of Collector of Central Excise vs Solaris Chemtech Limited reported in 2007(214) ELT 481(SC), held as follows: "8. In our view, there is no merit in this civil appeal filed by the Department. At the outset, we may clarify that electricity is not an excisable item. Further, in this batch of civil appeals, we are concerned with the electricity which is generated Inside the plant by heating of LSHS and which is captively consumed and used to man....
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....on inputs used in production of such electricity is inadmissible". (xvi) From the above, it is clear and categorical that since there is no duty specified in the schedule to the Central Excise Tariff Act for 'electricity', the same cannot be considered either as excisable goods or as exempted goods. Further, it cannot be considered as the final product also. In addition to the above, reliance is placed on the decision of the CESTAT, Chennai in the case of CCE, Tirunelveli v. Ramesh Flowers Pvt. Ltd. supra. In the above case, the Department demanded duty on "Cut flowers......... of kind suitable for or for ornamental purposes classifying the same under heading No. 33. 7 and the Hon'ble Tribunal held that the said item would fall under heading No. 06.03/06.04. The Tribunal further held that as an equivalent heading in the Central Excise Tariff Act is Chapter 6, which is blank, they are non-excisable. In the instant case also, the 'electrical energy' has been found mentioned under chapter heading No. 2716 and under the 'rate of duty' column, it has been left blank and hence it is non-excisable. Once it is non-excisable, it cannot be considered a final pr....
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....terest under Section 75, which is automatic and compensatory. Cited: Pratibha Processors (SC). 13. Heard the parties and considered their submissions. 14. The issues before us in this appeal are as under:- (1) Whether the electricity generated / manufactured by the appellant amounts to manufacture of 'excisable goods' in terms of Section 2(d) of the Central Excise Act, 1944 or not. (2) Whether on the sale of electricity, Service Tax is leviable or not. 15. Section 2(d) of the Central Excise Act, 1944 defines "excisable goods" to mean "goods specified in the First Schedule and Second Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt". The explanation to that is: "For the purposes of this clause, "goods" includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.". Admittedly, electricity qualifies as goods as it is being sold for a consideration and is marketable. Therefore, if the same finds place in the Central Excise Tariff Act, 1985, the same is to be termed as "excisable goods" and electricity falls within....
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.... product, and Modvat credit of the duty paid on LSHS was not admissible. Essentially, therefore, the Revenue sought to contend that generation of electricity, by heating of LSHS, was a process which was independent of the process of manufacture of cement and caustic soda. The generation of electricity from LSHS, according to the Revenue in that case, did not result in the manufacture of cement and caustic soda and, consequently, Modvat credit, of the input used to generate electricity, could not be availed. 47. Dealing with the contention, the Supreme Court, in Para 8 of the report, commenced with a clarification that "electricity is not an excisable item". It went on to hold that "fuel either utilised directly or for generating electricity, as an intermediary product, integrally connected with several operations which resulted in the emergence of the final product, namely cement/caustic soda". It was emphasised, by the Supreme Court, that, "without utilisation of LSHS, it is not possible to manufacture cement/caustic soda", inasmuch as "the electrolysis process is dependent on continuous flow of electricity". As such, it was held, LSHS came within the ambit of the express....
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.... that electricity is not an excisable item, would not continue to hold good, as (i) electrical energy finds specific place in Sub-Heading 2716 00 00 of the Tariff, and (ii) electricity was, in fact, bought and sold by the respondent. ... 57. Regarding ground (ii), we reiterate our view that the non-specification of any rate of duty, against a particular sub-heading of the Tariff, would not result in the product becoming "non-excisable". To the extent that the judgment of the High Court of Allahabad, in Gularia Chini Mills opines to the contrary, therefore, we respectfully record our disagreement." 15.1.1. Therefore, as it has been held by the Hon'ble High Court that electricity, falling under Tariff Item No. 2716 0000 of the Central Excise Tariff Act, is excisable goods as per Explanation to Section 2(d) of the Central Excise Act, 1944 with effect from 10.05.2008, in these circumstances, we find that electricity is excisable goods. 15.2. The Ld. Special Counsel for the Revenue has further relied upon the decision in the case of Commissioner of C.Ex., Tirunelveli v. Ramesh Flowers (P) Ltd. [2009 (236) E.L.T. 366 (Tri. - Chennai)]. The said decision of this Tr....