TaxTMI 
TaxTMI 
2026 (9) TMI 894
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....f electricity in the state of Telangana. In the course of its statutory functions, it collected: (i) Additional charges/sur-charge from consumers for delayed payment of electricity bill; and (ii) Meter-Testing charges from consumers. 3. The Show Cause Notice proposed to demand service tax on additional charges amounting to Rs.374,41,24,477/-, involving service tax of Rs.50,71,82,945/-, on the ground that such charges constituted consideration for "agreeing to tolerate an act or situation" under Section 66E(e) of the Finance Act 1994. Service tax was also proposed on meter-testing charges on the ground that meter testing was a separate service within the meaning of Section 65B(44) of the Finance Act. 4. The Adjudicating Authority, after considering the respondent's reply and affording personal hearing, dropped the proceedings. Aggrieved by the said decision, the Department is in appeal. 5. Learned AR for the Department submits that Section 66D(k) of the Finance Act exempts only transmission or distribution of electricity by electricity transmission or distribution utility. The exemption does not expressly extend to every activity performed by such utility.....
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....ause Notice dated 22.10.2018 cannot invokes the extended period for April 2013 to June 2017. Thus, the Department was already fully aware of the respondent's activities and could not repeatedly invoke the extended period for the overlapping period. 11. We have heard and considered the submissions made by both the sides and perused the records. 12. The following issues arise for determination and adjudication: (i) Whether additional charges recovered for delayed payment of electricity bills are taxable under Section 66E(e); (ii) Whether meter-testing charges constitute an independent taxable service or form part of the exempted service of distribution of electricity; and (iii) Whether extended period under the proviso to Section 73(1) of the Finance Act, 1994 is invokable. 13. With effect from 01.07.2012, Section 66B provided for levy of service tax on all services, other than those specified in the negative list. Section 66D(k), is applicable during the relevant period, placed "transmission or distribution of electricity by an electricity transmission or distribution utility" in the negative list. Section 66F(3) of Finance Act, 1994 laid down the....
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....The expression (taxability) was held to encompass both liability and non-liability to tax. Therefore, if the service giving the bundle its essential character was not taxable, the naturally bundled ancillary services would also receive the same treatment. The High Court accordingly held that activities such as application for connection, rental of metering equipment, testing of meters and transformers, shifting of meters or service lines and other charges directly connected with transmission or distribution of electricity were not independent supplies detached from the principal service. They were naturally bundled with distribution of electricity. 17. The material principle emerging from Torrent Power Ltd., supra, is, therefore, that the true test is not whether a separate amount is collected or a separate accounting entry is made. The controlling test is whether the activity is an essential or ancillary activity having a direct and close nexus with transmission or distribution of electricity and whether it is naturally bundled with such principal service in the ordinary course of business. 18. The aforesaid principle was subsequently followed by the Tribunal New Delhi in th....
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....harge is imposed only upon failure to comply with that obligation. Its object is to secure timely payment and discourage default. Neither the consumer desires to purchase a service of "tolerance, nor does the respondent undertake delayed payment as an activity for the consumer". There is no reciprocal arrangement under which the sur-charge constitutes consideration for an independent service. Continuation of electricity supply in accordance with the Electricity Act and the applicable regulatory framework cannot, by itself, be regarded as an agreement to tolerate delayed payment. The respondent is governed by statutory conditions regarding supply and disconnection and cannot be treated as voluntarily rendering a separate service merely because immediate disconnection does not follow every default. The sur-charge also bears a direct nexus with the electricity bill and is collected as part of the mechanism for recovery of charges for distribution of electricity. It is not founded upon any independent agreement unconnected with supply and distribution. 22. CBEC Circular No. 96/7/2007-ST dated 23.08.2007 had also clarified, in the context of Telephone Bills that an amount collected f....
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....ssioner of Central Tax, Tirupati vide Final Order No. A/30087/2022 dated 14.09.2022, wherein, transformer and metering charges were held not liable to service tax. 24. We accordingly hold that meter-testing is ancillary and naturally bundled element of distribution of electricity. The activity takes its tax character from the principal service falling within Section 66D(k) of the Finance Act, 1994. The Adjudicating Authority was, therefore, correct in dropping the demand of meter-testing charges. 25. The Show Cause Notice dated 22.10.2018 covers the period April 2013 to June 2017 and invokes the extended period under the proviso to Section 73(1) of Finance Act, 1994. Invocation of extended period requires proof that non-payment or short-payment occurred by reason of fraud, collusion, wilful mis-statement, suppression of facts or contravention of statutory provisions with intent to evade service tax. Mere omission, erroneous interpretation or non-payment is insufficient. The respondent is a state control distribution utility. The disputed charges were collected under publicly available tariff orders and regulations framed by the State Electricity Regulatory Commission. The amo....