ST - As Electricity is goods chargeable to duty under CE Tariff as well as under Maharashtra VAT supply of electricity to tenant amounts to sale of goods and not supply of service - In terms of Notfn. 12/03 value of goods supplied by service provider is exempt from ST: CESTAT
By TIOL News Service
MUMBAI, NOV 25, 2013: THE appellants are the owner of premises which have several units and were given on rent to various persons. On this rent collected, the applicant is paying Service Tax under the category of 'Renting of Immovable Property Service'. They are also involved in the activity of maintaining and repairing of the building and the applicant are paying Service Tax on this activity also. The department is more than happy to receive these Service Tax payments on time.
However, the CCE, Pune-III has an objection to another activity which the applicant does - objection to the fact that the applicant is not diligent in including the following charges collected from their tenants while paying Service Tax on the activity of 'Renting of Immovable Property'. Inasmuch as the applicant is under an obligation to supply electricity to their tenants and for that a common electricity connection has been taken by the applicant from MSEB and separate meters have been installed in each of the premises and on the basis of reading in the meter the applicant is charging electricity charges from the tenants. Further, when electricity is not being supplied by MSEB, the same is supplied through DG set to the tenants and on that also they are charging electricity charges from the tenants.
It is the Revenue view that electricity charges recovered from their tenants is to be part of the service of 'Renting of Immovable Property Service' in view of the provisions of Rule 5 of Service Tax (Determination of Value) Rules, 2006 and, therefore, Show-cause notices were issued to the appellants demanding Service Tax running into crores of rupees and seeking imposition of equivalent penalty and interest.
While hearing the Stay application of one of the appellants M/s Eon Hinjewadi Infrastructure (P) Ltd. against whom a demand of service tax of Rs.2,85,85,512/- was confirmed along with interest, apart from penalty of equivalent amount under section 78 of the Finance Act, 1994, the following was submitted -
+ In similar set of facts, in the case of Panchsheel Tech Park Pvt. Ltd., vide order no. 22-23-24/P-III/ST/COMMR/2011-12 dated 28.11.2011 the proceedings have been dropped against the assessee and that order has been accepted by the Committee of Chief Commissioners vide order dated 14.06.2012. Apparently, this information was obtained by the appellant under the RTI Act, 2005.
+ In the impugned order, the applicant has contended before the adjudicating authority that supply of electricity is supply of 'goods' and the same is exempted as per Notification no. 12/2003-ST wherein it has been clarified that supply of goods shall not form part of taxable service.
In the face of the submissions made by the applicant and finger pointed to the o-in-o cited and its acceptance by the Committee, the Revenue representative could not say anything further except reiterating the contents of the order passed by the adjudicating authority.
The Bench while granting Stay observed -
"4. Heard the learned AR and perused the adjudication order passed in the case of Panchsheel Tech Park Pvt. Ltd. (supra). The contention of the applicant that electricity is 'goods' and the same shall not form part of taxable service is clarified by the Notification no. 12/2003. Therefore, we find that the applicant has made out a prima facie case for 100% waiver of the service tax confirmed and penalty imposed. Accordingly, we waive the requirement of pre-deposit of the service tax, interest and penalty and stay recovery thereof during the pendency of the appeal."
We reported this order as - (2012-TIOL-1688-CESTAT-MUM).
Similar stay orders were passed in the case of other applicants and reported by us as ICC Reality (I) Pvt. Ltd. - (2013-TIOL-177-CESTAT-MUM), Chitrali Properties Pvt. Ltd. - (2013-TIOL-236-CESTAT-MUM) & Vansum Industries - (2013- TIOL-92-CESTAT-MUM).
The appeals were heard recently.
After considering the submissions made by the appellant and the Revenue, the Bench held -
"9. … As per the terms and conditions of the Lease Agreements, the tenants have to pay electricity charges directly to the MSEB and the appellants are also providing electricity through generator set in case there is a power failure and the appellants are charging for the same. We find that electricity is specifically covered under Tariff Heading 27 of the Central Excise Tariff Act. We find that as per the provisions of Maharashtra Value Added Tax Act, 2002, electricity is also covered under Schedule A sr.no.20 and charged to Nil rate of tax. In view of this, we find the electricity is goods chargeable to duty under Central Excise Tariff as well as under the Maharashtra Value Added Tax Act, 2002. Therefore the supply of electricity to tenant amounts to sale of goods and not supply of service. Further the Notification No.12/03 ST dated 20/6/2003 exempt from service tax, any value of goods supplied by service provider to service recipient. Further we find that the Commissioner of Central Excise Pune-III vide Order-in-Original dated 28.11.2011 relied upon by the appellants dropped the proceedings which were initiated on the same ground in the case of M/s. Panchshil Tech Park Ltd. The Commissioner of Central Excise in the adjudication order held that electricity is goods and chargeable to Nil excise duty. The decision of the adjudicating authority is accepted by the Revenue as per the communication dated 26.9.2012 by the Commissioner of Central Excise, Pune-III. The present appellants are also under the jurisdiction of Pune III Commissionerate."
Holding that the electricity charges collected from the tenants cannot form part of the assessable value for the purpose of service tax as provider of renting of immovable properties, the Bench set aside the orders and allowed the appeals.
Committee Wisdom: Wisdom is like electricity. There is no permanently wise man, but men capable of wisdom, who, being put into certain company, or other favorable conditions, become wise for a short time, as glasses rubbed acquire electric power for a while. - Ralph Waldo Emerson
(See 2013-TIOL-1751-CESTAT-MUM)
