Custom, Excise & Service Tax Tribunal
Southern Power Distribution Company Of ... vs Tirupati - G S T on 14 September, 2022
Author: Dilip Gupta
Bench: Dilip Gupta
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
HYDERABAD
REGIONAL BENCH
SERVICE TAX APPEAL NO. 30388 OF 2019
(Arising out of Order-in-Original No. TTD-EXCUS-000-COM-01-19-20 dated
16.04.2019 passed by the Commissioner of Central Tax, Triupati, GST
Commissionerate, Triupati)
M/s Southern Power Distribution ...Appellant
Company of Andhra Pradesh Ltd.,
Tirupati - 517503
VERSUS
The Commissioner of ...Respondent
Central Tax,
Tirupati, GST Commissionerate,
Tirupati
APPEARANCE:
Shri Y. Sreenivasa Reddy, Advocate for the Appellant
Shri A. Rangdham, Special Counsel for the Department
CORAM: HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)
Date of Hearing: 06.05.2022
Date of Decision: 14.09.2022
FINAL ORDER NO. A/30087/2022
JUSTICE DILIP GUPTA:
M/s. Southern Power Distribution Company of Andhra Pradesh
Ltd. 1 has filed this appeal to assail the order dated 16.04.2019 passed
by the Commissioner of Central Tax, Tirupati GST Commissionerate,
Tirupati 2 by which the demand has been confirmed and an order for
recovery from the appellant under the proviso to action 73(1) of the
Finance Act, 1994 3 with interest and penalty.
1. the appellant
2. the Commissioner
3. the Finance Act
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ST/30388/2019
2. This appeal has been filed against demand of service tax on
amount received by the appellant against activities performed during
the period from 01.07.2012 to 30.06.2017, for which show cause
notice dated 28.04.2018 was issued alleging suppression of facts with
intent to evade payment of service tax.
3. The details of the demands confirmed in the impugned order and
the reasons, in brief, are as follows:
Sl. Activity/Consideration Service Tax Reason for levy of
No. demanded (In Service Tax
Rs.)
1. Penalties from contractors 4,18,02,647/- Collection of penalty for
late delivery is a declared
services as defined under
section 66E(e) of the
Finance Act.
2. Wheeling Charges 14,47,746/- Collection of wheeling
charges is a declared
service
3. Cross subsidy surcharge 3,57,35,819/- Collection of cross subsidy
charges is a declared
service
4. Supervision/Incidental 2,38,62,159/- Service as defined under
Charges section 65B (44) of the
Finance Act.
5. Transformer & amp; Meter 38,55,243/- Same
Testing Charges
6. Rental amounts collected 5,20,266/- Same
from contractors
Total 10,72,23,880/-
4. Shri Y. Sreenivasa Reddy, learned counsel for the appellant,
mainly submitted that:
(i) The issue of taxability of penalties/liquidated damages is
covered by decisions of the Tribunal rendered in M.P.
Poorva Kshetra Vidyut Vitran Co. Ltd. vs. Principal
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Commissioner CGST and Central Excise Bhopal 4 ,
M/s. South Eastern Coalfields Ltd. vs. Commissioner
of Central Excise and Service Tax, Raipur 5 and
Madhya Pradesh Poorva Kshetra Vidyut Vitran
Company Ltd. vs. CCE, Madhya Pradesh 6;
(ii) The activities of appellant, being in relation to distribution
of electricity, are not leviable to service tax as was held
by the Gujarat High Court in Torrent Power Ltd. vs.
Union of India 7 and the Rajasthan High Court Jodhpur
Vidyut Vitran Nigam Ltd. vs. Union of India and
others 8;
(iii) Wheeling charges and cross subsidy charges are related
to transmission of electricity and outside the purview of
service tax;
(iv) Service tax does not apply on supervisory charges and
testing charges, and transformer and meter testing
charges collected as per the statute;
(v) On rental charges, demands have been made by VAT
authority treating the renting as deemed sale and hence,
no service tax can be demanded; and
(vi) Demand for the extended period alleging suppression of
facts with intent to evade service tax against a
government company is against the settled legal position,
and hence the demand is largely barred by limitation.
5. The appellant is a state-owned company established for the
purpose of supply/distribution of electricity in certain parts of the State
4. 2021 (2) TMI 821-CESTAT New Delhi
5. 2020 (12) TMI-CESTAT New Delhi
6. 2022 (4) TMI 773-CESTAT New Delhi
7. 2019 (1) TMI 1092-Gujarat High Court
8. 2021 (2) TMI-Rajasthan High Court
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of Andhra Pradesh. As 100% of the shares of the company are held by
the State of Andhra Pradesh, the appellant claims to be a 'Government
Authority', as defined in clause 2(s) of the notification dated
20.6.2012. The activities of the appellant are regulated and controlled
by the Electricity Regulation Commissions established both at Central
and State levels under the Electricity Regulation Commissions Act,
1998. The appellant collects fee or any other charges as mandated
under the Electricity Act, 2003 9 and the Regulations and Instructions
framed by the State Electricity Regulation Commission.
6. The period of dispute is from July, 2012 upto June, 2017.
Section 66D of the Finance Act provides for a negative list of services.
This negative list comprises, amongst others, in sub-clause (k),
'transmission or distribution of electricity by an electricity transmission
or distribution utility'. The issue involved in this appeal is not regarding
the amount collected by the appellant for supply of electricity; the
dispute is regarding the amount collected towards collection for
penalties for liquidated damages, wheeling charges, cross subsidy
charge, supervision/incidental charges, transformer and meter testing
charges, and rental amount collected from contractors. These charges
have been collected by the appellant in terms of the Electricity Act and
the 2009 Regulations.
7. The Commissioner has confirmed the demand of service tax on
the amount collected from the penalties under section 66E(e) of the
Finance Act by holding that the same is a consideration received by
the appellant 'for tolerating an act'. The Commissioner has confirmed
the demand of service tax on wheeling charges and cross-subsidy
9. the Electricity Act
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charges treating them to be a declared service. The Commissioner has
also confirmed the demand of service tax on supervision/incidental
charges, transformer and meter testing charges and the rental amount
collected from contractors by holding that the same is for a service
contemplated section 65B(44) of the Finance Act.
8. According to the appellant, the amount has been collected in
terms of the 2009 Regulations for the services bundled in the ordinary
course of business for providing electricity. They are, therefore,
required to be treated as a single service for providing services for
transmission and distribution of electricity, which service is exempted
under the negative list under section 66D(k) of the Finance Act.
9. In this connection it needs to be noted that prior to introduction
of the negative list regime for service tax under the Finance Act, there
was no specific clause in the charging provisions of the Finance Act
requiring payment of service tax on the amount collected from the
consumers in relation to transmission and distribution of electricity.
The Government of India issued a Notification dated 27.02.2010
exempting taxable service provided to any person by any other person
for transmission of electricity. Another Notification dated 22.06.2010
was issued exempting taxable service provided to any person by a
distribution, licensee or franchisee for distribution of electricity. There
was some confusion and notices were issued by the Department in
respect of the activities relating to transmission and distribution of
electricity for the period prior to the aforesaid notification. Various
representations were received by the Government relating to the
period prior to 27.02.2010 and 22.06.2010 as the transmission/
distribution companies believed that service tax was not required to be
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paid on activities relating to transmission and distribution of
electricity. A Trade Notice dated 20.07.2010 was then issued by the
Government of India that service tax shall not be required to be paid
for the period prior to the issuance of the aforesaid two notifications on
the services relating to transmission and distribution of electricity.
10. A question, however, arose as to whether the exemption granted
for transmission and distribution of electricity would also include
directly connected activities such as meter rents. The Government of
India issued a Circular dated 07.12.2010 clarifying that supply of
electricity meters to the consumers was an essential activity having
direct and close nexus with transmission and distribution of electricity
and was, therefore, covered by the exemption granted to transmission
and distribution of electricity.
11. Thereafter, the negative list regime was introduced with effect
from 01.07.2012. As noticed above, section 66D(k) includes
'transmission or distribution of electricity by an electricity transmission
or distribution utility'.
12. The issue as to whether the charges collected in connection with
transmission of electricity even after 01.07.2012 would be subjected to
service tax, as according to the Department they would not be
exempted under section 66D(k) of the Finance Act, came up for
consideration before the Gujarat High Court in Torrent Power. After
referring to the position prior to the introduction of the negative list
and the notifications referred to above and the introduction of the
negative list regime w.e.f. 01.07.2012, the Gujarat High Court
observed as follows:
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"10. Insofar as the first phase is concerned, the
respondents do not dispute that the
related/ancillary services to transmission and
distribution of electricity are exempt from
payment of service tax. The dispute, therefore,
relates to the period of the negative list regime
and the CGST/SGST regime.
11. Insofar as the second phase, namely, the negative
list regime is concerned, with effect from 1.7.2012,
section 65B of the Finance Act, 1994 came to be
amended and service tax became leviable on all
services, other than those services specified in the
negative list. Admittedly, transmission and distribution
of electricity by an electricity transmission or distribution
utility, finds place in the negative list and, is therefore,
not exigible to service tax.
12. The first question that arises for consideration is
whether services relating to transmission and
distribution of electricity fall within the ambit of clause
(k) of section 66D of the Finance Act and, are therefore,
exempt. In this regard, it may be noted that prior to the
coming into force of the negative list regime, goods and
services were exempted by virtue of notifications issued
in exercise of powers under sub-section (1) of section 93
of the Finance Act. By virtue of Notification No. 11/2010
dated 27.2.2010, the Central Government exempted
transmission of electricity from the whole of service tax
leviable thereon under section 66 of the Finance Act;
and by virtue of Notification No.32/2010-Service Tax
dated 22.6.2010, distribution of electricity came to be
exempted from the whole of service tax leviable thereon
under section 66 of the Finance Act. Thus, what was
exempt under those provisions was transmission and
distribution of electricity, despite which, during the pre-
negative list regime, the respondents have considered
services related to transmission and distribution of
electricity as exempted from service tax by virtue of
those notifications. Insofar as electricity meters are
concerned, vide circular No.131/13/2010-ST dated
7.12.2010, it was clarified that supply of electricity
meters for hire to consumers being an essential activity,
having direct and close nexus with transmission and
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distribution of electricity, the same is covered by the
exemption for transmission and distribution of electricity
extended under relevant notifications.
*****
14. It may be noted that insofar as the exemptions
prior to the negative list regime as well as post the
negative list regime are concerned, it is the
transmission and distribution of electricity that
has been exempted by virtue of notifications.
During the negative list regime, transmission and
distribution of electricity has been placed in the negative
list. Therefore, in all the three phases, what was
exempted was "transmission and distribution of
electricity". However, while for the prenegative list
phase, the respondents considered the services
related to transmission and distribution of
electricity as exempt under the exemption
notifications, for the negative list regime and the
GST regime, they seek to exclude such services
from the ambit of transmission and distribution of
electricity. ***** The respondents having
themselves considered the services in question as
being covered by the exemption for transmission
and distribution of electricity as such services
were essential activities having a direct and close
nexus cannot be now permitted to take a U-turn
and seek to exclude such services without pointing
out any specific change in the nature of the
exemptions, except that they are provided under
different statutory provisions. In the opinion of
this court, the meaning of "transmission and
distribution of electricity" does not change either
for the negative list regime or the GST regime. If
that be so, the services which stood included within the
ambit of transmission and distribution of electricity
during the pre-negative list regime cannot now be
sought be excluded by merely issuing a clarificatory
circular, that too, with retrospective effect. By the
clarificatory circular, the respondents seek to give a
different interpretation of the very same services as
against the clarification issued for the prenegative list
regime.
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15. Thus, from the very manner in which the
respondents have treated the services related to
transmission and distribution of electricity during
the pre-negative list regime, such services would
stand covered by the exemption granted to
transmission and distribution of electricity by
virtue of inclusion of such services in the list of
negative services under section 66D (k) of the
Finance Act as well as by virtue of exemption
notification issued under the CGST Act."
(emphasis supplied)
13. The Gujarat High Court also examined whether services provided
will fall within the ambit of bundled services as contemplated under
Section 66F(3) of the Finance Act and observed that for the phase
relating to the negative list, the services in question would fall within
the ambit of bundled services and would have to be treated in the
same manner as the service which gives the bundle its essential
character, namely transmission and distribution of electricity. The
service would, therefore, be exempted from payment of service tax.
The relevant portion of the order is reproduced below:
"20. The facts of this case are required to be examined
in the light of the above statutory provisions. In this
case, we are concerned with transmission and
distribution of electricity being the main services
and application fee for releasing the connection for
electricity; rental charges against metering
equipment; testing fee for meters/transformers,
capacitors etc.; labour charges from customers for
shifting of meters or shifting of service lines;
charges for duplicate bills provided by DISCOMS to
consumers being related services. The question is
whether an element of provision of these services is
combined with an element or elements of provision of
the main service of transmission and distribution of
electricity. As noticed earlier, the respondents have
themselves treated such related/ancillary services
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as part of the main service of transmission and
distribution of electricity for the pre-negative list
regime. Apart, therefrom, considering this issue
independently, reference may be made to certain
provisions of the Electricity Act. Sections 43 and 45 of
the Electricity Act.
*****
22. Thus, any line which is used for carrying electricity
for any purpose as well as any apparatus connected to
any such line for the purpose of carrying electricity is
mandatorily required to be provided to the consumer by
the licensee. Moreover, any plant, equipment, apparatus
or appliance or any part thereof used for, or connected
with, the generation, transmission, distribution or supply
of electricity, except for electric meter and any electrical
equipment, apparatus or appliance under the control of
a consumer fall within the ambit of electrical plant as
defined under section 2(22) of the Electricity Act. Sub-
section (2) of section 43 of the Electricity Act casts a
duty upon the licensee to provide if required electric
plant or electric line for giving electric supply to the
premises. Therefore, providing electric line and electric
plant are elements of service which are naturally
bundled in the ordinary course of business, with the
single service of transmission and distribution of
electricity which gives the bundle its essential character.
The only related service which does not fall within the
ambit of the definitions of electric line and electric plant
is the meter used for ascertaining the quantity of
electricity supplied to any premises. However, insofar as
installation of electricity meter and hire charges
collected in respect of electricity meters are concerned,
by the circular dated 7th December, 2010, the
Government of India has clarified that supply of
electricity meters for hire to the consumers is an
essential activity having direct and close nexus with
transmission and distribution of electricity and therefore,
is covered by the exemption for transmission and
distribution of electricity extended under the relevant
notifications. Evidently therefore, all the services
related to transmission and distribution of
electricity are naturally bundled in the ordinary
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course of business of the petitioner and are
required to be treated as provision of the single
service of transmission and distribution of
electricity which gives the bundle its essential
character.
23. Besides, a perusal of the GERC Regulations
indicates that the services which are sought to be
taxed now are the services, which the petitioner is
required to mandatorily provide at the rate
prescribed by GERC, a statutory authority
constituted under the provisions of the Electricity
Act. In the opinion of this court, all these services
are essential activities which have a direct and
close nexus with transmission and distribution of
electricity. In terms of the earlier clarification dated
7.12.2010 issued vide Circular No.131/13-2010-ST, the
Government of India had clarified that an activity, which
is an essential activity having direct and close nexus
with transmission and distribution of electricity would be
covered by the exemption for transmission and
distribution of electricity extended under the relevant
notifications. Therefore, the taxability of the
related/ancillary services are required to be given same
treatment as is given to the single service, which gives
such bundle its essential character, namely,
transmission and distribution of electricity.
25. Thus, insofar as the phase relating to the
negative list regime is concerned, the services in
question would fall within the ambit of bundled
services as contemplated under subsection (3) of
section 66F of the Finance Act, and would have to
be treated in the same manner as the service
which gives the bundle its essential character,
namely, transmission and distribution of electricity
and, would therefore, be exempt from payment of
service tax."
(emphasis supplied)
14. It is clear from the aforesaid judgment of the Gujarat High Court
that the activities that are related/ancillary to transmission and
distribution of electricity would be exempt from payment of service tax
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since transmission and distribution of electricity is exempted. It is also
clear from aforesaid decision that all services related to transmission
and distribution of electricity are bundled services, as contemplated
under section 66F(3) of the Finance Act, and are required to be treated
as a provision of a single service of transmission and distribution of
electricity, which service is exempted from payment of service tax.
15. The aforesaid judgment of the Gujarat High Court was followed
by the Rajasthan High Court in Jodhpur Vidyut Vitran Nigam Ltd.
16. A Division Bench of the Tribunal in M.P. Poorva Kshetra
Vidyut Vitran Co. Ltd. also followed the aforesaid judgment of the
Gujarat High Court and held that all services related to transmission
and distribution of electricity are exempted from service tax.
17. Each of the heads under which the demand has been confirmed
can now be examined.
Collection of penalties or liquidated damages
18. Service tax has been confirmed on the amount of penalty and
liquidated damages collected by the appellant towards late supply of
service or goods on the ground that the said amount is collected for
'agreeing to tolerate the act' of late supply of goods by the suppliers
and hence would fall under the category of 'declared service' under
section 66E(e) of the Finance Act. It is the submission of the learned
counsel for the appellant that this amount is not collected under
separate agreements and by mere collection of these penalties, the
failure of the suppliers is not tolerated. Further, action of cancelling
the agreements, barring them from further participation in the
contracts and other legal actions are initiated against the client.
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19. It has, therefore, to be examined whether the appellant is
providing a 'declared service' contemplated under section 66E(e) of
the Finance Act, which service became taxable w.e.f 01.07.2012.
20. Section 65B(44) of the Finance Act defines 'service' to mean any
activity carried out by a person for another for consideration, and
includes a declared service, but does not include what is mentioned in
'a, b and c'. The relevant portion of the definition of 'service' is
reproduced below:
"Section 65B(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;
(b) a provision of service by an employee to the
employer in the course of or in relation to his
employment; (c) fees taken in any Court or tribunal
established under any law for the time being in force."
21. 'Declared services' have been defined in section 66E and sub-
section(e) of section 66E, which is involved in this appeal, is as
follows:
"66E. Declared services
The following shall constitute declared services,
namely:-
*****
(e) agreeing to the obligation to refrain from an act, or
to tolerate an act or a situation, or to do an act;"
22. Liability has been fastened upon the appellant under section 65B
read with section 66E(e) of the Finance Act for the period from July
2012 till June 2017 for the reason that by collecting the said amount
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the appellant agreed to the obligation to refrain from an act or to
tolerate the nonperformance of the terms of the contract by the other
party.
23. Section 65B (44) defines 'service' to mean any activity carried
out by a person for another person for consideration, and includes a
declared service. Under section 66E (e), a declared service shall
constitute agreeing to the obligation to refrain from an act, or to
tolerate an act or situation, or to do an act. Section 66 B provides that
service tax shall be levied at the rate of 12 per cent on the value of all
services, other than those services specified in the negative list,
provided or agreed to be provided in the taxable territory by one
person to another and collected in such manner as may be prescribed.
Section 66D contains a negative list of services, while section 66E
contains a list of declared services.
24. It is in the light of what has been stated above that the
provisions of section 66E(e) have to be analyzed. Section 65B(44)
defines service to mean any activity carried out by a person for
another for consideration and includes a declared service. One of the
declared services contemplated under section 66E is a service
contemplated under clause (e) which service is agreeing to the
obligation to refrain from an act, or to tolerate an act or a situation, or
to do an act. There has, therefore, to be a flow of consideration from
one person to another when one person agrees to the obligation to
refrain from an act, or to tolerate an act, or a situation, or to do an
act. In other words, the agreement should not only specify the activity
to be carried out by a person for another person but should specify
the:
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(i) Consideration for agreeing to the obligation to refrain
from an act; or
(ii) Consideration for agreeing to tolerate an act or a
situation; or
(iii) Consideration to do an act
25. It also needs to be noted that section 65B(44) defines 'service'
to mean any activity carried out by a person for another for
consideration. Explanation (a) to section 67 provides that
'consideration' includes any amount that is payable for the taxable
services provided or to be provided. The recovery of liquidated
damages/penalty from the other party cannot be said to be towards
any service per se, since neither the appellant is carrying on any
activity to receive compensation nor can there be any intention of the
other party to breach or violate the contract and suffer a loss. The
purpose of imposing compensation or penalty is to ensure that the
defaulting act is not undertaken or repeated and the same cannot be
said to be towards toleration of the defaulting party. The expectation
of the appellant is that the other party complies with the terms of the
contract and a penalty is imposed only if there is non-compliance.
26. Two Division Benches of the Tribunal in M.P. Poorva Kshetra
Vidyut Vitran Co. Ltd. and South Eastern Coalfields have held that
the amount recovered towards penalties/liquidated damages cannot be
included as 'consideration' towards any service or declared service.
Wheeling charges and Cross Subsidy Charges
27. Service tax has been confirmed on wheeling and cross
subsidy charges on the ground that they are consideration towards
provision of 'declared service' as defined under section 66E(e) of the
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Finance Act. The appellant collects this amount as per the Regulations
framed by the State Electricity Regulation Commission under the
Electricity Act from time to time to cover the subsidies granted to the
consumers.
28. 'Wheeling' is nothing but transmission of electricity undertaken
by the appellant Discom using its infrastructure as the power producer
is not permitted to transmit electricity. Transmission is not leviable to
service tax. Even assuming that the 'wheeling charges' are collected as
charges for permitting the power producer to transmit its electricity
using the infrastructure of the appellant, since it is an activity related
to transmission of electricity and also that the main activity of
transmission is done by the appellant, 'wheeling charges' would not be
leviable to service tax in view of the decision of the Gujarat High Court
in Torrent Power. The appellant had not agreed to tolerate any
act of any person by transmitting electricity through its network.
Therefore, wheeling service would not be leviable to service tax and it
cannot be termed as a declared service as it does not fall within the
meaning of section 66E(e) of the Finance Act.
29. Collection of cross subsidy charges is provided under the
Electricity Act and the Regulations to meet the requirements of current
level of cross subsidy within the area of supply of the distribution
licencee. It is also in relation to transmission and distribution of
electricity and cannot be treated as a 'declared' service since it is not
for agreeing to tolerate an act of any other person. The cross-subsidy
surcharges are determined under sections 39, 40 and 42 of the
Electricity Act and are collected from the consumers who opt for Open
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Access power purchases. It is not generated out of any service
provided by the appellant and, therefore, service tax cannot be levied.
Supervisory charges and Testing charges, and Transformer and
Meter Testing Charges
30. The appellant collects supervision charges in relation to service
connection or any other works as a part of the amount paid by it to
the contractors to ensure that the network being provided is as per the
standards fixed under the Electricity Act and Regulations framed
thereunder. Under rule 45 of Indian Electricity Rules, 1956, no
electrical insulation work shall be carried out for the purpose of
distribution of electricity except by the licensed contractor under the
direct supervision of a Department person to ensure that the quality of
line/ instrument and safety checks for protection/ safety of consumers.
These charges have been considered at length by Division Bench of the
Tribunal in the decision rendered on 14.01.2021 in M.P. Poorva
Kshetra Vidyut Vitran Co. Ltd.. It has been held that the amount
collected towards these charges cannot be subjected to levy of service
tax. The same would be the position for the other charge under this
head.
Rents collected from contractors
31. With regard to the rent collected by the appellant from the
contractors for allowing them to use the equipment of the appellant,
the appellant admits the liability, but only for the period that falls
within the period of limitation.
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32. It has, therefore, to be seen whether the extended period of
limitation has been correctly invoked in the present case. At the
relevant time, the period of limitation was one year under section 73
of the Finance Act. The show cause notice mentions that the appellant
had intentionally chosen not to assess the actual service tax liability by
fraudulently suppressing facts and appeared to have evaded applicable
service tax on such services. It has also been stated that the appellant
had willfully mis-stated that the consideration received by the
appellant for providing the services was not leviable to service tax.
33. The Commissioner has merely observed that the onus of making
a proper assessment of liability rests with the assessee and in the
scheme of self assessment, the Department comes to know of the
facts only during the scrutiny of the statutory forms. The
Commissioner has also observed that the appellant failed to declare
the correct turn over in the ST-3 returns and suppressed the facts of
the taxable amount towards the aforesaid services and thereby they
had deliberately and willfully ignored payment of service tax. Thus, by
willfully suppressing these facts, the appellant had contravened the
provisions of the Finance Act.
34. Section 73(1) of the Finance Act, deals with recovery of service
tax not levied or paid or short levied or short paid. The extended
period of limitation can be invoked under the proviso to section 73(1)
of the Finance Act, in which case notice can be served within five
years. If the extended period of limitation is not invoked any demand
of service tax would be time barred. One circumstance mentioned in
the proviso to section 73(1) of the Finance Act, is when there has been
a 'suppression of facts'.
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35. In Pushpam Pharmaceutical Co. vs. Commissioner of
Central Excise, Bombay 10 , the Supreme Court examined whether
the Department was justified in initiating proceedings for short levy
after the expiry of the normal period of six months by invoking the
proviso to section 11A of the Excise Act. The proviso to section 11A of
the Act carved out an exception to the provisions that permitted the
Department to reopen proceedings if the levy was short within six
months of the relevant date and permitted the Authority to exercise
this power within five years from the relevant date under the
circumstances mentioned in the proviso, one of which was
'suppression of facts'. It is in this context that Supreme Court
observed that since 'suppression of fact' had been used in the
company of strong words such as fraud, collusion, or willful default,
suppression of facts must be deliberate and with an intent to escape
payment of duty.
36. The Supreme Court in Continental Foundation Joint Venture
Holding vs. Commissioner of Central Excise, Chandigarh-I 11 also
held as follows:
"10. The expression "suppression" has been used
in the proviso to Section 11A of the Act
accompanied by very strong words as 'fraud' or
"collusion" and, therefore, has to be construed
strictly. Mere omission to give correct information
is not suppression of facts unless it was deliberate
to stop the payment of duty. Suppression means
failure to disclose full information with the intent to
evade payment of duty. When the facts are known to
both the parties, omission by one party to do what he
might have done would not render it suppression. When
the Revenue invokes the extended period of limitation
10. 1995 (78) E.L.T. 401 (S.C.)
11. 2007 (216) E.L.T. 177 (S.C.)
20
ST/30388/2019
under Section 11-A the burden is cast upon it to prove
suppression of fact. An incorrect statement cannot
be equated with a willful misstatement. The latter
implies making of an incorrect statement with the
knowledge that the statement was not correct."
(emphasis supplied)
37. The Delhi High Court in Bharat Hotels Limited vs.
Commissioner of Central Excise (Adjudication) 12 also examined
at length the issue relating to the extended period of limitation under
the proviso to section 73 (1) of the Finance Act and held as follows;
"27. Therefore, it is evident that failure to pay tax is not
a justification for imposition of penalty. Also, the word
"suppression‟ in the proviso to Section 11A(1) of the
Excise Act has to be read in the context of other words
in the proviso, i.e. "fraud, collusion, wilful
misstatement". As explained in Uniworth (supra),
"misstatement or suppression of facts" does not mean
any omission. It must be deliberate. In other words,
there must be deliberate suppression of information for
the purpose of evading of payment of duty. It connotes
a positive act of the assessee to avoid excise duty.
*****
Thus, invocation of the extended limitation period under
the proviso to Section 73(1) does not refer to a scenario
where there is a mere omission or mere failure to pay
duty or take out a license without the presence of such
intention.
*****
The Revenue has not been able to prove an intention on
the part of the Appellant to avoid tax by suppression of
mention facts. In fact it is clear that the Appellant did
not have any such intention and was acting under a
bonafide belief"
38. It is, therefore, clear that even when an assessee has
suppressed facts, the extended period of limitation can be evoked only
12. 2018 (12) GSTL 368 (Del.)
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ST/30388/2019
when 'suppression' is shown to be willful and with an intent to evade
payment of service tax.
39. In the present case, the Department could not establish
conclusively that the appellant had suppressed material facts with an
intention to evade payment of service tax. Only a general statement
has been made by the Commissioner that the appellant had willfully
mis-stated that the consideration received by the appellant for
providing the services was not leviable to service tax. Thus, it is not
possible to sustain the demand made for the extended period of
limitation.
40. The demand under this head for the normal period of imitation is
sustained. The Department shall calculate the amount of service tax
for the normal period of limitation as the demand made for the
extended period of limitation cannot be sustained.
41. The impugned order dated 16.04.2019 passed by the
Commissioner is, accordingly, set aside except in so far is it seeks to
confirm the demand of service tax for the amount collected towards
rent from the contractors for the normal period of limitation. The
appeal is allowed to the extent indicated above.
(Order Pronounced on 14.09.2022)
(JUSTICE DILIP GUPTA)
PRESIDENT
(P. V. SUBBA RAO)
MEMBER (TECHNICAL)
Shreya
22
ST/30388/2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
HYDERABAD
REGIONAL BENCH
SERVICE TAX APPEAL NO. 30388 OF 2019
M/s Southern Power Distribution ...Appellant
Company of Andhra Pradesh Ltd.,
Tirupati - 517503
VERSUS
The Commissioner of ...Respondent
Central Tax,
Tirupati, GST Commissionerate,
Tirupati
APPEARANCE:
Shri Y. Sreenivasa Reddy, Advocate for the Appellant
Shri A. Rangdham, Special Counsel for the Department
CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. C.J. MATHEW, MEMBER (TECHNICAL)
Date of Hearing: 06.05.2022
ORDER
Order Pronounced on 14.09.2022.
(JUSTICE DILIP GUPTA) PRESIDENT (C.J. MATHEW) MEMBER (TECHNICAL) JB