Custom, Excise & Service Tax Tribunal
Bokaro Power Supply Company P Ltd vs -Ranchi Commissionerate on 10 July, 2025
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
EASTERN ZONAL BENCH : KOLKATA
REGIONAL BENCH - COURT NO. 1
Service Tax Appeal No. 75210 of 2024
(Arising out of Order-in-Original No. 1-12/S.Tax/Pr.Commr./2019 dated 22.11.2019
passed by the Principal Commissioner of Central Goods & Service Tax, Ranchi, C.R.
Building, 5-A, Mahatma Gandhi Road, Main Road, Ranchi - 834 001)
M/s. Bokaro Power Supply Co. (P) Limited : Appellant
Hall No. M-01, Old Administrative Building,
ISPAT Bhawan, Bokaro Steel City,
Bokaro District - 827 001 (Jharkhand)
VERSUS
Principal Commissioner, : Respondent
Central Goods & Service Tax and Central Excise,
C.R. Building, 5-A, Mahatma Gandhi Road, Main Road,
Ranchi - 834 001
APPEARANCE:
Shri B.L. Narasimhan, Senior Advocate,
Shri Rahul Tangri, Advocate,
Smt. Ekta Jhunjhunwala, Advocate,
For the Appellant
Shri Mihir Ranjan, Special Counsel,
For the Respondent
CORAM:
HON'BLE SHRI ASHOK JINDAL, MEMBER (JUDICIAL)
HON'BLE SHRI K. ANPAZHAKAN, MEMBER (TECHNICAL)
FINAL ORDER NO. 76981 / 2025
DATE OF HEARING / DECISION: 10.07.2025
ORDER:[PER SHRI ASHOK JINDAL] The appellant is in appeal against the impugned order wherein the demand of Service Tax of Rs.544,44,95,736/- has been confirmed against the appellant, along with interest and penalty.
2. The facts of the case are that the appellant is engaged in the manufacture and supply of electricity exclusively to Steel Authority of India Limited-Bokaro Steel Plant (hereinafter referred to as 'SAIL-BSL'). The Page 2 of 39 Appeal No.: ST/75210/2024-DB appellant was established in 2001, as a 'joint venture company' between SAIL-BSL and M/s. Damodar Valley Corporation, to take over and run the captive 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."
Page 3 of 39Appeal No.: ST/75210/2024-DB
4. The price of the steam and electricity sold to SAIL-BSL was agreed on cost plus basis. The consideration agreed for such supply comprises of both fixed and variable charges. The fixed charges comprise return on equity as per the prescribed percentage of equity, depreciation as per the agreed rate, interest on long term and working capital, direct and indirect expenses pertaining to employees deployed, operation & maintenance expenses of plant, building, etc. Further variable charges comprise cost of coal, fuel oil charges, water charges, locomotives and dumper/ dozer charges, etc.
5. Initially, coal was supplied free of cost by SAIL- BSL to the appellant since the coal linkage allotted by Ministry of Coal/ Coal India Limited was in the name of SAIL-BSL. Accordingly, the variable cost recovered from SAIL-BSL excluded coal cost. However, once the coal linkage was transferred to the appellant, the responsibility for coal procurement shifted from SAIL- BSL to that of the appellant. Accordingly, the variable cost charged from SAIL-BSL included equivalent cost of coal procured by the appellant from various coal companies. [Ref. Paragraph 11.3.1 of the Agreement read with Paragraphs 11.1.3(b)(ii)(a) and (b) of the Amendment No. 2 to the Agreement]
6. The Ministry of Coal vide letter dated 20.12.2006 intimated the appellant that the proposal for transfer of coal linkage from SAIL-BSL to the Appellant has been approved by the Standing Linkage Committee (Long Term). Pursuant to the transfer of coal linkage from SAIL-BSL to the appellant, the appellant procured the required coal from the coal companies for manufacture of electricity and steam for selling the same to SAIL-BSL.
Page 4 of 39Appeal No.: ST/75210/2024-DB
7. Against the aforesaid backdrop, the appellant was issued a Show Cause Notice, proposing to demand service tax on the activity of generation of steam and electricity, for the period from 10.09.2004 to 28.02.2005, under the category of 'Business Auxiliary Service', which was dropped by the Ld. Commissioner vide Order-in-Original dated 31.03.2008. The said order was upheld by the CESTAT, Kolkata vide the Final Order No. FO/76444/2018 dated 18.05.2018 passed in Service Tax Appeal No. 128/2008.
8. Simultaneously, the Appellant was issued twelve Show Cause Notices (the underlying Show Cause Notices) proposing to demand service tax on the activity of generation of electricity in respect of a total period 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. SCN/SOD C. No. Date
No.
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
Page 5 of 39
Appeal No.: ST/75210/2024-DB
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) of the Central Excise Act, 1944. Since the activity of generation of electricity amounts to manufacture, hence, the same does not fall within the ambit of BAS. Therefore, the demand of service tax is set aside for the period till August 2009.
b. September 2009 to June 2012: With effect from 01.09.2009, the definition of the term 'Business Auxiliary Service' has been amended to exclude only the activity amounting to manufacture of 'excisable goods'. As per the decision pronounced in the cases of CCE v. Solaris Chemtech, 2007 (214) ELT 481 (SC) and Shree Datta SSK Ltd., 2010 (261) ELT 792 (Comm. Appl.), electricity is not 'excisable goods'. Hence, service tax is payable for such period.
c. July 2012 to March 2016: The activity of generation of electricity did not fall under the negative list of services under Section 66D(f) of the Finance Act, since the exclusion contemplated therein was also limited to 'excisable goods'. Since electricity does not fall within the ambit of the definition of 'excisable goods', the service tax demand is confirmed.Page 6 of 39
Appeal No.: ST/75210/2024-DB
10. Against the said order, the appellant is before us.
11. The Ld. Senior Counsel appearing on behalf of the appellant has made various submissions, which are summarized below: -
A. The supply of electricity from the appellant to SAIL-BSL amounts to sale. Hence, the question of charging Service Tax on the same does not arise.
(i) The appellant submits that the transaction of supply of electricity from the appellant to SAIL-
BSL amounts to sale of electricity. Hence, construing the same as being exigible to service tax holding the same to be a service is grossly incorrect.
(ii) In this respect, the relevant clauses of the agreement (extracted above) are to be noted which clearly shows that the arrangement entered into between SAIL-BSL and that of the appellant is purely in the nature of sale of goods and no service element is involved therein. Further, even the title of the agreement namely 'Power and Steam Purchase Agreement' indicates that the agreement is towards purchase of power and steam by SAIL-BSL from the appellant.
(iii) In view of the above, demand of service tax in the present case, treating the same as service, when the transaction is of outright sale on principal-to-principal basis, is factually as well as legally misplaced.
Page 7 of 39Appeal No.: ST/75210/2024-DB
(iv) At this juncture, it is pertinent to 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 incurred to produce power & steam and the pricing of steam and power is done on cost plus basis. SAIL Bokaro pays for the cost of steam and power purchased by them. The amount actually received is after accounting adjustment of expenses incurred by it on power and steam generated and sold to SAIL Bokaro.
Q.26. From your answers it appears that the principal raw material 'coal' is supplied free of cost by SAIL because you are producing electricity and steam on behalf of them.
Ans. The electricity and steam is not being produced on their behalf but is being produced, for their use as input item for production of steel.Page 8 of 39
Appeal No.: ST/75210/2024-DB Q.27. From your answer to question no. 26 it appear that electricity and steam are produced by M/s BPSCL for M/s. SAIL, Bokaro. Please confirm.
Ans. As per power purchase agreement power & steam produced is to be sold to SAIL BSL."
(v) Further, even the returns filed by the appellant during the underlying period, reflected the transaction as that of sale of electricity.
(vi) Accordingly, the appellant submits that the essential character of the entire transaction is that of sale of goods and hence there does not arise any question of charging service tax on the instant transaction.
(vii) In this respect, reference is made to the judgment of Kumbakonam Electric Supply Corporation Ltd. Versus Joint Commercial Tax Officer, Esplanade Division Madras, [1963 (9) TMI 43 - Madras High Court], affirmed by Hon'ble Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh, Indore Vs. Madhya Pradesh Electricity Board, Jabalpur [1968 (11) TMI 85 - Supreme Court], wherein electricity has categorically been held to be goods. That a similar proposition has been upheld in the case of State of AP & Others versus National Thermal Power Corporation Ltd. And Others [2002 (4) TMI 694 - Supreme Court] which has inter alia relied upon the Hon'ble Apex Court judgment pronounced in the case of Madhya Pradesh Electricity Board (supra), to hold electricity as 'goods'.
Page 9 of 39Appeal No.: ST/75210/2024-DB
(viii) Even in paragraph 14 of the impugned order, the Ld. Principal Commissioner has himself held electricity to be goods. The relevant extract of the impugned order is given below, for ease of reference:
"14. From the above, I conclude that electricity is 'goods' and the activity of the noticee is production or processing 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;"
[Emphasis Supplied] Page 10 of 39 Appeal No.: ST/75210/2024-DB
(xi) Further, even during the positive list regime, the list of taxable services prescribed under Section 65(105) of the Finance Act did not include the transaction of sale of goods as a taxable service. Furthermore, the service of supply of tangible goods coined under Section 65(105)(zzzzj) of the Finance Act specifically excluded such supplies wherein right of possession and effective control on the goods stands transferred. The relevant extract of Section 65(105)(zzzzj) of the Finance Act is given below, for ease of reference:
"(zzzzj) to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances;"
[Emphasis Supplied]
(xii) Furthermore, in a transaction of sale, all the rights get transferred from the seller to the buyer with the transfer of property in goods. In this regard, the appellant refers to the definition of "sale" coined under various Acts, as under:
▪ Section 54 under Transfer of Property Act, 1882:
""Sale" is a transfer of ownership in exchange for a price paid or promised or part- paid and part-promised."Page 11 of 39
Appeal No.: ST/75210/2024-DB • Section 4 under Sale Of Goods Act, 1930 "(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another."
[Emphasis Supplied]
(xiii) On a conjoint reading of the above, it is amply evident that the transaction of sale of goods was never exigible to service tax being out of the ambit of definition of service or taxable service, as applicable during the relevant period. It is submitted that the Union did not have the power to levy tax on sale or purchase of goods, which was the subject matter of the State during the relevant period under Entry 54 of the State List (List II) of the Seventh Schedule to the Constitution of India. Hence, imposing service tax on a transaction qualifying as sale of goods is beyond the four corners of law.
(xiv) Reliance in this regard is placed on the judgment of GMK Concrete Mixing Pvt. Ltd. Versus Commissioner Of Service Tax, Delhi [2012 (25) S.T.R. 357 (Tri. - Del.)] affirmed by Hon'ble Apex Court in Commissioner 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: -
Page 12 of 39Appeal No.: ST/75210/2024-DB "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 (56) G.S.T.L. 182 (Tri. - Bang.)] • Wagad Infraprojects Pvt. Ltd. v. Commr. Of C. Ex. & S.T., Vadodara [2022 (59) G.S.T.L. 95 (Tri. - Ahmd.)] • Hamon Shriram Cottrel Pvt. Ltd. v.
Commissioner of C.Ex. & S.T.-Vapi [2024 (4) TMI 628 - CESTAT Ahmedabad] • Prem Motors Private Limited v. Commissioner, Central Excise & CGST, Jaipur [MANU/CE/0091/2023] - CESTAT, New Delhi • Commissioner of C.Ex. & S.T., Surat-I v.
Ganga Automobiles [2023 SCC OnLine CESTAT 7868, CESTAT Ahmedabad].Page 13 of 39
Appeal No.: ST/75210/2024-DB (xvi) In view of the judicial precedents cited above, it is amply evident that once a transaction qualifies as sale of goods, demand of service tax on the same, treating the said transaction as service, is legally incorrect. Hence, the demand of service tax on the instant transaction of sale of electricity, treating the same as service, is legally incorrect and liable to be set aside.
B. Without prejudice, the issue that the activity of generation of electricity amounts to manufacture of 'excisable goods' is no longer res integra.
(i) The impugned order has not disputed the position of law that the production of electricity from coal, amounts to manufacture of goods under Section 2(f) of the Excise Act. However, the impugned order has erred in holding that electricity does not qualify as 'excisable goods'.
(ii) As per Entry 84 of the List I i.e. the Union List, the Constitution empowers the Union to levy excise duty on all 'goods' which were 'manufactured' or 'produced' in India except those prescribed therein. It is submitted that since there is no dispute on electricity being 'goods' and being subject to the process of 'manufacture', there can be no dispute as to the leviability of excise duty thereon also.
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(iii) The term 'excisable goods' as defined under Section 2(d) of the Excise Act means goods specified in the First and the Second Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as 'CETA') as being subject to a duty of excise and includes salt.
(iv) In this regard, it is pertinent to note that electrical energy (electricity) falls within the First Schedule to the CETA under Tariff Item 27160000. However, no rate of excise duty has been prescribed for electricity under the said Tariff Item and the "Rate of Duty" column shows a '#' against the said Tariff Item.
(v) Vide the impugned order, 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.
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(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 extract of the judgment is given below, for ease of reference:
"7. We are unable to agree with the contention of the learned Counsel. We are of the view 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. In fact, it is seen that some of the rate of duty as `NIL'. It could not be contended that these goods are not `excisable goods'. In this connection, we may also refer to section 3, which is the charging section, which provides for the levy and collection of excise duty on all excisable goods, produced or manufactured in India at the rate set forth in the Schedule, thereby showing that excisable goods in the definition in the section refer only to the description of the goods in column (2) of the First Schedule, and not to the rate of duty in column (3) of that Schedule."
(viii) Reliance in this regard is further placed on the judgment pronounced in the case of Hind Rubber Factory v. Union of India [1990 (48) E.L.T. 363 (P&H)] as approved in 2000 (119) ELT A178 (Supreme Court) the relevant portion of which is reproduced hereinbelow:
Page 16 of 39Appeal No.: ST/75210/2024-DB "23. ....The definition of the expression "excisable goods" consists of two parts. The first part lays down that such goods are those which are specified in the First Schedule. The second part is that such goods arc subject to a duty of excise. It is significant to note that the two parts of the definition are not disjunctive and, therefore, it cannot be held that being subject to a duty in the context means actual levy of the excise duly. The expression "being subject to" according to Shorter English Oxford Dictionary, means - exposed or open to; prone to or liable to ..... having a tendency prone or disposed of. It follows that the goods mentioned in the Schedule to the Act are liable to attract excise duty.
The definition does not mean that the duty must be imposed in order to make the goods excisable goods."
(ix) Similar principle has also been upheld in the case of Karnataka Cement Pipe Factory Industrial Estate v. Superintendent of C.E. & Anr. [1986 (23) ELT 313 (Kar)].
(x) The Appellant also submits that such # rate will not put the subject goods out of the definition of 'excisable goods'. This is because the character 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 Page 17 of 39 Appeal No.: ST/75210/2024-DB 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 to which Solaris Chemtech Ltd. related is, therefore, not known. It is also to be borne in mind that the Explanation, to Section 2(d) of the Act, whereby goods which were bought and sold were, ipso facto, deemed to be marketable, was introduced only w.e.f. 10th May, 2008. Prior thereto, it was necessary to establish, as an independent fact, the "marketability" of any item, in order to regard it as "excisable". Inasmuch as the judgment in Solaris Chemtech Ltd. was itself rendered prior to the addition of the Explanation to Section 2(d) of the Act, and the period of dispute, in the said case, was prior to 1st April, 2000, it is doubtful whether the "clarification", in the opening sentence of Para 8 of the report in the said decision, that "electricity is not an excisable item" could operate as a precedent, for all times to come, under Article 141 of the Constitution of India.
....
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."
Page 18 of 39Appeal No.: ST/75210/2024-DB
(xii) Reliance in this regard is further placed on the judgment of Mettur Thermal Power Station v. CBEC, New Delhi [2016 (335) ELT 29 (Mad.)] as affirmed in 2017 (349) ELT 708 (Madras High Court). The relevant extract of the said order reads thus:
"24. It is not in dispute that 'electricity' has been specified in the First Schedule of the Central Excise Tariff under Heading 2716 00 00, but it is not subjected to a duty of excise since under the 'rate column' the duty of excise is indicated as 'nil'. Merely, rate of duty is mentioned 'nil', it cannot be construed that it is non-excisable good. In "CCE, Hyderabad v. Vazir Sultan Tobacco Co. Ltd., reported in (1996) 3 SCC 434 = 1996 (83) E.L.T. 3 (S.C.), the Hon'ble Supreme Court has held that though by virtue of an exemption notification, the rate of duty was nil, this does not mean that they were not excisable goods. They were excisable goods. Nil rate of duty is also a rate of duty. Therefore, electricity is excisable good and can be construed as exempted goods by virtue of the above Notification No. 89/95-C.E., dated 18-5-1995 as it has been clearly 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 Page 19 of 39 Appeal No.: ST/75210/2024-DB 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. The entire demand confirmed vide the impugned order is therefore liable to be set aside.
C. Without prejudice to the above, the entire demand is liable to be set aside on the sole ground of being revenue neutral.
(i) Without prejudice to the above, it is submitted that the entire demand in the present case is revenue neutral and therefore, is liable to be set aside. The appellant submits that even if service tax liability arose in the present case, SAIL-BSL was entitled to take CENVAT Credit of the entire amount paid as service tax by the appellant (which is a Joint Venture of SAIL and DVC), as the said service would be an 'input service' for them in terms of Rule 2(l) of the CENVAT Credit Rules, 2004. Thus, the entire exercise is revenue-neutral.
(ii) Reliance in this regard is placed on the judgment passed by the Tribunal, Kolkata in the matter of M/s H. V. Transmission Ltd. v. CCE, Jamshedpur [Final Order No. 77559-
77560/2023 dated 28.11.2023], wherein the Page 20 of 39 Appeal No.: ST/75210/2024-DB demand of excise duty has been set aside on the grounds of revenue neutrality.
(iii) Reliance in this regard is also placed on the judgment in the case of Commr. Of C. Ex., Ahmedabad-II Versus Reclamation Welding Ltd. [2014 (308) E.L.T. 542 (Tri. - Ahmd.)], wherein the demand of excise duty was inter alia set aside on the ground of revenue neutrality on goods supplied after job work to the subsidiary company which was available as credit in the hands of the subsidiary company.
(iv) Reliance is further placed on the judgment pronounced in the case of Bharat Aluminium Co. Ltd. Versus Commissioner Of Central Excise, Raipur [2021 (375) E.L.T. 379 (Tri. - Del.)], wherein the duty demand was set aside on the ground of revenue neutrality on supplies made to fellow subsidiary. Furthermore, reliance is also placed on the following judgments wherein demand has been held to be unsustainable on the ground of revenue neutrality:
• Hindalco Industries Limited Versus Commissioner of Central Excise, Bhubaneswar-II [2023 (5) TMI 720 - CESTAT Kolkata] • Dhana Singh Synthetics Pvt. Ltd. Versus Commr. Of C. Ex., Cus. & S.T., Vapi [2015 (326) E.L.T. 609 (Tri. - Ahmd.)].
(v) Therefore, on this ground alone, the entire demand is liable to be set aside.Page 21 of 39
Appeal No.: ST/75210/2024-DB D. Penalty is not imposable.
(i) Penalty under Section 76 of the Finance Act is imposable when a person liable to pay tax fails 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 exchequer. In the instant case, since demand is not sustainable, there is no loss of revenue, and hence, interest cannot be charged.
Page 22 of 39Appeal No.: ST/75210/2024-DB 11.1. In view of the above submissions, the Ld. Counsel appearing for the appellant prayed for setting aside the demands confirmed in the impugned order.
12. On the other hand, the Ld. Special Counsel appearing for the Revenue made the following submissions: -
(i) The core issue is whether the generation and supply of electricity by the appellant to SAIL-
BSL qualifies as:
- A mere sale of goods, as Appellant contends in their additional ground.
- A taxable service under Business Auxiliary Service (Pre-negative regime) and
- A taxable service not covered by the negative list (post 01.07.2012)
(ii) He submits that to understand the case from the proper perspective, it would be necessary to explain in brief the facts leading to the formation of the Appellant in 2001 as a joint venture company between SAIL-BSL and Damodar Valley Corporation to take over and operate SAIL-BSL's captive power plant of 302 MW power plant having additional steam generation capacity of 660 tonnes per hour under an agreement dated 18th September 2001 called a "deed of transfer and assignment of business". The takeover was part of Steel Authority of India Limited (SAIL)'s Business reconstruction and restructuring plan, intending to strengthen its core activity (i.e., steel manufacturing). At the time of takeover, BPSCL Page 23 of 39 Appeal No.: ST/75210/2024-DB was a subsidiary company of SAIL, which held 99.98% of the paid-up share capital, as per the agreement. BPSCL has agreed to take over the captive power plant with the intent to supply the power and steam so generated in the CPP to SAIL-BSL. M/S BPSC generates power and steam and supplies it (at various pressures) to SAIL's Bokaro Steel Plant to meet the process requirements of BSL.
(iii) M/s BPSCL simultaneously entered into a "power and steam purchase agreement" dated 18.09.2001 with SAIL-BSL, wherein it is mentioned at paragraph C that BPSCL has acquired the captive power plant for the generation and sale of power and steam to SAIL on a captive basis.
(iv) M/s. BPSCL has to mandatorily supply the power generated at the captive power plant to SAIL- BSL, and SAIL-BSL will mandatorily purchase it. Thereby the captive status of CPP will be maintained during the validity of the agreement.
(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:
Page 24 of 39Appeal No.: ST/75210/2024-DB • 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 facilities.
• Allowed SAIL to reallocate resources towards steel production modernisation.
C. Secured Power Supply:
• Ensured a consistent and reliable supply of electricity and steam essential for continuous steel production.
D. Cost Management:Page 25 of 39
Appeal No.: ST/75210/2024-DB • The cost-plus pricing model allowed transparency and predictability in power costs.
• Avoided the high costs of drawing additional power from the grid.
E. Strategic Focus:
• Allowed SAIL to focus on its core steel production business, aligning with broader PSU restructuring initiatives of the late 1990s and early 2000s.
(viii) In the background of the case, the respondent submits that the appellant's claim that the transaction of supply of electricity from the applicant to SAIL-BSL amounts to mere sale of electricity and not any activity/service of the goods on behalf of SAIL-BSL is a misstatement and mischievous. It is a settled principle of law that the wording of the agreement is not relevant, but rather the substance of the deal.
The appellant, in its additional submission, has attempted to isolate the word "purchase" from the contract to argue that it was a sale of electricity without considering the object of the entire transaction, which involved taking over the captive power plant, production, and supply of electrical energy to SAIL Bokaro. However, the deed of transfer and assignment read in conjunction with the "power and steam purchase agreement" pertains to the transfer of its power plant, power generation by the Appellant and the supply of the same to the SAIL-BSL. The appellant is mandatorily required to supply the same to the SAIL, and SAIL is also Page 26 of 39 Appeal No.: ST/75210/2024-DB mandatorily required to purchase it. Moreover, SAIL and BPSCL shall jointly endeavour to utilise the generating capacity of the power plant at Bokaro. Power generation and dispatch are to be mutually decided upon by both SAIL and BPSCL. Even power supply management is handled by SAIL. SAIL will support the BPSCL during labour unrest by deputing suitable manpower. Respondent submits that the agreement name does not override the actual substance. The appellant generates electricity for SAIL-BSL using a cost-plus model, which is not considered a sale, as there is no transfer of title to the goods, unlike a regular sale in the open market. The transaction in this case, is not a transaction 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 Page 27 of 39 Appeal No.: ST/75210/2024-DB 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, rather than to sell goods. As a result, the transfer of property in goods during the performance of the contract is incidental to the contract and not a sale under the Sale of Goods Act. In the present case, it is evident from " Deed of transfer and assignment of business" and power and steam purchase" that the main intention was service and supply of electricity, which is incidental to the contract. Besides this, the respondent reiterates the "analysis of facts" mentioned at paragraph 3.0 of the SCN dated 19.06.2006 to conclude that this was a service.
(x) During the negative list era, "Transmission or distribution of electricity" is a service. But, the said activity/service, when provided by "an electricity or distribution utility becomes non- taxable by its inclusion in the negative list of services under Section 66D(k) of the Finance Act. However, whether such particular activity would be covered under the negative list or not has been further clarified in the Act. The term "electricity transmission or distribution utility"
has been defined under section 65B(23) of the Act as:
"(23)" electricity transmission or distribution utility"
means the Central Electricity Authority; a State Electricity Board, the Central transmission utility or a state transmission utility notified under the Page 28 of 39 Appeal No.: ST/75210/2024-DB Electricity Act 2003 (36 of 2003); or a distribution or licensee under the said Act, or any other entity entrusted with such function by the Central Government or, as the case may be, the state Government;"
(xi) From the above, it appears that any entity would be covered under this entry only if it is entrusted with such functions by the Central or a state government, or if it is a distribution licensee licensed under the Electricity Act 2003 (36 of 2003) for such distribution. Whereas in the present case, appellants are neither holding any license nor entrusted with any such function by the Central or State government; therefore, their activity will not be covered under the negative list of services.
(xii) The appellant (supplier of electrical energy) is not licensed as a power distribution company;
the transaction is not conducted through an open-access grid or electricity exchange, and the pricing is not market-driven but based on cost recovery. All these make it classifiable as a "supply of service" rather than a sale.
(xiii) According to BPSCL's official 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:
Page 29 of 39Appeal No.: ST/75210/2024-DB
- 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 manufacture cement/caustic."
(b) The Commissioner of Customs & Central Excise (Appeals), Pune-II, also discussed the issue in length in the case of Shree Datta SSK Ltd. reported in 2010 (261) E.L.T. 792 (Comm. Appl), where he held that "4.1 The conclusion of the adjudicating authorities that the 'electricity' is an excisable commodity, in as much as the same is being found mentioned in the Central Excise Tariff under heading No. 27.16 and non-mention of rate of duty against that entry, has to be treated as "NIL" rate of duty, is not based on any legal provision. The fact is that the Government, to align the Central Excise Tariff with the Customs Tariff Act, introduced 8 digit system with effect from 28-2-2005 and accordingly, all the items which were found mentioned in the Customs Tariff Act, but were Page 30 of 39 Appeal No.: ST/75210/2024-DB not found mentioned in the Central Excise Tariff Act before 20-8-2005, were introduced in the Central Excise Tariff Act. Accordingly, items like live animals such as birds, horses, bulls etc. are also found mentioned in the Central Excise Tariff Act, which does not mean that the same can be considered as excisable commodities: In the same way, the 'electrical energy' also has been found mentioned under Chapter Heading No. 2716 with effect from 28-2-2005 and against 'rate of duty' column, it has been left "blank like other entries such as live animals etc.. Therefore, as contended by the appellant, the mention of electricity in the Central Excise Tariff is a technical move and it is not the intention of the Government to bring the same as an excisable commodity and impose duty on it. In this regard, the decision of the Hon'ble Tribunal, Mumbai in the case of Ballarpur Industries Ltd, v. CCE, Nagpur - 2006 (205) E.L.T. 483 (Tri.-Mumbai) is relevant and squarely applicable to the issue at hand. The operative portion of the above decision is as under:-
In view of the fact that there is no duty specified in the schedule to the Central Excise Tariff Act for electricity, the same cannot be considered excisable or exempted goods. At the same time, electricity not being excisable goods cannot also be considered as "final products" for the purpose of Cenvat Credit Rules in view of the specific definition therein. Consequently, the electricity supplied to the colony would fall outside the Cenvat Scheme. The credit taken on inputs used in production of such electricity is inadmissible".Page 31 of 39
Appeal No.: ST/75210/2024-DB (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 product in terms of Rule 6 of the Cenvat Credit Rules, 2004. Further, the Apex Court in the case of CCE v. Solaris Chemtech Ltd. supra has also held that electricity is a non-excisable item. Accordingly, I hold that, the electricity, being a non-excisable commodity, the appellant is not liable to pay an amount equal to 10% of the price of the exempted product, viz., electricity, and consequently no interest is also payable.
(xvii) From the above, it is seen that although electricity/electrical energy is mentioned in the Page 32 of 39 Appeal No.: ST/75210/2024-DB first schedule to the Central Excise Tariff Act, 1985 at 27160000 under chapter 27 which relates to mineral fuels, mineral oils and products of their distillation as also bituminous substances and mineral waxes, the same cannot be considered to be excisable goods for reasons discussed in the order of the Commissioner (Appeals) in the case of Shree Datta SSK Ltd. In the case of M/s. Dunar Foods Ltd. vs. CCE Panchkula, 2017 (346) ELT 612, it has also been held that rice is non-excisable, as heading 1006 in Chapter 10 of the Central Excise Tariff has been left blank. Given the above, Adjudicating Authority has correctly held that from 01.09.09 to 30.06.12, electricity/electrical energy was non-excisable and hence, the service rendered by the noticee to M/s SAIL, Bokaro was properly classifiable under Business Auxiliary Service as it did not amount to manufacture of excisable goods.
(xviii) Section 66D(f) excludes the manufacture of excisable goods only. As explained above, Electricity is not excisable; hence, service tax applies.
(xix) Electricity used captively is not marketable.
Hence, not 'goods' in the excise context.
(xx) Respondent submits that the Adjudicating Authority has, therefore, correctly confirmed a demand of Rs 544.44 crores against the appellant for 2009 to March 2016 vide order in original N 01-12/5. tax/Pr.Commr/2019 dated 22.12.2022 on the ground that the Appellant's generation and supply of electricity to SAIL-BSL Page 33 of 39 Appeal No.: ST/75210/2024-DB constitute a taxable service under the relevant provisions of the Finance Act, 1994.
(xxi) There is no evidence that SAIL-BSL is utilising CENVAT credit. At the same time, revenue neutrality is not a defence to evasion. Duty and tax remain payable if legally due.
(xxii) Non-payment and suppression indicate mens rea and thus Sections 76 and 78 apply.
(xxiii) Interest is Compensatory Interest 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 Page 34 of 39 Appeal No.: ST/75210/2024-DB 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 the first schedule to the Central Excise Tariff Act, under Tariff Item No. 2716 0000. However, no rate of excise has been prescribed for electricity under the said Tariff Item.
15.1. In this regard, reliance has been placed by the Ld. Special Counsel for the Revenue on the decision in the case of Collector of C.Ex. v. Solaris Chemitech Ltd. [2007 (214) E.L.T. 481 (S.C.)] to say that "we may clarify that electricity is not an excisable item", which has been followed by the Ld. Commissioner of Customs and Central Excise (Appeals), Pune-II in the case of In re: Shri Datta SSK Ltd. [2010 (261) E.L.T. 792 (Commr. Appl.)] However, we find that the decision in Solaris is in regard to the MODVAT scheme and the said issue has been examined by the Hon'ble Delhi High Court in the case of Commissioner of C.Ex. & S.T., LTU, Delhi v. Nangalamal Sugar Complex [2020 (371) E.L.T. 501 (Del.)] wherein the Hon'ble High Court has observed as under: -
"46. The first decision, to which reference requires to be made, is the judgment of the Supreme Court in Solaris Chemtech Ltd., on which extensive reliance has been placed by the High Court in Gularia Chini Mills, for the proposition that electricity/electrical energy did not constitute "excisable goods". In Solaris Chemtech Ltd., the respondent-assessee - hereinafter referred to as "Solaris" - was using Low Sulphur Heavy Stock (LSHS) and furnace oil to generate electricity, which was captively consumed for manufacture of final products such as caustic soda and cement. Solaris desired to avail Modvat credit, under Rule 57A of the Page 35 of 39 Appeal No.: ST/75210/2024-DB Central Excise Rules, 1944, of the duty paid on the furnace oil and LSHS. For this purpose, reliance was placed, by Solaris, on clause (c) in the Explanation to Rule 57A(1), which was inserted vide Notification No. 4/94, dated 1st March, 1994, which included, in "inputs", "inputs used as fuel". Solaris contended that LSHS was eligible to be regarded as "inputs used as fuel". The Revenue contended, per contra, that LSHS was used for manufacturing electricity, which was not excisable and that, therefore, LSHS could not be treated as an input used as fuel. It was also contended that, though LSHS generated electricity, it could not be said that LSHS was used in, or in relation to, the manufacture of the final products, namely caustic soda and cement.
Electricity, it was contended, was not the final 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 expression "used in or in relation to the manufacture of the final product". The utilisation of the captively generated electricity, in the production of the final product, it was observed, was crucial, and, therefore, Modvat credit, on the LSHS used in the production of electricity, could not be denied. The Supreme Court went on to expound on the concept of usage "in or in relation to the manufacture of final products", especially the Page 36 of 39 Appeal No.: ST/75210/2024-DB expression "in relation to". In view of the wide ambit of this expression, the Supreme Court held that Modvat credit, of the duty paid on LSHS, was available to Solaris.
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 to which Solaris Chemtech Ltd. related is, therefore, not known. It is also to be borne in mind that the Explanation, to Section 2(d) of the Act, whereby goods which were bought and sold were, ipso facto, deemed to be marketable, was introduced only w.e.f. 10th May, 2008. Prior thereto, it was necessary to establish, as an independent fact, the "marketability" of any item, in order to regard it as "excisable". Inasmuch as the judgment in Solaris Chemtech Ltd. was itself rendered prior to the addition of the Explanation to Section 2(d) of the Act, and the period of dispute, in the said case, was prior to 1st April, 2000, it is doubtful whether the "clarification", in the opening sentence of Para 8 of the report in the said decision, that "electricity is not an excisable item" could operate as a precedent, for all times to come, under Article 141 of the Constitution of India.
49. We are, of course, aware of the fact that, in Gularia Chini Mills, the High Court expressly rejected the specific contention, advanced before it, that the insertion of the Explanation to Section 2(d) of the Act diluted the applicability of the judgment in Solaris Chemtech Ltd. We are not, however, aware of the exact reason for such rejection, as it is not forthcoming from the judgment. To us, it appears that, after the addition of the Explanation to Section 2(d), in the Act, the declaration of the law, in Solaris Chemtech Ltd., 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, Page 37 of 39 Appeal No.: ST/75210/2024-DB 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 Tribunal is not applicable to the facts of this case as in the said case, the issue was that of classification of 'Potpourris' which is not the subject matter of the appeal before us.
15.3. Further, he has also relied on the decision, which has been affirmed by the Hon'ble Apex Court, in the case of Dunar Foods Ltd. v. Commissioner of C.Ex., Panchkula [2017 (346) E.L.T. 612 (Tri. - Chan.)]. In the said case, this Tribunal came to the conclusion that conversion of paddy into rice is an activity of agriculture and therefore, no excise duty is payable on that. However, that is not the case before us.
Page 38 of 39Appeal No.: ST/75210/2024-DB 15.4. In view of the above, we find that the reliance placed by the Ld. Special Counsel for the Revenue on the above decisions is misplaced. Accordingly, the same are not applicable to the facts of this case.
16. We take note of the fact that electricity finds place in the Tariff Item No. 2716 0000 of the Central Excise Tariff Act, 1985 and is 'goods' as per Explanation to Section 2(d) of the Central Excise Act, 1944. Therefore, we hold that electricity is 'excisable goods' and although the rate of duty column is kept blank, it cannot be said that it is not 'excisable goods'.
17. With regard to the next issue i.e., as to whether on the sale of electricity Service Tax is leviable or not, we find that a similar issue has been examined by this Tribunal in the case of GMK Concrete Mixing Pvt. Ltd. Versus Commissioner of Service Tax, Delhi [2012 (25) S.T.R. 357 (Tri. - Del.)], as affirmed by the Hon'ble Apex Court in 2015 (38) S.T.R. J113 (S.C.), wherein this Tribunal observed that it was a case of supply of RMC and the contract appeared to be a sale contract instead of a service contract. In these circumstances, it was held that no Service Tax is leviable. Admittedly, in the case on hand, it is a contract of sale and purchase of electricity, which has been manufactured by the appellant. Hence, under these circumstances, no Service Tax is payable by the appellant, as it is purely a sale and purchase agreement.
18. In view of the above discussions, we do not find any merit in the impugned order and hence, the same is set aside.
Page 39 of 39Appeal No.: ST/75210/2024-DB
19. In the result, the appeal is allowed, with consequential relief, if any.
(Operative part of the order was pronounced in open court) Sd/-
(ASHOK JINDAL) MEMBER (JUDICIAL) Sd/-
(K. ANPAZHAKAN) MEMBER (TECHNICAL) Sdd