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20th May 2019

Service Tax on Electriciy Reimbursement

Recently In case of "Srijan Realty Pvt. Ltd. vs. Commissioner of Service Tax" (2019) 104 taxmann.com 225 (Calcutta), the Hon'ble High Court of Calcutta held that supplying electricity to tenants or occupants on raising bills by the owner and realising electricity consumption charges from such occupants is an activity subject to levy of service tax.

Here, facts of the case are explained as follows:

The petitioner obtains high-tension electric supply from India Power Corporation Ltd. It, in turn supplies electricity to the occupants of the commercial complex, on low-tension. It collects the money equivalent of the amount of electricity consumed by the occupants on the basis of the sub-meter readings of such occupants.

The issue raised here was whether this transaction is eligible to Service Tax or not.

The petitioner has contested on the ground that the petitioner is engaged in the activity of sale of electricity and the same shall cover under the scope of negative in following clauses, namely:-

(e)Trading of goods. (k)transmission or distribution of electricity by an electricity transmission or distribution utility;":

The petitioner has sought a declaration that, supply of electricity by the petitioner to the occupiers of "Galaxy Mall", a commercial complex, is not a service eligible to tax under the Finance Act, 1994 and give reference of different case laws.

Relying upon State of Andhra Pradesh v. National Thermal Power Corpn. Ltd. 2002 taxmann.com 2376 (SC) the petitioner has submitted that, electricity is a 'good' and is capable of being traded. He has relied upon Aluminium Co. v. State of Kerala 1996 taxmann.com 1097 (SC) for the proposition that, electricity or electrical energy can be sold. According to him, the absence of any authorisation to supply electricity does not change the nature and character of the sale.

The Hon'ble High Court of Calcutta held that the petitioner is not an electricity trader as defined in Section 2(26) of the Electricity Act, 2003. The petitioner does not have a licence to undertake trading in electricity under Section 12 of the Electricity Act, 2003.  So, the activity of the petitioner is not covered within the negative list of services defined in Section 66D particularly in view of Section 66D(e) and (k). Hence, the petitioner cannot be said to be indulging in trading of goods or in transmission or distribution of electricity within the meaning of the Electricity Act, 2003.

It is further held that, the transaction of the petitioner obtaining high-tension electric supply converting it to low-tension supply, and supplying it to the occupants, raising bills on such occupants and realizing the electricity consumption charges from such occupants, is a service which the petitioner renders and such an activity is eligible to Service Tax under the Finance Act, 1994.

Note: Chargeability of service tax on such supply of electricity may also have adverse effect under GST law.