TORRENT POWER LTD. Versus UNION OF INDIA
GST
2019 (1) TMI 1092 – GUJARAT HIGH COURT – [2019] 61 G S.T.R. 454 (Guj), 2020 (34) G. S. T. L. 385 (Guj.)
GUJARAT HIGH COURT – HC
Dated:- 19-12-2018
R\/SPECIAL CIVIL APPLICATION NO. 5343 of 2018
GST
MS HARSHA DEVANI AND DR A. P. THAKER, JJ.
\nFor The PETITIONER (s) : MR SN SOPARKAR, SENIOR ADVOCATE with MR UCHIT N SHETH (7336)
\nFor The RESPONDENT (s) : MR JAIMIN A GANDHI (8065) AND MR ANKIT SHAH (6371)
\nORAL JUDGMENT
\n(PER : HONOURABLE MS.JUSTICE HARSHA DEVANI)
\n1. By this petition under Article 226 of the Constitution of India, the petitioners seek the following substantive reliefs:-
\n “46. …………
\n A. This Hon'ble Court may be pleased to issue a writ striking down and declaring the clarification issued in para 4 (1) of the impugned Circular No.34\/8\/2018-GST dated 1.3.2018 (annexed at Annexure A) by the Government of India as ultra vires the provisions of the GST Acts as well as the notifications issued thereunder<\/p>\n
= = = = = = = =<\/p>\n
Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n spectively and for the period prior to 1.3.2018 the learned Respondents will be bound by the previous circular dated 7.12.2010. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n n. At the time of making an application, the consumer is required to pay registration charges to the petitioners. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n of such supply. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n of the Finance Act requiring payment of service tax, no service tax was required to be paid in respect of any amount collected from consumers relating to transmission and distribution of electricity. The Government of India issued Notification No. 11\/2010-Service Tax on 27.2.2010, exempting taxable service provided to any person by any other person for transmission of electricity. Another Notification No. 32\/2010-Service Tax was issued on 22.6.2010, exempting taxable service provided to any person by a distribution licensee\/franchisee for distribution of electricity. In the meantime, the petitioners as well as other distribution\/transmission companies received show cause notices proposing to impose tax under the Finance Act on various charges collected by such companies, in respect of the activities relating to transmission and distribution of electricity for the periods prior to the issuance of the exemption notifications dated 27.2.2010 and 22.6.2010. Representations came to be made <\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n supply of electricity meters for hire to the consumers was an essential activity having direct and close nexus with the transmission and distribution of electricity and was, therefore, covered by the exemption for transmission and distribution of electricity. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ower on the Government to grant exemption. In exercise of such powers, the Central Government has issued Notification No. 12\/2017 dated 28.6.2017 providing for list of exempted services. Identical notifications have been issued under the State Goods and Services Tax Act by the respective State Governments. By virtue of Entry 25 of Notification No. 12\/2017, transmission or distribution of electricity by an electricity transmission or distribution utility is taxed at nil rate. It is the case of the petitioners that as such the legal position as prevailing under the Finance Act was continued even under the Goods and Services Tax Acts and tax leviable on service of transmission or distribution of electricity by an electricity transmission or distribution utility was exempted from tax under the GST Acts. The petitioners, therefore, neither collected nor paid tax under the GST Acts with effect from 1.7.2017 on the charges collected for activities directly connected with transmission and dist<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n petitioners that by the impugned circulars, activities directly and closely connected with the transmission and distribution of electricity, have been declared to be taxable. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n o be collected by the petitioners in accordance with the provisions of the Electricity Act and the GERC Regulations. Such activities are mandatorily required to be carried out by the petitioners for the purpose of supply and distribution of electricity and, in fact, it is not even possible to supply electricity without undertaking such activities. It was contended that, all charges, such as application fee, meter rent, testing fee etc. are towards the service of transmission and distribution of electricity and, therefore, the clarification to the effect that they would not be covered by entry relating to exemption of transmission or distribution of electricity is contrary to express words as well as intent of the exemption notification and, therefore, bad and illegal. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ld fall within the ambit of bundled services as contemplated under sub-section (3) of section 66-F of that Act. It was submitted that if these services do not form part of the services of transmission and distribution then they fall within the ambit of section 66F (3), which provides for taxability of bundled service. It was submitted that, wherein an element of provision of one service is combined with an element or elements of provision of any other service or services, such services are considered to be a bundled service, and by virtue of clause (a) of sub-section (3) of section 66F, if various elements of such service are naturally bundled in the ordinary course of business, it is required to be treated as provision of the single service, which gives such bundle its essential character. It was submitted that, in this case, the ancillary\/incidental services are elements of provision of services of transmission and distribution of electricity and, hence, they have to be treated as pr<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n e exempted from the whole of the service tax leviable under section 66 of the Finance Act. It was submitted that these services, namely, the related services were also exempt by virtue of the exemption notifications issued in the past. It was submitted that if the respondents intend to revoke such exemption, it has to be done prospectively by a notification and not by a clarificatory circular. It was submitted that by virtue of section 173 read with section 174 (2) (c) of the CGST Act, all privileges and rights under that Act would continue and, therefore, what was covered by a notification cannot be withdrawn by a circular and, in any case, it cannot be done retrospectively. In support of his submission, learned counsel for the petitioners placed reliance upon the decision of the Bombay High Court in the case of Unit Trust of India v. P. K. Unny, 2001 (249) ITR 612. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n o be included in the negative list and, therefore, was not exigible to tax. It was submitted that since for pre-negative list period, the related services were considered to be part of the service of transmission and distribution, this position continued even during the negative list regime and keeping in view the same, the petitioners neither collected nor paid the tax under the Finance Act on charges collected in this regard nor did the respondents raised any such demand. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ed, are services which the petitioner is required to mandatorily provide at the rates which are prescribed by the GERC, a statutory authority constituted under the provisions of the Electricity Act and all these services are closely and directly connected with the transmission and distribution of electricity and, therefore, would clearly fall within the ambit of “bundled services” as contemplated under sub-section (3) of section 66F of the Finance Act and would, therefore, would be taxable in terms of the main service, namely, transmission and distribution of electricity. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. It was submitted that since all these services are naturally bundled along with the service of transmission and distribution of electricity, the same would clearly fall within the ambit of “composite supply” as envisaged under section 2 (30) of the Act. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n element of composite supply as taxable though the principal supply is exempt. It was submitted that by virtue of notification issued under sub-section (1) of section 11 of the CGST Act, transmission and distribution of electricity by an electricity transmission or distribution utility is exempt. It was urged that when the notification under the parent Act exempts the principal supply, a circular cannot impinge upon the notification and seek to hold the composite supply taxable. It was submitted that the circular cannot run contrary to the notification, and hence, the impugned clarification deserves to be set aside to the extent the same clarifies in respect of the services in question. It was submitted that once the impugned circular is set aside, the rigours of the summons, whereby the petitioner is called upon to furnish details with regard to the services in question would also be required to be set aside. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ion, Mr. Ankit Shah, learned Senior Standing Counsel for the respondents No. 1, 2 and 4 raised a preliminary objection to the maintainability of the petition on the ground that the petition is directed against a summons issued by the respondent authorities. Reliance was placed upon the decision of the Madras High Court in the case of Media Graphics v. Commissioner of Customs, Chennai, 2018 (359) ELT 172 (Mad.), wherein the court had declined the prayer to set aside the summons. Reliance was also placed upon the decision of the Madras High Court in the case of K. Elumalai v. Commissioner of Customs, Chennai, 2017 (355) ELT 241 (Madras), for the proposition that a writ petition challenging a summons is not maintainable. It was submitted that the respondent authorities have powers to issue summons and that the summons is, therefore, not illegal and, consequently, cannot be subject matter of challenge in a writ petition. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n able in this case. It was submitted that the related\/ancillary services are not included in the negative list under section 66D of the Finance Act, and hence, these services cannot be bundled with goods falling under section 66D. It was submitted that the previous notifications had been issued prior to the year 2012 and came to be rescinded by the notification dated 20.6.2012 and hence, the clarificatory circular dated 7.12.2010, which had been issued in the context of the earlier exemption notifications would not survive. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n spect of which, the learned counsel for the petitioner has submitted that they would appear before the respondent authorities and respond to the summons. Therefore, it is not necessary to enter into the merits of this submission. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n Service Tax dated 20.6.2012, the Central Government has rescinded the notifications dated 27.2.2010 and 22.6.2010, and hence, the circular dated 7.12.2010, which was merely a clarifying circular, stands automatically rescinded. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n uch submission, the learned counsel relied upon the decision of the Supreme Court in the case of Commissioner of Customs v. Dilipkumar and Company, (2018) 95 taxman.com 327 (SC), for the proposition that an exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause of the exemption notification. Reliance was also placed upon the decision of the Supreme Court in the case of Novopan India Limited v. Collector of Central Excise and Customs, Hyderabad, 1994 (Suppl.3) SCC 606, for a similar proposition of law. It was submitted that the exemption notifications exempt the services of transmission and distribution of electricity alone. The said notifications are to be construed strictly, and hence, related services which have not been specifically included within the purview of such notifications cannot be said to have been included therein. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n he amendment and subsequent to the amendment to determine whether the amendment is clarificatory or substantive. It was, accordingly, urged that the exemption notification should be strictly interpreted and, in case of ambiguity, the benefit of doubt should go to the revenue. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n tion issued vide circular dated 7.12.2010 was never rescinded. It was submitted that the exemption notifications were withdrawn as there was a shift from specific exemption to the negative list regime and now that such services were to be notified in the negative list, there was no requirement for any exemption, inasmuch as exemption is required provided the service is taxable. It was submitted that by virtue of section 8 of the CGST Act, if the principal supply is not taxable, the related\/ancillary service will also be exempted. It was submitted that by virtue of legislative provision, one cannot look at individual items at all. If they have to be looked into, then under section 66F (3) of the Finance Act and section 8 of the CGST Act, the tax is at the rate of principal supply. It was submitted that a circular cannot go contrary to the exemption notification read with section 8 of the CGST Act. It was submitted even otherwise, by virtue of section 8 of the CGST Act and section 66F (3<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n nt; (iii) testing fee for meters\/transformers, capacitors etc; (iv) labour charges from customers for shifting of meters or shifting of service lines; (v) charges for duplicate bill; [(vi) income from shifting of HT Lines received from MEGA. This part is not subject matter of challenge in the petition] (vii) revenue from power supply\/transmission income for the financial year 2012-13 to the financial year 2017-18, which is clearly in terms of the impugned circular dated 1.3.2018, item-4 whereof clarifies that services by way of transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST under Notification No.12\/17-CT(R) No.25; the other services such as (i) application fee for releasing connection of electricity; (ii) rental charges against metering equipment; (iii) testing fee for meters\/ transformers, capacitors etc; (iv) labour charges from customers for shifting of meters or shifting of service line; (v) charges for duplicat<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n uch as, it is not the summons per se which is subject matter of challenge, but the basis thereof, viz. the clarificatory circular dated 1st March, 2018 which is also subject matter of challenge, and the challenge to the impugned summons is only an ancillary relief sought in connection therewith. Besides, the clarificatory circular cannot be challenged before the statutory authorities who are bound by the same, and can be challenged only by way of a writ petition under article 226 of the Constitution of India. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ofar 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. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n 31\/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 distribution of electricity, the same is covered by the exemption for transmission and distribution of electricity extended under relevant notifications. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n pondents, there is nothing to show as to how the very services, which stood included within the ambit of transmission and distribution of electricity now stand excluded. The sole refrain of the respondents is that in view of the fact that the exemption notification stands rescinded, the clarification also stands rescinded. What is lost sight of is that the clarification was only in respect of electric meters, whereas all related services were included within the ambit of transmission and distribution of electricity and given the benefit of the exemption notifications. Moreover, the clarificatory circular merely clarifies the stand of the Government as regards what would stand included within the meaning of “transmission and distribution services” namely, essential activities having direct and close nexus with the transmission and distribution of electricity. The respondents having themselves considered the services in question as being covered by the exemption for transmission and dist<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ervices 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. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n service, used by the Reserve Bank of India for providing to main service, for which the consideration by way of fee or commission or any other amount is received by the agent bank, does not get excluded from the levy of service tax by virtue of inclusion of the main service in clause (b) of the negative list in Section 66-D and hence, such service is leviable to service tax. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ed from the levy of service tax by inclusion of the main service in the negative list. Thus, in terms of the illustration, an input service would not be exempt from the levy of service tax merely because the main service is exempt. According to the respondents, this case at best would fall under sub-section (1) of section 66F of the Finance Act and would not be exempted from levy of service tax. It has also been contended that as services in the negative list are not chargeable to tax, section 66F would not apply to services falling in the negative list and, consequently, the benefit of bundling under section 66F (3) would not be available. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n lectricity. As noticed earlier, the respondents have themselves treated such related\/ancillary services 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, which are relevant for the present purpose, read as under:- = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n the Appropriate Commission. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n t is liable to penalty under sub-section (3) of section 43. Thus, a statutory duty has been cast upon the licensee to provide electric plant or electric line for giving electric supply to the premises of the applicant. Electric line has been defined under sub-section (20) of section 2 of the Electricity Act to mean any line which is used for carrying electricity for any purpose and includes (a) any support for any such line, that is to say, any structure, tower, pole or other thing in, on, by or from which any such line is, or may be, supported, carried or suspended; and (b) any apparatus connected to any such line for the purpose of carrying electricity. Electric plant has been defined under sub-section (22) of section 2 of the Electricity Act to mean any plant, equipment, apparatus or appliance or any part thereof used for, or connected with, the generation, transmission, distribution or supply of electricity but does not include – (a) an electric line; or (b) a meter used for ascert<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n 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 distr<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n 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. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n e 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. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n l supply”. As to what is a principal supply is defined in section 2(90) of the CGST Act to mean the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary. In other words “principal supply” is the supply which gives the bundle its essential character. Reverting to the facts of the present case, the principal supply of transmission and distribution of electricity is naturally bundled and supplied in conjunction with the related\/ancillary services in the ordinary course of business, accordingly, in view of the provisions of clause (a) of section 8 of the CGST Act, the tax liability of such composite supply is required to be determined by treating the same as a supply of the principal supply namely, transmission and distribution of electricity. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n pply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax. Mixed supply has been defined under section 2(74) of the CGST Act to mean two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. The illustration thereunder reads thus: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n efore, in view of the provisions of clause (a) of section 8 of the CGST Act, the tax liability thereof has to be determined by treating such composite same as a supply of the principal supply of transmission and distribution of electricity. Consequently, if the principal supply of transmission and distribution of electricity is exempt from levy of service tax, the tax liability of the related services shall be determined accordingly. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n hich the respondents have treated the services related to transmission and distribution of electricity during the pre-negative list regime, the related\/ancillary 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. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ssion and distribution of electricity, and, therefore, is covered by the exemption for transmission and distribution of electricity extended under the relevant notifications. Therefore, all the services related to transmission and distribution of electricity are naturally bundled in the ordinary 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. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n the nature of composite supply and therefore, in view of the provisions of clause (a) of section 8 of the CGST Act, the tax liability thereof has to be determined by treating such composite same as a supply of the principal supply of transmission and distribution of electricity. Consequently, if the principal supply of transmission and distribution of electricity is exempt from levy of service tax, the tax liability of the related services shall be determined accordingly. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n","protected":false},"excerpt":{"rendered":" TORRENT POWER LTD. Versus UNION OF INDIAGST2019 (1) TMI 1092 – GUJARAT HIGH COURT – [2019] 61 G S.T.R. 454 (Guj), 2020 (34) G. S. T. L. 385 (Guj.)GUJARAT HIGH COURT – HCDated:- 19-12-2018R\/SPECIAL CIVIL APPLICATION NO. 5343 of 2018 GSTMS HARSHA DEVANI AND DR A. P. THAKER, JJ. For The PETITIONER (s) : MR … Continue reading “TORRENT POWER LTD. Versus UNION OF INDIA”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-16264","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/16264","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=16264"}],"version-history":[{"count":0,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/16264\/revisions"}],"wp:attachment":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=16264"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=16264"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=16264"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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\n E. This Hon'ble Court may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other writ or order directing the learned Respondents to drop proceedings sought to be initiated on the basis of the impugned circular by issuing summons dated 28.3.2018 (annexed at Annexure L);”
\n2. The facts giving rise to the present petition are that the petitioner No.1 is a public limited company (hereinafter referred to as “the petitioner company”) and the petitioner No. 2 is the executive director and authorized signatory of the first petitioner. The petitioner company is, inter alia, engaged in the business of generation, transmission and distribution of electricity in the State of Gujarat and is duly registered under the Goods and Service Tax Acts. The petitioner company has distribution licence in the cities of Ahmedabad, Surat, Gandhinagar<\/p>\n
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\n2.2 Section 43 (2) of the Electricity Act provides that it shall be the duty of the distribution licensee to provide, if required, electric plant or electric line for giving electric supply to the premises of the consumer. The proviso thereto says that no person shall be entitled to demand or continue to receive the supply of electricity for any premises having a separate supply unless he has agreed with the licensee to pay to him such price as determined by the Appropriate Commission. The petitioners collect charges as well as deposit for extending the electricity connection line to the premises of the new consumer.
\n2.3 Once a line of connection is established, the petitioners start distribution of electricity to the consumer. The petitioners are required to charge price for distribution of electricity in accordance with tariffs as fixed by the appropriate commission fro<\/p>\n
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\n2.5 In exercise of such powers, the Gujarat Electricity Regulatory Commission has framed and notified the Gujarat Electricity Regulatory Commission (Licensee's Power to Recover Expenditure incurred in providing supply and other Miscellaneous Charges) Regulations, 2005 (hereinafter referred to as the “GERC Regulations”). Such regulations provide for the activity as well as quantum of charges that can be collected by the distribution licensee for such activity.
\n2.6 It is the case of the petitioners that the GERC Regulations empower the petitioners to recover the charges as well as fix the quantum charges for various kinds of activities, which are part of the distribution process such as registration, testing charges, disconnection charges etc. The meter rent is also stipulated in the GERC Regulations. The GERC has also framed an exhaustive electricity supply code, which enlists the obligations of the transmission and distribution companies, such as the petitioners. Acc<\/p>\n
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\n2.9 On the basis of trade notice dated 20.7.2010, and the circular dated 7.12.2010, a show cause notice came to be issued to the petitioners proposing to impose service tax on different kinds of charges collected in connection with transmission and distribution of electricity, which came to be dropped by the adjudicating authority by observing that all such charges were in connection with transmission and distribution of electricity and therefore not taxable.
\n2.10 The negative list regime came to be introduced in the Finance Act, 1994 (hereinafter referred to as the “Finance Act”) with effect from 1.7.2012. Section 66D of the Finance Act provides for negative list of services, which would not be taxable under the Finance Act. C<\/p>\n
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\n2.13 Subsequently, the Directorate General of Goods and Service Tax Intelligence, that is, the fourth respondent herein, issued summons to the petitioners on 28.3.2018 requiring them to submit details relating to charges as mentioned in the impugned circular right from the year 2012-13. Tax is proposed to be levied under the Finance Act as well as under the GST Acts on such charges. Being aggrieved, the petitioners have filed the present petition seeking the reliefs, noted herein above.
\n3. Mr. S. N. Soparkar, Senior Advocate, learned counsel with Mr. Uchit Sheth, learned advocate for the petitioners, submitted that the impugned circular issued by the Government of India clarifying that the charges recovered for the activities directly connected with the distribution and transmission of electricity such as applic<\/p>\n
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\n3.1 It was contended that all the charges such as application fee, meter rent, testing fee etc. are towards transmission and distribution of electricity and, therefore, exempt by virtue of the inclusion of transmission a<\/p>\n
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\n3.7 It was further submitted that principle of promissory estoppel would also apply in this case, inasmuch as the respo<\/p>\n
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\n3.9 It was submitted that assuming for the sake of argument that related services are not covered by the service of transmission and distribution of electricity, even then, in view of the provisions of sub-section (3) of section 66F of the Finance Act, these services which are naturally bundled in the ordinary course of business with the services of transmission and distribution of electricity would be treated as a provision of the single service, which gives the bundle its essential character, namely, transmission<\/p>\n
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\n3.10 Insofar as the third phase is concerned, it was submitted that this phase relates to the post-negative list regime, namely, the Goods and Services Tax Act regime. It was pointed out that by virtue of exemption notifications issued under section 11 of the CGST Act, 2017, transmission and distribution of electricity has been exempted from payment of service tax.
\nIt was pointed out that, therefore, the related ser<\/p>\n
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\n3.11 Reference was made to the definition of “principal supply” as defined under section 2 (90) of the Act, which provides that “principal supply”means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary. It was submitted that, therefore, the distribution and transmission of electricity is the principal supply which constitutes the predominant element of the composite supply and the related\/ancillary services form part of tha<\/p>\n
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\n3.14 It was further contended that, in any case, the impugned circular canno<\/p>\n
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\n4.1 On the merits of the case, it was submitted that the exemption n<\/p>\n
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\n4.2 It was submitted that insofar as the GST regime is concerned, these services are not exempted by the notifications issued under section 11 of the GST Act, and hence, when on one service tax is leviable and the other service is exempted, section 8 of the CGST Act would not apply. It was contended that related\/ancillary services are not exempted by virtue of any notification under section 11 of the CGST Act and that the impugned circular merely clarifies that thes<\/p>\n
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\n4.4 The learned Senior Standing Counsel submitted that the related services are not included in the negative list and cannot be considered as services bundled with the services of transmission and distribution of electricity and furthermore, would not fall within the ambit of composite services under section 8 of the CGST\/SGST Acts by considering the services of transmission and distribution of electricity as principal supply and that the petition being devoid of merits, be dismissed and the petitioners be directed to respond to the impugned summons.
\n5. Mr. Jaimin Gandhi, learned standing counsel for the respondent No. 3, submitted that the only challenge in the petition is to the retrospective applicability of the circular dated 1.3.2018. It was submitted t<\/p>\n
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\n5.1 Reference was made to sub-section (1) of section 66F of the Finance Act, as amended in 2012, which provides that unless otherwise specified, reference to a service (hereinafter referred to as main service) shall not include reference to a service, which is used for providing main service. It was submitted that, therefore, the intention of the legislature is clear, viz., that it intended to expand the tax net which resulted in the introduction of the negative list regime. It was submitted that section 66F clarifies the intention of widening the tax net and, accordingly, with effect from 1.7.2012, the Legislature consciously discontinued the additional exemption provided to related\/ancillary services by the circular dated 7.12.2010.
\n5.2 It was submitted that<\/p>\n
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\n5.4 Insofar as the ret<\/p>\n
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\n5.5 The learned standing counsel further contended that even after the introduction of the GST Act regime, only the service of transmission and distribution of electricity are exempted with effect from 1.7.2017. It was submitted that no exemption has been granted for any allied activity including the service of renting meters. It was submitted that subsection (30) of section 2 read with section 8 of the CGST Act deals with “composite services”, which are not exemption provisions and cannot be interpreted so as to extend exemption to non-exempt service. Further, as per the definition of “composite supply”, its constituent supplies should be so integrated with each other that one is not supplied in the ordinary cou<\/p>\n
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\n8. Adverting to the merits of the case, from the affidavit-inreply filed on behalf of the respondents, it is evident that it is in two parts; the first part is with respect to the taxability of the service provided to M\/s. Metro Link Express for Gandhinagar and Ahmedabad (MEGA), which according to the respondents is a declared service falling within the ambit of clause (e) of section 66E of the Finance Act; the second part is with regard to the related\/ancillary services of trans<\/p>\n
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\n11. 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.
\n12. 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 regar<\/p>\n
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\n13. Thus, the reason for saying that supply of electricity meters for hire to consumers is covered by the exemption notification is that such service is an essential activity having direct and close nexus with transmission and distribution of electricity. This circular only provides an interpretation of when a service would stand included in another service, namely, when such service is an essential activity having direct and close nexus with the exempted activity. Therefore, the fact that the exemption notifications came to be rescinded would have no bearing inasmuch as the circular only clarifies what according to the Government of India would stand <\/p>\n
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\n16. Examining the issue from the alternative argument advanced on behalf of the petitioners, if related services are per se not covered within the ambit of transmission and distribution of electricity, the question that next arises for consideration is whether such services would fall within the ambit of bundled services as contemplated under section 66F (3) of the Finance Act and within the ambit of “composite service” as defined under section 2 (30) of the CGST\/SGST Acts, and, therefore, liable to be taxed at the rate of the principal supply. Another question is whether section 66F (3) of the F<\/p>\n
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\n (2) Where a service is capable of differential treatment for any purpose based on its description, the most specific description shall be preferred over a more general description.
\n (3) Subject to the provisions of sub-section (2), the taxability of a bundled service shall be determined in the following manner, namely:-
\n (a) if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which gives such bundle its essential character;
\n (b) if various elements of such service are not naturally bundled in the ordinary cours<\/p>\n
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\n19. Sub-section (3) of section 66F of the Finance Act provides for the manner in which a bundled service is to be determined. Clause (a) thereof, which is relevant for the present purpose provides that if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single service<\/p>\n
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\n “43. Duty to supply on request: (1) Save as otherwise provided in this Act, every distribution licensee, shall, on an application by the owner or occupier of any premises, give supply of electricity to such premises, within one month after receipt of the application requiring such supply:
\n Provided that where such supply requires extension of distribution mains, or commissioning of new sub-stations, the distribution licensee shall supply the electricity to such premises immediately after such extension or commissioning or within such period as may <\/p>\n
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\n (3) If a distribution licensee fails to supply the electricity within the period specified in sub-section (1), he shall be liable to a penalty which may extend to one thousand rupees for each day of default.
\n 45. Power to recover charges: (1) Subject to the provisions of this section, the prices to be charged by a distribution licensee for the supply of electricity by him in pursuance of section 43 shall be in accordance with such tariffs fixed from time to time and conditions of his licence.
\n (2) The charges for electricity supplied by a distribution licensee shall be –
\n (a) fixed in accordance with the methods and the principles as may be specified by the concerned State Commission;
\n (b) published in such manner so as to give adequate publicity for such charges and prices.
\n (3) The charges for electricity supplied by a distribution licensee may include –
\n (a) a fixed charge in addition to the charge for the actual electricity supplied;
\n (<\/p>\n
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\n24. It has been contended on behalf of the respondents that sub-section (3) of section 66F of the Finance Act would not apply where the single service which gives the bundle of services its essential character is exempt from the levy of service tax. In the opinion of this court, there is nothing in the language employed in sub-section (3) to section 66F to read into it a requirement that such service should not be exempt from tax. All that the sub-section provides is that taxability of bundled services shall be determined in the manner provided therein. The term taxability means liability to taxation. Thus the term taxability would take within its swe<\/p>\n
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\n26. Insofar as the phase relating to the CGST\/SGST Acts regime is concerned, section 8 of the CGST Act makes provision for tax liability on composite and mixed supplies and postulates that the tax liability on a composite or a mixed supply shall be determined in the manner provided in clauses (a) and (b) thereunder. Clause (a) says that a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and clause (b) says that a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the hig<\/p>\n
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\n27. It has been contended on behalf of the respondents that clause (a) of section 8 of the CGST Act would not be applicable where<\/p>\n
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\n “Illustration.- A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately;”
\nThe above illustration gives an indication of the intent of the legislature, viz. it makes it clear that what is to be treated as “mixed supply” is a combination of supplies wherein each of th<\/p>\n
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\n29. TO SUMMARISE:
\n – The preliminary contention regarding the petition not being maintainable is rejected.
\n – As per the circular dated 7th December, 2010, the reason for saying that supply of electricity meters for hire to consumers is covered by the exemption notification is that such service is an essential activity having direct and close nexus with transmission and distribution of electricity. This circular only provides an interpretation of when a service would stand included in another service, namely, when such service is an essential activity <\/p>\n
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\n – 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. The term “electrical plant” takes within its sweep 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, apparat- us or appliance under the control of <\/p>\n
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\n – The term “taxability” means liability to taxation. Thus, the term taxability would take within its sweep not being taxable also inasmuch as liability to taxation would also mean not being liable to any tax. Thus, the liability to tax of a bundled service has to be determined in the manner provided under sub-section (3) of section 66F of the Finance Act. If the services are naturally bundled in the ordinary course of business, the bundle of services shall be treated as provision of the single ser<\/p>\n
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\n30. For the foregoing reasons, the petition succeeds and is, accordingly, allowed to the following extent:
\nParagraph 4 (1) of the impugned circular No.34\/8\/2018-GST dated 1.3.2018 to the extent the same reads as under is hereby struck down as being ultra vires the provisions of section 8 of the Central Goods and Services Tax Act, 2017 as well as Notification No.12\/2017- CT (R ) serial No.25:
\n4.
\n(1) Whether the activities carried out by DISCOMS against recovery of charges from consumers under the State Electricity <\/p>\n
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