2025 (7) TMI 1336 - AT - Service Tax

Manufacture of excisable goods in terms of Section 2(d) of the Central Excise Act 1944 - activity of generation of steam and electricity for the period from 10.09.2004 to 28.02.2005 - Levy of service tax - sale of electricity. 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? - HELD THAT - 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 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. As it has been held by the Hon ble High Court in Nangalamal Sugar Complex 2019 (11) TMI 123 - DELHI 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 it is found that electricity is excisable goods. The fact is noted 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 . Whether on the sale of electricity Service Tax is leviable or not? - HELD 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 2011 (11) TMI 425 - CESTAT NEW DELHI as affirmed by the Hon ble Apex Court in 2015 (1) TMI 857 - SC ORDER 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. There are no merit in the impugned order and hence the same is set aside - appeal allowed.

Summary

ISSUES:

Whether the electricity generated/manufactured amounts to manufacture of 'excisable goods' under Section 2(d) of the Central Excise Act, 1944.Whether service tax is leviable on the sale of electricity supplied under a captive power arrangement.Whether the transaction of supply of electricity constitutes a sale of goods or provision of taxable service.Whether the definition of 'excisable goods' excludes electricity due to a blank rate of excise duty in the Central Excise Tariff Act, 1985.Whether the demand of service tax is sustainable considering the revenue neutrality principle.Whether penalty under Section 76 of the Finance Act is imposable in absence of a sustainable demand and mens rea.Whether interest is recoverable where the principal demand is not payable.

RULINGS / HOLDINGS:

Electricity qualifies as 'excisable goods' under Section 2(d) of the Central Excise Act, 1944, since it is specified in the First Schedule to the Central Excise Tariff Act, 1985 under Tariff Item No. 2716 0000, and the absence of a specified rate of duty ("blank rate") does not exclude it from being excisable goods.Service tax is not leviable on the sale of electricity where the transaction is a contract of sale and purchase of goods, as the Finance Act does not cover sale of goods as taxable service.The transaction between the parties is a sale of goods and not a provision of service, as the supply of electricity is on a principal-to-principal basis, with transfer of title and possession, supported by the Power and Steam Purchase Agreement and corroborated by statements and returns filed.The words "as being subject to a duty of excise" in the definition of 'excisable goods' describe goods specified in the First Schedule and do not require actual levy of excise duty; thus, electricity remains excisable despite the nil or blank rate of duty.The demand for service tax is liable to be set aside on the ground of revenue neutrality since the recipient was entitled to take CENVAT credit on the service tax paid, rendering the demand revenue neutral.Penalty under Section 76 of the Finance Act is not imposable when the demand itself is unsustainable and in the absence of mens rea, as established by judicial precedent.Interest is not recoverable where the principal demand is not payable, since interest under Section 75 is compensatory for loss of revenue, which does not arise in such cases.

RATIONALE:

The Court applied the statutory definition of 'excisable goods' under Section 2(d) of the Central Excise Act, 1944, and the Central Excise Tariff Act, 1985, interpreting the phrase "as being subject to a duty of excise" to mean liability to duty rather than actual imposition, supported by precedents including Tamil Nadu Handloom Weavers Co-Operative Society Ltd. and Hind Rubber Factory.The Court relied on the negative list regime under the Finance Act, 1994, which excludes transfer of title in goods by way of sale from the definition of service under Section 65B(44), and judicial decisions such as GMK Concrete Mixing Pvt. Ltd. confirming that contracts of sale are not taxable services.Precedents establishing electricity as goods for sales tax and excise purposes, including Supreme Court rulings in Madhya Pradesh Electricity Board and State of AP v. NTPC, were considered to affirm the nature of electricity as goods.The Court rejected the argument that the blank excise duty rate removes electricity from excisable goods, emphasizing that the rate column being blank does not negate excisable status, citing the decision of the Delhi High Court in Commissioner of C.Ex. & ST, LTU, Delhi v. Nangalamal Sugar Complex.The Court noted that revenue neutrality is a recognized ground for setting aside demands where the tax paid is fully creditable by the recipient, supported by various Tribunal decisions.Penalty and interest principles were applied in line with settled legal doctrine that penalty requires a sustainable demand and mens rea, and interest is compensatory and not leviable if no revenue loss occurs, citing Supreme Court decisions including Collector of Central Excise v. H.M.M. Ltd. and Pratibha Processors v. Union of India.No dissenting or concurring opinions were recorded; the Court's approach reflects a doctrinal consistency with existing statutory interpretation and precedents.