2025 (7) TMI 1540 - AT - Service Tax

Levy of service tax - nature of activity - Business Support services or sale - transaction of supply of electricity and water to FSNL and GMGL - HELD THAT - From the definition of business support service it is observed that the said service primarily covers services which are in the nature of outsourced activity. A business entity is said to have outsourced certain activities if such activities are otherwise normally performed by that entity and is assigned to a third party contractor either for reducing cost or for achieving better quality and efficiency or for any other such reason. A perusal of the services specifically included in the definition of Business Support Service also suggests that these are in the nature of activities normally outsourced by a business entity to outside service providers. Reliance placed on the judgment of Reliance ADA Group Pvt. Ltd. Versus Commissioner Of S.T. Mumbai-IV 2016 (3) TMI 810 - CESTAT MUMBAI wherein it has been held that the definition of business support services would cover specific activities as enumerated under the definition and hence cost of shared services cannot be brought under the ambit of business support services. In the present case it is found that the transaction of supply of electricity and water to FSNL and GMGL amounts to sale of goods viz. electricity and water. Hence construing the same as being exigible to service tax holding the same to be a service is grossly incorrect. In this regard we observe that the demand confirmed in the impugned order pertains to the period 2007-08 to 2014-15. Thus it covers the period prior to 01.07.2012 as well as after 01.07.2012. With effect from 01.07.2012 it is observed that the appellant has discharged service tax on the above said activities under the head of Other Taxable Services . In this regard it is observed that confirmation of demand merely on the ground that payment has been made under an incorrect service category is not sustainable. It is also observed that the demand has been confirmed in the impugned order for the period post 01.07.2012 on the basis of deleted provisions. The show cause notice has invoked the provisions that existed prior to 01.07.2012 to demand service tax for the period post 01.07.2012 which is legally not sustainable. Thus the demand confirmed on the basis of deleted provisions is legally not sustainable. The transaction of supply of electricity and water to FSNL and GMGL amounts to sale of goods viz. electricity and water. Hence the said supply of water and electricity are not exigible to service tax - the subject transaction would not fall within the ambit of business support service - demand set aside - appeal allowed.

Summary

ISSUES:

Whether the supply of electricity and water by a manufacturer to other entities within its premises constitutes a sale of goods or a taxable service under the category of Business Support Service.Whether the definition of Business Support Service under Section 65(104c) of the Finance Act, 1994, includes the provision of electricity and water as infrastructural support service.Whether service tax can be levied on transactions that amount to sale of goods under the negative list regime post 01.07.2012.Whether demand of service tax is sustainable when the tax charged is available as input credit to the recipient, invoking the principle of revenue neutrality.Whether confirmation of service tax demand based on deleted provisions for the period post 01.07.2012 is legally sustainable.

RULINGS / HOLDINGS:

The supply of electricity and water to entities operating within the factory premises is a transaction amounting to "sale of goods" and not a provision of service; hence, it is not exigible to service tax under the category of Business Support Service.The definition of Business Support Service under Section 65(104c) primarily covers "outsourced activity" and does not include supply of electricity and water as infrastructural support services; thus, the subject transaction does not fall within this taxable service category.Under the negative list regime, Section 65B(44) explicitly excludes "transfer of title in goods by way of sale" from the definition of service, rendering service tax demand on such transactions untenable.The demand of service tax is liable to be set aside on the ground of revenue neutrality since any service tax charged by the recipients is available as input credit to the appellant, making the demand unsustainable.Confirmation of service tax demand for the period post 01.07.2012 based on deleted provisions is legally unsustainable and liable to be set aside.

RATIONALE:

The Court applied the statutory framework under the Finance Act, 1994, including the definitions under Sections 65(104c), 65(105)(zzzq), and 65B(44), to determine the nature of the transaction.Precedents from the Supreme Court and Tribunals were relied upon, including judgments holding electricity and water as goods, and that service tax is not applicable on contracts for sale of goods.The principle of noscitur-a-sociis was invoked to interpret the scope of Business Support Service, emphasizing that it covers only outsourced activities that support the main business, excluding supply of goods essential for the main business operations.The Court recognized the principle of revenue neutrality, referencing relevant case law that demands are unsustainable when the tax is creditable downstream.The Court noted that demands based on provisions repealed or deleted after 01.07.2012 cannot be sustained for periods subsequent to their deletion, ensuring adherence to the correct legal provisions in force during the relevant period.