TMI Blog2019 (1) TMI 1092X X X X Extracts X X X X X X X X Extracts X X X X ..... e list regime, goods and services were exempted by virtue of notifications issued in exercise of powers under sub-section (1) of section 93 of the Finance Act. By virtue of Notification No. 11/2010 dated 27.2.2010, the Central Government exempted transmission of electricity from the whole of service tax leviable thereon under section 66 of the Finance Act; and by virtue of Notification No.32/2010-Service Tax dated 22.6.2010, distribution of electricity came to be exempted from the whole of service tax leviable thereon under section 66 of the Finance Act. Thus, what was exempt under those provisions was transmission and distribution of electricity, despite which, during the pre-negative list regime, the respondents have considered services related to transmission and distribution of electricity as exempted from service tax by virtue of those notifications - Insofar as electricity meters are concerned, vide circular No.131/13/2010-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces, which the petitioner is required to mandatorily provide at the rate prescribed by GERC, a statutory authority constituted under the provisions of the Electricity Act. In the opinion of this court, all these services are essential activities which have a direct and close nexus with transmission and distribution of electricity. As the phase relating to the negative list regime is concerned, the 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 - 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SPONDENT (s) : MR JAIMIN A GANDHI (8065) AND MR ANKIT SHAH (6371) ORAL JUDGMENT ( PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. By this petition under Article 226 of the Constitution of India, the petitioners seek the following substantive reliefs:- 46. ......... 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: B. This Hon ble Court may be pleased to declare that charges such as application fee, meter rent, testing fee, etc collected by the Petitioners towards activities directly and closely connected with the transmission or distribution for electricity are exempt from tax under Entry 25 of Notification No.12/2017 dated 28.6.2017; C. In the alternative this Hon ble Court may be pleased to declare that charges such an application fee, meter rent, testing fee, etc collected by the Petitioners are part of composite supply of which principal supply is the actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be specified by the appropriate commission. At the time of making an application, the consumer is required to pay registration charges to the petitioners. 2.2 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. 2.3 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 from time to time and as per the conditions of the licence. Since the billing of such distribution would depend upon actual consumption of electricity, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulations framed thereunder and, in fact, the petitioners are mandatorily required by law to provide all such services which are required for distribution of electricity. 2.7 It is the case of the petitioners that prior to the introduction of the negative list regime for service tax under the Finance Act, 1994, the petitioners as well as other transmission/distribution companies believed that since there is no specific clause in the charging provision 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 vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istribution of electricity by an electricity transmission or distribution utility: 2.11 It is the case of the petitioners that service by way of transmission or distribution of electricity continued to be kept out of the tax net even post 1.7.2012, and, the petitioners, therefore, neither collected nor paid any tax under the Finance Act on charges collected in connection with transmission of electricity even post 1.7.2012. 2.12 With effect from 1.7.2017, the GST regime came to be introduced. Chapter-V of the Finance Act, which relates to levy of service tax was subsumed under the GST regime. The GST Act provided for levy of tax on goods and services. Section 11 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act ) as well as the State Goods and Services Tax Acts (hereinafter referred to as the SGST Acts ) conferred power 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 En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel 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 application fee, meter rent, testing fee, labour charges for shifting meters and shifting of service line, etc. (hereinafter referred to as related services ) are taxable and not covered by the exemption notification, is contrary to the express words as well as intent of the entry providing for exemption under the GST Acts as well as contrary to the statutory provisions of the GST Acts and the rules framed thereunder. It was submitted that entry 25 of the exemption notification exempts from tax, the service of transmission or distribution of electricity. Such notification would cover all activities that are directly and closely connected to the distribution or transmission of electricity. It was pointed out that, in fact, the charges such as meter rent and other similar charges are specifically included in the charges for electricity as per the provisions of the Electricity Act, and that even other miscellaneou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 provision of such service, which gives the bundle its essential character. 3.4 It was submitted that the related services are part of main service of transmission and distribution and cannot be segregated for the purpose of GST. It was submitted that the fact that these services are being regulated by the GERC shows that they are composite services, and hence, exemption would also apply to such services. 3.5 Referring to the impugned summons dated 28.3.2018, it was submitted that the proposed period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Act, transmission or distribution of electricity by an electricity transmission or distribution utility came to 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. 3.9 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 and distribution of electricity. It was submitted that since all these services ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 8 of the CGST Act provides that the tax liability on a composite or a mixed supply shall be determined in the manner provided under clause (a) and (b) thereof. Clause (a) of section 8 of the CGST Act provides 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. Referring to section 2 (30) of that Act, which defines composite supply, it was pointed out that the same comprises of two or more taxable supplies of goods or 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. 3.11 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. In support of such submission, learned counsel placed reliance upon the decision of the Supreme Court in the case of Suchitra Components Limited v. Commissioner of Central Excise, (2009) 20 VST 726 (SC), for the proposition that a beneficial circular has to be applied retrospectively, while an oppressive circular is to be applied prospectively. Thus, when the circular is against the assessee, they have a right to claim enforcement of the same prospectively. Reliance was placed on the decision of the Supreme Court in the case of Commissioner of Central Excise, Bangalore v. Mysore Electricals Industries Ltd., (2006) 204 ELT 517, for a similar proposition of law. 3.15 It was, accordingly, urged that the impugned circular is required to be struck down as being ultra vires the provisions of the GST Acts and the reliefs, as prayed for in the present petition, deserve to be granted. 4. Vehemently opposing the petition, 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 authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tifications 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 these services are not exempted. 4.3 The learned senior standing counsel further placed reliance upon sub-section (22) of section 65B of the Finance Act, which defines declared service to mean any activity carried out by any person for another person for consideration and declared as such under section 66E. It was submitted that the services in question/related services would fall within the ambit of clause (e) of section 66E of the Finance Act. Reference was made to section 66E of the Finance Act which bears the heading Declared services and more particularly clause (e) thereof, which is extracted herein below: 66-E. The following shall constitute declared services, namely- ( a) to (d) xxxx ( e) agreeing to the obligation to refrain from an act, or to tolerate an act or situation, or to do an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utomatically rescinded. 5.1 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. 5.2 It was submitted that the exemption notifications issued under section 11 of the CGST/SGST Acts exempt the services of transmission and distribution of electricity only, and, hence, the related/ancillary services would not fall within the purview of such notifications. It was submitted that section 66F of the Finance Act cannot be read to expand the exemption provision and that merely because some services may be natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old Coin Health Food Pvt. Ltd., (2008) 304 ITR 308 (SC), for the proposition that the declaration in the statute that law is clarificatory or not is not material. The court has to examine the scheme of the statute prior to the 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. 5.5 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention has been raised that the petition is not maintainable as the same is directed against a summons issued by the respondent authorities. In this regard, a perusal of the impugned summons dated 28. 3.2018 clearly reveals that the same is based on the impugned circular dated 1.3.2018, inasmuch as the petitioner has been called upon to produce (i) copy of balance sheets, Form 26AS and Profit and Loss Accounts for financial years 2012-13 to 2016-17; bifurcation of income head along with ledger account of each income head, namely, (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 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 distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to the related/ancillary services of transmission and distribution of electricity, which, according to the petitioners, were exempted by virtue of notifications dated 27.2.2010 and 22.6.2010. It is clear that insofar as the taxability of the services provided to MEGA is concerned, this court is not required to enter into the merits thereof, as the learned counsel for the petitioners has submitted that to that extent, the petitioners shall respond to the summons. 9. As noticed earlier, the petitioners have filed the present petition, calling in question the summons dated 28.3.2018 issued by the respondent calling upon the petitioners to give evidence or make statement and to produce the documents and things mentioned in the schedule thereto. A perusal of the impugned summons reveals that the same relates to three phases; (i) prior to 1st July 2012, namely, the pre-negative list regime; (ii) from 1st July 2012 to 30th June 2017 that is negative list regime; and (iii) from 1.7.2017 onwards, namely, the CGST/SGST regime. 10. Insofar as the first phase is concerned, the respondents do not dispute that the related/ancillary services to transmission and distribution of electrici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us 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 included in another service. Such interpretation would not change merely because such exemption is now granted under some other provision. 14. It may be noted that insofar as the exemptions prior to the negative list regime as well as post the negative list regime are concerned, it is the transmission and distribution of electricity that has been exempted by virtue of notifications. During the negative list regime, transmission and distribution of electricity has been placed in the negative list. Therefore, in all the three phases, what was exempted was transmission and distribution of electricity . However, while for the prenegative list phase, the respondents considered the services related to transmission and distribution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 16. 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 Finance Act would cover cases where the single service which gives such bundle its essential character is placed in the negative list and section 8 of CGST/SGST Acts would cover the cases of composite supply where exemption from service tax has been granted in respect of the principal supply. 17. Section 66F of the Finance Act lay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce provided by any bank to the Reserve Bank of India would not stand included in the main service, as such agency service is used by the Reserve Bank of India by way of input service for providing main service and in respect of such service the concerned bank receives consideration and would not get excluded 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. 19. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... village or hamlet or area. Explanation.- For the purposes of this sub-section, application means the application complete in all respects in the appropriate form, as required by the distribution licensee, along with documents showing payment of necessary charges and other compliances. ( 2) It shall be the duty of every distribution licensee to provide, if required, electric plant or electric line for giving electric supply to the premises specified in sub-section ( 1): Provided that no person shall be entitled to demand, or to continue to receive, from a licensee a 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. ( 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. 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ascertaining the quantity of electricity supplied to any premises; or (c) an electrical equipment, apparatus or appliance under the control of a consumer. 22. Thus, 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. Moreover, 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, apparatus or appliance under the control of a consumer fall within the ambit of electrical plant as defined under section 2(22) of the Electricity Act. Sub-section (2) of section 43 of the Electricity Act casts a duty upon the licensee to provide if required electric plant or electric line for giving electric supply to the premises. Therefore, providing electric line and el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndents 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 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 service which gives the bundle its essential character and where the services are not naturally bundled in the ordinary course of business, the same is required to be treated as provision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such principal 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. 27. It has been contended on behalf of the respondents that clause (a) of section 8 of the CGST Act would not be applicable where the principal supply is exempt from levy of service tax. In the opinion of this court, there is nothing in section 8 of the Act to read any such construction. What the section says i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the help of electric line, electric plant and electric meter, and nor can the related services be used for any purpose other than for transmission and distribution of electricity. The principal supply and the related/ancillary services go hand in hand and one cannot be provided independent of the other. The upshot of this discussion is that the services provided by the petitioner are in 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. 29. TO SUMMARISE: - The preliminary contention regarding the petition not being maintainable is rejected. - 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving electric supply to the premises. Therefore, providing electric line and electric 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. 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 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 8 of the Central Goods and Services Tax Act, 2017 as well as Notification No.12/2017- CT (R ) serial No.25: 4. (1) Whether the activities carried out by DISCOMS against recovery of charges from consumers under the State Electricity Act are exempt from the GST (1) Service by way of transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST under notification No.12/2017-CT (R ), Sl. 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 meters or shifting of service lines; v. charges for duplicate bill; provided by DISCOMS to consumer are taxable. The impugned summons dated 28.3.2018 is hereby set aside to the extent the petitioners are called upon to produce the documents listed at serial No.5 of the annexure thereto, except clause - (vi); income from shifting of HT lines received from MEGA. Consequently, the respondents shal ..... 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