TMI Blog2019 (11) TMI 1353X X X X Extracts X X X X X X X X Extracts X X X X ..... city by an electricity transmission or distribution utility - In the present case, the exemption is only for Transmission or distribution of electricity only and not to any other services for which separate charges are fixed and collected. For a supply to be considered as a composite supply, its constituent supplies should be so integrated with each other that one is not supplied in the ordinary course of business without or independent of the other. In other words, they are naturally bundled - Merely because the provider of service is bound by a statute to provide the related supplies together with supply of electricity, it would not make the said supplies composite unless they are naturally bundled. Further, any service cannot become a composite merely because they are provided by the same supplier to the same service provider - the distribution and supply of electricity only is exempted and the other services are not exempted and also not naturally bundled to become composite supply, and any other services provided are taxable. The works under the schemes DDUGJY/ IPDS/ADSMS referred by the applicant fall under the works contract; and covered under entry no. (ii) of S. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , dated 21.09.2017 for availing concessional rate of 12% GST rate and the applicable rate of tax is 18% (9% under Central tax and 9% State tax). Whether the supply of services and goods made by the applicant through contractors by way of construction, erection, commissioning, or installation of infrastructure for extending electricity distribution network up to the tube well of the farmer or agriculturist for agricultural are exempted vide Notification No.14/2018- Central Tax (Rate) dated 26.07.2018? - HELD THAT:- The Applicant is only entitled for the benefit of NIL rate of GST under SI. No. 10A of Notification no. 12/2017-Central Tax (Rate), dated 28.06.2017, amended by notification no. 14/2018-Central Tax (Rate), dated 26.07.2018 for the stated works and not for the contractors providing services to the applicant. - AAR No.22/AP/GST/2019 - - - Dated:- 8-7-2019 - SRI. D. RAMESH, AND SRI. S. NARASIMHA REDDY, MEMBER Represented by: Shri. Y. Srinivasa Reddy, Advocate ORDER (Under sub-section (4) of section 98 of Central Goods And Service Tax Act, 2017 and under sub- section (4) of Section 98 of Andhra Pradesh Goods and Services Tax Act, 2017) 1. The prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marked to the central tax authorities to offer their remarks as per the Section 98 (1) of CGST /APGST Act 2017. In response the concerned jurisdictional officer concerned stated that there are no pending proceedings relating to the applicant and no proceedings were passed on the issue, for which the advance ruling sought by the applicant. 4. QUESTIONS RAISED BEFORE THE AUTHORITY 4.1 The applicant seeks Ruling from the Hon ble Advance Ruling Authority on the following questions: (a) Whether the supply of services such as connection, re-connection, supervision of the works, erection of poles, sub-stations, transmission lines etc., and supply of meters etc., to the consumers for the purpose and during the course of supply of electricity to them are naturally bundled and thus form part of the composite supply of principal activity of supply of electrical energy? (b) Whether the supply of services such as connection, re-connection, supervision of the works, erection of poles, sub-stations, transmission lines etc., and supply of meters etc., to the consumers for the purpose and during the course of supply of electricity to them can be treated as part of principal supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distribution licencee are always out of the ambit of the tax. Prior to introduction of GST, service tax was exempted on the services provided by a distribution licencee. Notification No.45/2010-ST dt.20.07.2010 issued by the Government of India under Section 11C of the Central Excise Act, 1944 made applicable to the matters of Service Tax by section 83 of Finance Act, 1994 provided exemption from payment of service tax on all taxable services relating to transmission of electricity provided till 21.02.2010 and all services relating to distribution of electricity provided till 21.06.2010 and they were exempted thereafter also under other notifications. 5.3 CBIC clarified in its Circular No.356/13/2010-TRU dt.7.12.2010 that even the rental amounts collected by way of renting of meters from the individual consumers of electricity is also not chargeable to service tax as per the said notification since renting of meters is also related to transmission of electricity. 5.4 Subsequent to introduction of negative list in the Finance Act, 1994, the services relating to transmission and distribution are placed in the negative list under Section 66D (k) of the Act which reads as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 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 . Section 2 (90) of the GST Act defines principal supply as 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 . There is no doubt that every supply made by the Discom is naturally bundled with the principal supply of electricity and provided in conjunction with each other. 5.9 In the recent decision of Hon ble High Court of Gujarat in the case of Torrent Power Ltd vs. UOI 2019-TIOL-15-HC-AHM-GST = 2019 (1) TMI 1092 - GUJARAT HIGH COURT , the Hon ble High Court while holding the Circular dt.1.3.2018 issued by CBIC clarifying that certain services provided by Discoms are liable to GST, held that all services provided by a Discom are naturally bundled and form part of composite supply of electricity and thus are exempted. The issue of principal supply has been discussed by Hon ble Advance Ruling Authority in various decisions. Since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons already made in the application and requested to pass necessary orders. 6.2 The applicant furnished further submissions after personal hearing vide their letter dated 29.04.2019 as hereunder. 1. They filed the subject application seeking answers to certain issues with regards to the taxability under GST Act on ancillary services provided by it in relation to transmission and distribution of electricity which is exempted vide Notification No.12/2017-CT (R) dt.28.06.2017. 2. The argument of the applicant is that all the services which were provided to the consumers of the applicant are nothing but ancillary activities which are naturally bundled with the main activity of transmission and distribution of electricity and these activities together with the activity of transmission or distribution will become a composite supply and since in the composite supply, the principal activity is supply of electricity which is exempted, the ancillary activities cannot be charged to GST as an independent activity. It is also the argument of the applicant that many of these activities wherever construction or supply of goods is involved, GST is paid by the contractors and the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... composite or mixed in nature, notwithstanding that the end result may be nil tax liability. Summary: 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 single service which results in highest liability of service tax. Accordingly, where the services are naturally bundled in the ordinary course of business and the single service which gives such bundle its essential character is exempt from tax, the entire bundle will have to be treated as provision of such single service. The applicant prayed that since the issue is clarified, the ruling m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12) TMI 30 - SUPREME COURT} - A Constitution Bench of the Supreme Court while dealing with an exemption under Section 5 of the Bengal Finance (Sales Tax) Act, 1941 held by a majority that exemption is a creation of statute and must be construed strictly ; (2) Hansraj Gordhandas -{AIR 1970 (SC) 755 = 1964 (7) TMI 4 - SUPREME COURT}- A Constitution Bench of the Supreme Court held that the operation of (exemption) notifications had to be judged not by the object which the rule making authority had in mind, but by the words which it had employed to effectuate the legislative intent . The Court also held that in a taxing statute there is no room for any intendment and that the entire matter is governed wholly by the language of the notification ; (3) Novopan India Ltd-{1994 Supp. (3) SCC 606 = 1994 (9) TMI 67 - SUPREME COURT }- A three member Bench of the Apex Court, held that The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee assuming that the said principle is good and sound does not apply to the construction of an exception or an exempting provision; they have to be construed strictly. A person invokin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the notification has to be interpreted on its wording. No words, not used in the Notification can be added ; (9) Excon Bldg., Material Mfg. Co., Pvt Ltd-2005 (186) ELT 263 (S.C) = 2005 (3) TMI 137 - SUPREME COURT Hon ble Supreme Court held that where the wording of notification are clear, then the plain language of the Notification must be given effect to. An interpretation which is not borne out by the plain wordings of the Notification cannot be given ; (10) Southern Petrochemical Industries Co. Ltd-{2007 (5)SCC 447 = 2007 (5) TMI 591 - SUPREME COURT} - The Supreme Court held that the principle of construction of a statute that the exemption provisions would be attracted only when requisite conditions therefor are satisfied, would also apply in a case of constitutional interpretation ; (11) RANBAXY LABORATORIES LTD - 2011 (273) E.L.T. 3 (S.C.) = 2011 (10) TMI 16 - SUPREME COURT -The Hon ble Supreme Court vide Para-10 held that 10. It is a well settled proposition of law that a fiscal legislation has to be construed strictly and one has to look merely at what is said in the relevant provision; there is nothing to be read in; nothing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the specific request of the consumer and are not provided by the Discom in its normal course of business to all consumers. Even though the ancillary supplies bear a close nexus with the supply of electricity, the intent of Discom and perception by the consumers is that these ancillary supplies made are chargeable on use basis, and the consideration paid has no bearing with respect to the supply of electricity made. Therefore, the supplies although made to supplement the supply of electricity are neither naturally bundled nor provided in conjunction with each other. (b) Determination of the question whether a supply consisting of two or more goods or services or both is a composite supply or not should be guided by the provisions of the GST law. The relevant provisions on the CGST Act are reproduced below: Section 8. The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:- (a) 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 (b) a mixed supply comprising two or more supplies shall be treated as a supply of that partic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered as a composite supply it is essential that the constituent supplies are naturally bundled and supplied in conjunction with each other. As discussed above the supplies in question are neither naturally bundled nor necessarily supplied in conjunction with each other. The services such as testing of meters and goods such as the electricity meters may be supplied much before the supply of electricity takes place. Therefore they cannot be said to be supplied in conjunction with each other. Same is the case with other services such as labour charges for shifting of meters or shifting of service lines, which may or may not be asked for by the consumers or supplied by the Discoms and are thus not naturally bundled with supply of electricity. They are chargeable separately, if and when they are consumed by the recipient of service. There is clear understanding between the Discoms and consumer that services such as testing of meters, shifting of poles etc shall be supplied and charged for only if demanded by the consumers. For instance consumers of BSES Yamuna in Delhi are free to buy their own electricity meters. Such customers naturally do not pay meter rental charges to the Discom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular cited by the petitioner has lost relevance now. (h) What needs to be appreciated here is that the definition of service/supply of service itself has gone under the anvil and considerable change has taken place in law during the transition, first from positive list regime of service tax to list regime of services in 2012 and from negative list regime of service tax to GST with effect from 01.07.2017. Thus applying the circular of positive list regime of service tax which was discontinued with effect from 01.07.2012 to GST would not be appropriate. In the case of Builders Association of Navi Mumbai Vs. Union of India = 2018 (4) TMI 461 - BOMBAY HIGH COURT , the Hon ble High Court of Bombay has held that: it is, therefore, risky to read into one law the definition or provision to similar effect but from different law. A different and distinct tax law with its object and purpose cannot be, therefore, ignored and no automatic borrowing of any definition from another taxing statute is permissible. (i) Under the provisions of Article 265 of the Constitution of India, no tax can be levied or collected without the authority of law. However, Article 246A(1) empowers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the related supplies together with supply of electricity, it would not make the said supplies composite unless they are naturally bundled. Further, any service cannot become a composite merely because they are provided by the same supplier to the same service provider. In view of the above, the distribution and supply of electricity only is exempted and the other services are not exempted and also not naturally bundled to become composite supply, and any other services provided are taxable. 7.5 Now, the issue whether concessional rate of GST is applicable to the supplies made by contractors to the applicant on the following programs (hereinafter referred to as the said works or DDUGJY/ IPDS/ADSMS ) is examined. SI.No. Name of the Project Nature of Works promoter 1. Deendayal Upadhyay Gram Jyoti Yojna for Rural Electrification (DDUGJY) System Strengthening works Central Government with grants of 60% 2. Integrated Power Development Scheme (IPDS) System Strength ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of - (a) A civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; (b)...; or (c) Vide Notification No.31/2017-Central Tax (Rate) dt.13.10.2017, the word Central Government, State Government, Union Territory, a local authority or a Government Authority or a Government Entity was substituted with Central Government, State Government, Union Territory, a local authority or a Government Authority . As already submitted earlier, the applicant falls under the definition of Government Entity as per Notification No.31/2017-Central Tax (Rate) dt.13.10.2017. Therefore, the above said notifications relating to concessional rate of duty shall be applicable to the applicant. As per Notification No.32/2017-Central Tax (Rate), dated 13.10.2017, Supply of service or goods by a Government Entity to Central Government, State Government, Local Authority or any person specified by them against consideration received from them in form of grants, shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distribution transformers/ feeders/ consumers/ in the urban areas, and IT enablement of distribution sector and the above discussion squarely applies to these works also. Hence repetition is avoided. Therefore, notwithstanding the full exemption granted to provision of these supplies they being as part of principal supply of exempted supplies, even assuming but not admitting the liability, the works executed under these schemes attract concessional rate of 12% of GST. In short, the applicant opines that they are covered under the definition of Government Entity as per Notification No.31/2017-Central Tax (Rate) dt.13.10.2017; the said works i.e. DDUGJY/ IPDS/ADSMS are government programmes for which they get grants/funding from either Central Government or State Government; therefore those works attract concessional rate of 12% under Notification No.24/2017-Central Tax (Rate), dated 21.09.2017. 7.7 As already discussed in para 7.2 above at length, the decisions of Hon ble Supreme Court on the applicability of exemption provided by a notification; the exemption provided by a notification has to be strictly construed; the notification has to be interpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orks contract as defined at Section 2 of CGST Act 2017 and APGST Act, 2017 is treated as supply of service in terms of Serial No.6, Schedule II of CGST Act 2017 and APGST Act, 2017. In view of the above, the said works under the schemes DDUGJY/ IPDS/ADSMS referred by the applicant fall under the works contract; and covered under entry no. (ii) of S. No. 3 of the table of notification no. 11/2017-Central Tax (Rate), Dated - 28th June 2017 as amended from time to time and corresponding notifications under APGST Act, 2017; and the applicable rate of tax is 18% (9% under Central tax and 9% State tax). 7.8 Now, we examine the taxability of the services provided by the applicant to farmers up to tube well. The applicant relied on the Notification No.14/2018- Central Tax (Rate), dated 26.07.2018, relevant portion is as follows: (1) (2) (3) (4) (5) 10A Heading 9954 Services supplied by electricity distribution utilities by way of construction, erection, commissioning, or installation of infrastructure for extending elec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose and during the course of supply of electricity to them can be treated as part of principal supply of transmission or distribution of electricity which is exempted? (c) Whether the above supplies made to the consumers through contractors and third parties for the purpose of purpose of transmission or distribution of electricity or sale of electrical energy are also exempted? Answers to questions (a); (b) (c) In the facts and circumstances presented by the applicant the Transmission or distribution of electricity by an electricity transmission or distribution utility is only exempted vide entry no. 25 of the Notification No. 12/2017- Central Tax (Rate) New Delhi, the 28th June, 2017. Any service, other than transmission or distribution of electricity, rendered by the applicant is not covered in the said entry for claiming exemption. Services rendered apart from transmission or distribution of electricity are taxable. (d) If the answer to the above questions is NO , whether the works executed under Deendayal Upadhyay Gram Jyoti Yojna for Rural Electrification ( DDUGJY ), Integrated Power Development Scheme ( IPDS ) and Restructured Accelerated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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