Pro-Rata, Development and Erection Charges Linked to Power Transmission Not Taxable Under Service Tax: CESTAT Orders Re-computation in GETCO Appeal [Read Order]

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service tax is not leviable on pro-rata charges, development charges and erection charges collected by a state electricity transmission utility in relation to transmission of electricity. The bench, thus, remanded the matter for re-computation of tax on material cost and contingency charges.

The Gujarat Energy Transmission Corporation Ltd. (GETCO) appealed against an order passed by the Commissioner (Appeals), CGST & Central Excise, Ahmedabad, which had partly upheld service tax demands arising out of audit objections for the period March 2012 to March 2016. The dispute was regarding service tax demanded on various charges including erection charges, contingency charges, supervision charges, pro-rata charges collected by GETCO.

The Department had issued a show cause notice to classify the activities under “Erection, Commissioning and Installation Service” and “Declared Service” and demanded service tax amounting to over Rs.33 lakh along with interest and penalties under the Finance Act, 1994. While the adjudicating authority dropped tax on penal charges, it confirmed demand on the remaining components. On appeal, the Commissioner (Appeals) had already held that crop compensation charges and revenue loss charges were not taxable and remanded the matter for re-quantification.

Before the Tribunal, the appellant contended that it adhered to Electricity Act, 2003 and accordingly, services relating to transmission of electricity were exempt from service tax as per CBIC. It was argued that pro-rata charges and development charges were collected to fund expansion and strengthening of the transmission network, as mandated by GERC regulations. The appellant also submitted that erection charges were related to shifting of overhead cables and lines, which had been specifically clarified as non-taxable under CBIC Circular No.123/5/2010-TRU.

The Tribunal, comprising Dr. Ajaya Krishna Vishvesha (Judicial Member) and Satendra Vikram Singh (Technical Member), noted that pro-rata charges and development charges were linked to the statutory obligation of developing an efficient and reliable transmission network. Relying on CBIC notifications, circulars and a series of judicial precedents, including Noida Power Co. Ltd v. Commissioner of Central Excise, Noida and U.P. Rajkiya Nirman Nigam Ltd v. Commissioner of Central Excise, Meerut, the Bench held that these charges were part of the exempt service of transmission of electricity and could not be subjected to service tax.

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On erection charges, the Tribunal observed that the charges were recovered for shifting of overhead cables and wires, which was clarified as a non-taxable activity by CBIC. Accordingly, service tax demand on erection charges was also held to be unsustainable.

However, with respect to material cost and contingency charges, the Tribunal noted that the matter had already been remanded by the lower appellate authority for re-computation due to lack of complete data. The Bench directed the appellant to furnish necessary details before the adjudicating authority. It further directed that re-computation should be carried out.

Accordingly, the appeal was allowed by way of remand.

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