Reimbursement of Electricity Charges Not Taxable as Service: CESTAT Sets Aside Service Tax Demand on Ubico Network [Read Order]

The Chandigarh Bench of the Customs, Exciseand Service Tax Appellate Tribunal (CESTAT) ruled that service tax cannot be levied on the reimbursement of electricity charges, as electricity is considered "goods" and its supply did not constitute a taxable service.

Ubico Network Private Limited (appellant) is engaged in setting up and leasing in-building coverage solutions for mobile service providers and is registered under the category of ‘Business AuxiliaryServices’.

The Revenue Department alleged that the appellant failed to discharge service tax on electricity charges reimbursed by their customers and argued that the appellant did not meet the "pure agent" conditions under Rule 5 of the Service Tax (Determination of Value) Rules, 2006.

The department issued two show cause notices covering the periods 2009-10 to 2013-14, demanding a total service tax of ₹1,07,19,006. The Original Authority confirmed these demands. Aggrieved by the order, the appellant approached the CESTAT.

The two-member bench comprising S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member), observed that the Delhi High Court in Intercontinental Consultants & Technocrats Pvt Ltd had struck down Rule 5, holding that reimbursable expenses are not subject to service tax. This decision was subsequently affirmed by the Hon’ble Supreme Court.

The tribunal observed from the aforementioned ruling that the supply of electricity to tenants amounts to sale of goods and not supply of service so the electricity charges collected from the tenants cannot be formed part of the assessable value for the purpose of Service Tax.

The tribunal found that Electricity is specifically covered under the Central Excise Tariff and constitutes "goods," making its supply a sale rather than a service. It also noted that the first show cause notice was barred by limitation.

Relying on the case of Sunshine Steel Industries, the Tribunal observed that the extended period cannot be invoked when the demand is based merely on an audit conducted by the department.

The tribunal noted that the department failed to prove any intent to evade tax and improperly invoked the extended period of limitation based solely on an audit. The tribunal concluded that the demand was not sustainable in law and set aside the impugned order. The appeal of the appellant was allowed.

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