Service Tax On Ancillary Services to Power Distribution Unsustainable: CESTAT Set Aside ₹25.33 Cr Demand Against NESCO Utility [Read Order]

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Eastern Zonal Bench has set aside the demand of ₹25.33 Crores and held that ancillary services for the distribution of electricity are exempt from taxation, as was always intended.

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The ​NESCO Utility being a Government of Odisha undertaking is a licensed DISCOM for the distribution of electricity. After an investigation by the DGGI a Show Cause Notice was issued for the period from 2014-15 to 2017-18. Further,the Revenue has demanded service tax based on consolidated figures presented in the appellant’s financial statements.

The appellant stated that their activities are strictly regulated by the OERC and that the main activity of transmission and distribution of electricity enjoyed full exemption from 2010 onwards. It was also contended that the ancillary charges like meter rent and application charges are naturally bundled with the main exempted service.

On the other hand, the revenue department argued that these are independent taxable services and are not included in the negative list.

The Bench comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) held that the taxability of the bundled service depends on the essential nature of the main service.

Accordingly,the tribunal observed that the services which are closely related to the distribution of electricity cannot be taxed as held by the Gujarat High Court in the case of Torrent Power Ltd.

Furthermore, the tribunal dismissed the demand for the extended period noting that as a Public Sector Undertaking NESCO had maintained transparent records as a result negating any allegation of willful suppression.

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