Leviability of service tax on a distributor of electricity for supply of electricity to consumers

The service rendered by the distributor through its electrical engineers to the consumers of electricity fell within the ambit of “taxable service” under section 65(105)(g) of the Finance Act, 1994.

CESTAT, WEST ZONAL BENCH, MUMBAI

M.S. Discom Ltd.

v.

CCE

Application No. ST/S/1332/07 in Appeal No. ST/124/07

August 13, 2009

RELEVANT EXTRACTS:

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3. xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx In the present case, the substantive issue considered by the lower appellant authority was whether, during the period of dispute, the appellant was rendering ‘consulting engineers service’ to the consumers of electricity. On this issue, the appellant authority, after examining the records, held that service tax was leivable in respect of the technical advice, inspection, testing of equipment and materials etc. rendered by the appellant to the consumers who executed the work of installing the infrastructure for distribution of electricity. In other words, the demand of service tax was sustained in respect of the second scheme aforesaid. In respect of the first scheme (lump sum method), the demand of service tax was set aside. The original authority was directed to quantify the amount of service tax leviable. It appears, the penalty-related issue was also left to be reconsidered and decided upon by the lower authority. to this extent, the learned Commissioner (Appeals) exceeded his jurisdiction. In this context, the decision of the Hon’ble Supreme Court in MIL India Ltd., case is apposite. In this appeal, the assessee has taken a plea that they are not liable to pay service tax in respect of any amount collected from the consumers of electricity during the period of dispute. The learned DR has opposed this plea with reference to the definition of “consulting engineers service’ given under section 65(31) of the Finance Act, 1994. we have perused the definition and we find that, according to this definition, a consulting engineer means any professionally qualified engineer or an engineering firm, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering. Under section 65(105)(g), “ taxable service” means any service provided or to be provided to any person by a consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering, including the discipline of computer hardware engineering. It is not in dispute that, in the outright contribution scheme, the electrical engineers of the appellant had rendered advice, consultancy and technical supervision for the consumers to install the necessary infrastructure for distribution of electricity. Admittedly, the infrastructure was brought in place at the cost of the consumers. It has therefore to be held that the service rendered by the appellant through their electrical engineers to the consumers of electricity fell within the ambit of “taxable service” under section 65(105)(g) of the Finance Act, 1994. it goes without saying that the electrical engineers of the appellant were acting as “consulting engineers” within the scope of the definition given under section 65(31). The learned counsel has argued that the appellant was rendering a service to themselves inasmuch as the infrastructure (immovable property) belong to the appellant. It is difficult to appreciate this plea. The infrastructure consisting of the electric poles, transmission line and accessories thereto was brought in place by the consumers of electricity at their cost. It might have vested in the appellant after its installation. During the course of installation of the infrastructure by the consumers of electricity, the appellant could not claim any title thereto. The taxable service was rendered during the course of installation. Even otherwise, the ownership of the property has no bearing on the question whether the appellant was rendering a taxable service as “consulting engineers”, to the consumers of electricity. In the result, we have got to allow this appeal by way of remand to the Commissioner (Appeals). Accordingly, after setting aside the impugned order, we direct the learned Commissioner (Appeals) to quantify himself the service tax levidable from the appellant in respect of the supervision charges collected by them from the consumers of electricity during the period of dispute as also to reconsider and decide upon the question whether any penalty is imposable on the assessee and, if so, to what extent. Needles to say that the assessee should be given a reasonable opportunity of being heard.

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