Should Housing Societies pay Service Tax for Distribution of Electricity?
TRANSMISSION or Distribution of Electricity by an "Electricity transmission or distribution utility (means the Central Electricity Authority; a State Electricity Board; the Central Transmission Utility or a State Transmission Utility notified under the Electricity Act, 2003; (36 of 2003.) or a distribution or transmission licensee under the said Act, or any other entity entrusted with such function by the Central Government or, as the case may be, the State Government) is kept under negative list of the services under Section 66D.
The Education Guide on Service Tax explains the scope of service tax on the said activity as under:
4.11: Transmission or distribution of electricity
4.11.1: What is the meaning of electricity transmission or distribution utility? An 'electricity transmission or distribution utility' has also been defined in section 65B of the Act. It includes the following -
• the Central Electricity Authority
• a State Electricity Board
• the Central Transmission Utility (CTU)
• a State Transmission Utility (STU) notified under the Electricity Act, 2003 (36 of 2003)
• a distribution or transmission licensee licensed under the said Act
• any other entity entrusted with such function by the Central or State Government
4.11.2: If charges are collected by a developer or a housing society for distribution of electricity within a residential complex then are such services covered under this entry?
No. The developer or the housing society would be covered under this entry only if it is entrusted with such function by the Central or a State government or if it is, for such distribution, a distribution licensee licensed under the Electricity Act, 2003.
4.11.3: If the services provided by way installation of gensets or similar equipment by private contractors for distribution of electricity covered by this entry?
No. The entry does not cover services provided by private contractors. Moreover, the services provided are not by way of transmission or distribution of electricity.
It is settled law that "Electricity" is "goods" and it is also subject to VAT though at zero rate. Electricity finds mentioned in exempted category under many VAT Acts. Further, Electrical Energy is classified under CETH2716 0000 of the First Schedule to the Central Excise Tariff Act, 1985 which indicates that electricity is treated as goods for the purpose of Central Excise Tariff Act, 1985. Trading of goods is covered under Negative List at entry No (e) under Section 66D. Hence, no service tax is attracted on sale / trading of goods. Thus, the paras 14.11.2 and 14.11.3 run contrary to the settled law that electricity is goods.
Recently, this issue reached the Tribunal.
The facts of the case: the applicants are owner of premises, which have several units and were given on rent to various persons. The applicant is paying service tax on the rent received from their tenants. The applicants are also involved in the activity of maintaining and repairing of the building and the applicants are paying service tax on this activity also. These payments of service tax are not in dispute. Apart from these, the applicant is under an obligation to supply electricity to their tenants and (for that) a common electricity connection has been taken by the applicant from MSEB and separate meters has been installed in each premises and on the basis of reading in the meter the applicant is charging electricity charges from the tenants. When electricity is not being supplied by MSEB, the same is supplied through DG set to the tenants and on that also they are charging electricity charges from the tenants. The Revenue is of the view that electricity charges recovered from their tenants is to be part of the service of ‘Renting of Immovable Property Service' and, therefore, a notice was issued and demand for service tax was confirmed against the applicant along with interest, apart from penalty of equivalent amount under section 78 of the Finance Act, 1994.
The Tribunal observed, "The contention of the applicant that electricity is ‘goods' and the same shall not form part of taxable service is clarified by the Notification no. 12/2003. Therefore, we find that the applicant has made out a prima facie case for 100% waiver of the service tax confirmed and penalty imposed". Please see
Will the Board look into this and educate the assessees a little more?