Service Tax on Electricity, Water and Diesel Charges
A Commissioner recently had a doubt and sought clarification from the Chief Commissioner regarding liability of Service Tax on amounts collected by the assessee towards electricity and water from the tenants, apart from rent, for payment to the Electricity Board/ Water Board. The Service Tax was demanded on subject services under the category of "Management, Maintenance or Repair" service (MMR). On a similar issue, in Pune Commissionerate, the demand of Service Tax under "Renting of Immovable Property" (RIP) was dropped on the ground that they do not form part of RIP services.
The Commissioner, on re-examination, felt that the electricity charges and water charges collected on actual basis by the assessee and paid to Electricity Board/ Water Board could qualify to be excluded on 'Pure agent' basis as the assessee played the role of pure agent.
The good Chief Commissioner called a meeting of all the Commissioners in his jurisdiction and the meeting decided that:
1. If the assessee is collecting actual amounts of electricity and water charges from the tenants by issuing an invoice or otherwise and paying to the Electricity Board/Water Board (third party) and fulfilling the conditions given under Rule 5(2) of Service Tax (Determination of Value) Rules, 2006, the expenditure or cost incurred are not includable in the taxable value. In this connection, the meaning of pure agent given under explanation 1 of Rule 5(2) ibid may be seen.
2. With reference to the charges collected towards the DG set maintenance by the service provider, the service provider is providing the service of maintenance of DG set and supply of electricity to the tenants, during power shut down from Electricity Board, and the amounts collected would form part of value for charging Service Tax.
Of course Show Cause Notices are flying all over the country and the litigation is pending at different stages. This is a problem faced by many property owners.
Incidentally in the Pune Commissionerate, the notice was dropped for one assessee and confirmed for some other assessees.
Some Commissioners feel that after the advent of 'negative list', this collection of charges for supply of electricity is taxable.
In DDT 1903-18.07.2012, we asked, But, is it not a settled law that Electricity is goods and many State Government VAT Acts have exempted the sale of electricity from VAT?
The CESTAT in 2013-TIOL-1751-CESTAT-MUM, held, "We find that electricity is specifically covered under Tariff Heading 27 of the Central Excise Tariff Act. We find that as per the provisions of Maharashtra Value Added Tax Act, 2002, electricity is also covered under Schedule A sr.no.20 and charged to Nil rate of tax. In view of this, we find the electricity is goods chargeable to duty under Central Excise Tariff as well as under the Maharashtra Value Added Tax Act, 2002. Therefore, the supply of electricity to tenant amounts to sale of goods and not supply of service. Further the Notification No.12/03 ST dated 20/6/2003 exempt from service tax, any value of goods supplied by service provider to service recipient."
BSNL in a letter dated 27-08-2012, clarified to its Telecom Circles that:
1. Service Tax on payment of charges towards diesel and electricity consumption (based on actuals) is applicable in accordance with Section 67 of Finance Act, 1994 read with Rule 5(1) of Service Tax (Determination of Value) Rules, 2006
2. Service Tax paid on consumption/reimbursement of Diesel and Electricity Charges is available for Cenvat credit since BSNL is paying Service Tax on infrastructure services received from Infrastructure service providers. Such Service Tax payment on Infrastructure services would be input service for BSNL.
Is this not an issue that can be easily settled by the Board with a clarification? But as in any case, the field officers don't obey the Board, litigation is the only way.