27 June 2012
Company A enters into an agreement with Company B _ Key features are as under:
1) Company A will setup a plant with in the premises of Company A (at its own cost) for manufacture of item X. All activities with relation to manufacture of product X (including Sales) is done by Co B
2) The benefit to Company A is that its by product Y, which otherwise will go waste will be used as input by Co B
3) Co A sells its by product to Co B and charges Ecise duty on the same.
4) The electricity used by Company B for manufacture of its product X is provided by Company A for which it charges company B on actual utilisation basis
4) Other than this there is no relation in activities of Company A and B
Querry - Whether the electricity provided by Co A to B will entail Service Tax
28 June 2012
Dear Friend, the electricity provided by Co A to Co B willnot entail service tax because of the following reasons. (i) co B is using the machinery of Co A for its own production. (ii) There is no connection of product of Co A with Co B as the former sold the product to Co B. (iii) The electricity supply used in the production is billed in the meter of Co A and paid by Co A to electricity department which is subsequently collected from Co B. (iv) Threfore, in this case, the service receiver is Co. B and the service provider is electricity company. Co A is acting as a "pure agent"
(v) As per Rule 5 of Service Tax valuation Rules, the cost of electricity bill paid by Co A in the capacity of pure agent for above cannot be included under taxable service.
Hence, elctricity bill payable by Co B to Co A does not attract service tax.
CAclubindia
