Service tax on electricity bill raised to clients

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CA ASHISH GUPTA (Querist)
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17 November 2011 Whether service tax is to be paid on the electricity bill issued by the landlord to tenant, when landlord supply electricity to tenants via electricity board and DG and there is a markup in cost and invoice.
In my opinion electricity is goods as upheld by Constitution Bench of the Supreme Court in State of A.P. etc. v. National Thermal Power Corpn. Ltd. and Ors. etc. (2002-TIOL-107-SC-CT and it is sale of goods. Electricity is also included in excise tariff and also in all state VAT schedules.

Manoj Malpani

Manoj Malpani (Expert)
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17 November 2011 Ashish in India there are laws for every activity... similarly there is law for generation and distribution of electricity.. Unless registered under the Electricity Act, 2003 no one can distribute (sell) the electricity. Therefore actually the owner cannot be said to selling electricity. The real issue in Mark up. If that would not have been there one could have gone into Pure Agent concept and the service tax would not have been demanded. But as there is mark up in my opinin service tax will be applicable...

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CA ASHISH GUPTA

CA ASHISH GUPTA (Querist)
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18 November 2011 Yes...you may be correct..but is service tax can be imposed on sale of goods...when seller does not have right to sell the goods. for example alcohalic beverages can not be sale without having a valid licence. when a person selling the wine without licence then he is liable for service tax.

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PUNEET GOYAL

PUNEET GOYAL (Expert)
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21 November 2011 You are right that electricity is goods and should not be subject to service tax. But if it is provided as a facility along with any other taxable services (e.g., renting of immoveable property) then it should be subject to service tax and accordingly service should be paid irrespective of the fact that separate invoice is raised for electricity bill. For your understanding read the following provision of the act.

As Per Explanation 1 of section 65(105)(zzzz)
“Immovable property”, for the purpose of section 65(105)(zzzz), includes-
(i) building and part of a building, and the land appurtenant thereto;
(ii) land incidental to the use of such building or part of a building;
(iii) the common or shared areas and facilities relating thereto; and
(iv) in case of a building located in a complex or an industrial estate, all common areas and
facilities relating thereto, within such complex or estate,

As Per Section 65 (90a)
Renting of immovable property” includes renting, letting, leasing, licensing or other similar
arrangements of immovable property for use in the course or furtherance of business or commerce

As Per Rule 5 of Service Tax (Determination of Value) Rules, 2006
(1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.

As Per Explanation2 of Above Rule 5
For the removal of doubts it is clarified that the value of the taxable service is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration is indicated separately in the invoice.
Illustration 2.– In the course of providing a taxable service, a service provider incurs costs such as
traveling expenses, postage, telephone, etc., and may indicate these items separately on the invoice
issued to the recipient of service. In such a case, the service provider is not acting as an agent of the
recipient of service but procures such inputs or input service on his own account for providing the
taxable service. Such expenses do not become reimbursable expenditure merely because they are
indicated separately in the invoice issued by the service provider to the recipient of service.

If the seller sales electricity independently without providing any taxable services then it will not be subject to levy of service tax otherwise it will be considered as part of cost incurred in providing taxable services and accordingly added in the value of taxable services.

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CA ASHISH GUPTA

CA ASHISH GUPTA (Querist)
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22 November 2011 Dear Puneet,
I am not satisfied actually.
Lets discuss...
First of all whatever are the provision of service tax, service tax is a tax on service and central govt. is not entitle to tax sale of goods.
One thing is clear to you also that electricity is a goods.
Now come to second point, wheather electricity provided to client is a facility or a sale.
Sale means transfer of property in goods by one person to another.
In that case there is transfer of electricity, ownership is being transfered. so it is a sale.
Rule 5 as states above "cost incurred in the course of providing services"..the important thing is "in the course of".
Let me explain with an example- use of cream during facial is a cost/consumption in the cource of providing service. sale of cream by a saloon to its custmer, who is also availing facility of facial is not cost/consumed in the course of providing service.
Sale of spare parts during vehicle service is not cost/consumed in the course of providing service.
Charge of electricity is not fixed, it is based on actual usages. If in any month tenant doesnot use electricity, landlord will not charge for that.
So electricity provided should not be a service.