Dear experts,

As per the new amendments w.r.t service tax from 01/07/2012 for negative list of certain services....

one of our client having ownership of MALL and giving some shopes on rent to various customer...

Our client making bill for Gas, Electricity charges...

Is service tax applicable on Electricity charges from 01/07/2012 as per below details....?

Electricity Services Under Negative List, but with some riders

Electricity is the life line and we cannot imagine life without it. The frequent power failures in many parts of the country remind us of the power deficit. Subsidies to a certain section of the society results in overburdening the rest, who ultimately pay through their nose. The transmission or distribution of Electricity Services by an electricity transmission or distribution utility is a non-taxable service as per the negative list in Section 66 D of the Finance Act, 1994. The term “electricity transmission or distribution utility” defined in Section 65B of the act covers within its ambit the following entities:

a. the Central Electricity Authority

b. a State Electricity Board

c. the Central Transmission Utility (CTU)

d. a State Transmission Utility (STU) notified under the Electricity Act, 2003 (36 of 2003)

e. a distribution or transmission licensee licensed under the said Act.

f. any other entity entrusted with such function by the Central or State Government

But on reading the fine print, it is seen that there are many riders to it. Power shortage results into power back up services which are a part of all upcoming major real-estate projects in the country, more specially so where there are frequent power cuts.

Distribution of Electricity by Private Contractors and by Housing societies

The services provided by way installation of gensets or similar equipment by private contractors for distribution of electricity would not be covered by this entry as this entry does not cover services provided by private contractors. Moreover the services provided are not by way of transmission or distribution of electricity. All such activities will attract service tax and cannot claim the benefit of the section 66D. The benefit of non-taxability would not be available in case of charges collected by a developer or a housing society for distribution of electricity within a residential complex. 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 they hold a distribution licensee under the Electricity Act, 2003. In case of absence of such distribution license, the shelter of negative list will cease be available and such activities will attract service tax.

Prior to introduction of the changes in Finance Act, 1994 on account of enactment of the Finance Act, 2012 these services were granted exemption by virtue of notifications as detailed below :–

Notification No. 45/2010-S.T., dated 20.07.2010 provided for exemption from Service Tax to all taxable services relating to transmission of electricity till 26.02.2010 and distribution of electricity till 21.06.2010 if the service provider have not levied such tax. Notification No. 32/2010-S.T., dated 22.06.2010 exempted the taxable service provided to any person by a distribution licencee, a distribution franchisee, or any other person by whatever name called, authorized to distribute power under the Electricity Act, 2003 (36 of 2003), for distribution of electricity, from the whole of service tax. Notification No. 11/2010-S.T., dated 27.02.2010 granted exemption to taxable service provided to any person, by any other person for transmission of electricity, from the whole of service tax. Both these Notification are rescinded from 01.07.2012.

Laying of cables is one of the important activity undertaken by the utility provider which account for a major portion of their budget. Cable laying are needed for conversion of overhead supply of electricity to underground system, on account of renovation/widening of roads, new areas to be covered under the distribution system, increasing the load capacity of existing areas, providing public amenities, electrification of railways so on and so forth. The work of laying of cables involves laying of electrical cables under or alongside roads/railway tracks, between grids/sub-stations/transformers, between the source and distribution points of residential, commercial complexes, public facilities etc.

After the introduction of service tax, such activity of laying of cables were subjected to tax. Service Tax being an indirect form of taxation, the ultimate burden of such taxes were borne by the utility provider, who were burdened with huge losses due to the wrong policies of the power hungry politicians. This levy also dissuaded private investments in the power sector.

With a view to provide relief to the utility provider and to attract private investments in the power sector the Central Board of Excise and Customs, New Delhi in its Circular No. 123/5/2010-TRU, dated 24.05.2010 clarified that the shifting of overhead cables & wires for any reasons such as widening/ renovation of roads, laying of cables under or alongside roads, laying of electric cables between grids/sub-stations/transformer stations en route, laying of electric cables up to distribution point of residential or commercial localities/complexes, railway electrification and electrification along the railway tracks will not attract service tax. This circular clarifies that shifting of overhead cables/wires for any reasons such as widening/renovation of roads is not a taxable service under any clause of sub-section (105) of section 65 of the Finance Act, 1994.

The circular does not provide exemption to laying of electrical cables undertaken by or on behalf of residential or commercial units or its developers or contractors but exempts the activity of laying of electrical cables undertaken by the utility provider i.e. power distribution company or its contractors, agents from the ambit of Service Tax. The Board has also clarified that installation of transformer/sub-station undertaken independently i.e. not by the utility provider but by the consumer/end user or his contractors or agents are also subject to Service Tax.

Another area of dispute has arisen wherein power transmission companies have refused to reimburse the service tax paid by the tower erection companies, on the activities of ‘erection, commissioning or installation’ of tower structures in guise of exemption under the said circular, as they have extrapolated the scope of cable laying to include erection of towers. The Board vide the said circular has clarified that such activities remain outside of the purview of the taxable services only if they do not result in emergence of an erected structure. Many of such circulars and clarification will have to be relooked into, in light of the new service tax regime, based of negative list.