CESTAT Grants Exemption to Ancillary Electricity Services, Overturns Service Tax Demand

Tribunal Rules in Favor of M/s Chauhan Enterprises, Citing Exemption Under Section 66D(k) of the Finance Act, 1994

In a significant ruling by the Customs Excise and Service Tax Appellate Tribunal (CESTAT) at its Allahabad Regional Bench, M/s Chauhan Enterprises secured a favorable judgment regarding the demand for service tax on ancillary services related to electricity distribution. The tribunal, presided over by Mr. P.K. Choudhary, Member (Judicial), set aside the demand for service tax of Rs. 2,66,683 and the imposition of an equal penalty under the Finance Act, 1994.

The case arose when M/s Chauhan Enterprises was engaged by the Superintending Engineer, Electricity Distribution Circle, Madhyanchal Vidyut Vitaran Nigam Ltd. (MVVNL), Unnao, for services such as electricity bill collection, connection and disconnection of power supply, and other miscellaneous activities. The adjudicating authority initially categorized these services under "Manpower Supply Services," and the Commissioner (Appeals) later as "Franchisee Services," both attracting service tax.

However, M/s Chauhan Enterprises contended that the services they provided were ancillary to the transmission and distribution of electricity, which are exempt under Section 66D(k) of the Finance Act, 1994. The advocate for the appellant cited previous tribunal rulings, asserting that similar services had been exempted, referencing notable cases like M/s Madhya Pradesh Poorva Kshetra Vidyut Vitran Co. Ltd. v. Commissioner of CGST & Central Excise, Jabalpur.

After examining the scope of services under Section 66D(k) and the interpretation of bundled services under Section 66F, the tribunal concluded that the services provided by M/s Chauhan Enterprises were indeed ancillary to electricity transmission and distribution and thus qualified for exemption. The tribunal's decision aligned with precedents, emphasizing that the bundled nature of the services did not alter their exempt status.

With this ruling, the tribunal underscored the importance of correctly interpreting service descriptions in tax matters, particularly concerning the exemption provisions under the negative list of services. The decision offers clarity to contractors involved in similar ancillary activities, affirming their exemption status under the specified provisions of the Finance Act, 1994.

Bottom Line:

Service Tax - Ancillary services related to transmission and distribution of electricity provided by contractors are exempt under Section 66D(k) of the Finance Act, 1994.

Statutory provision(s): Section 66D(k) of the Finance Act, 1994, Section 66F of the Finance Act, 1994, Section 73 of the Finance Act, 1994, Section 78 of the Finance Act, 1994

M/s Chauhan Enterprises v. Commissioner, Central Excise & Service Tax, (CESTAT)(Allahabad)(Regional Bench) : Law Finder Doc Id # 2819326