Service Tax: Electricity charges reimbursed not includible in gross value of service

Brief facts of the case are that an enquiry was conducted against the appellant and on verification of documents, department noticed that assessee are providing “Business Auxiliary Service” to M/s Gujarat Gas Co. Ltd. in the form of infrastructural Support by way of providing land, building & equipment’s, manpower, electricity connection and selling and billing of CNG gas, collection of bills etc. They are receiving Service Charges from M/s Gujarat Gas Co. Ltd. fixed at the rate of per Kg. CNG gas sold in a month subject to a minimum amount of CNG Gas to be sold by them as entered into contract with M/s Gujarat Gas Co. Ltd. On further verification of Bank Statement & ST-3 returns, it was noticed that there was huge difference in taxable value shown in ST-3 returns and amount of service charge received in Bank account. The Appellants submits the reason of difference that the difference is due to reimbursement of electricity charges. A show cause notice was issued for the period 2011-12 to 2015-16 demanding service tax on reimbursement of electricity expenses. The show cause notice also proposed interest thereon and also to impose penalties. After due process of law, the adjudicating Authority confirmed the demand of Rs. 45,65,552/- along with interest and imposed equal penalty under Section 78 of the Finance Act, 1994. In addition, penalty of Rs. 10,000/- under Section 77 was also imposed. Being aggrieved by such order, appellant filed appeal before Commissioner (Appeals) who vide impugned Order-In-Appeal upheld the same. Hence this Appeal before Customs, Excise & Service Tax Appellate Tribunal (CESTAT).

CESTAT Order

4. We have carefully considered the submissions made by both the sides and perused the records.

4.1 The issue under consideration is that whether the Appellant are liable to pay Service tax on reimbursement of electricity charges received from the service recipient M/s Gujarat Gas Company Ltd. We find that identical issue involving under the identical contract has been decided by this Tribunal in the case of Pragati CNG supra by relying the decision of Tribunal in the case of VV Brothers.

4.2 This Tribunal in the matter of Pragati CNG Vs C.C.E & S.T. -Surat -I vide final order A/12470-12471/2021 dated 28.10.2021 held that

4. We have carefully considered the submission made by both the sides and perused the records. We find that this issue involving identically placed service provider and the same service recipient M/s. Gujarat Gas Company Limited under the identical contract has been decided by this Tribunal in the case of V V Brothers (Supra) wherein this Tribunal has passed the following order:-

“This appeal has been filed by M/s VV Brothers against order of Commissioner (Appeals) confirming the demand of Service Tax.

2. Learned Chartered Accountant for the appellant pointed out that they are engaged in providing services to M/s Gujarat Gas. They have entered into an agreement with Gujarat Gas in terms of which they were being paid an amount of fixed charges and reimbursement for the electricity charges paid by them to Electricity Company. In terms of the contract a separate electric meter has also been installed at their premises. In support of the said assertion he produced a copy of the agreement with Gujarat Gas wherein clause 4.6 prescribed as under:

“4.6 The firm shall bear and pay all property taxes, municipal taxes, rents, rates, outgoings, land revenue, assessment or levies payable by the firm in respect of the site and shall pay all bills for electricity, water and other utilities utilized at the outlet. However, electricity charge for compressor, dispensers installed at the particular outlet shall be borne by GGCL. An independent electricity meter will have to be provided for this purpose.”

2.1. The appellant pointed out that they were paying Service tax for the fixed charges received by them for provision of service, however, they were not including the value of the electricity charges recovered as reimbursements from Gujarat Gas for the purpose of payment of Service Tax.

2.2 Learned Counsel argued that the issue involved in the present case is squarely covered by the decision of this Tribunal in the case of Kiran Gems Pvt. Ltd. 2019 (25) G.S.T.L. 62 (Tri- Ahmd.) wherein under similar circumstances exclusion of electricity charges recovered as reimbursement was upheld by tribunal. He also relied on following decisions:

(1) UOI vs Intercontinental Consultants and Technocrats Pvt. Ltd. 2018 (10) G.S.T.L 401 (SC).

(2) Malabar Management Services Pvt. Ltd. vs Commr. of ST, Chennai 2008 (9) STR 483 (Tri-Chennai)

(3) Bizsolindia Services Pvt. Ltd. vs. CCE, Pune-iii 2016
(43) STR 622 (TriMum.)

(4) Dream Loanz vs. Commr. of Central Excise, Coimbatore 2017(6) GSTL 443 (Tri Chennai)

(5) Adhikrut Jabti Evam Vasuli vs. CCE (Indore) 2017 (6) GSTL 529 (Tri- Delhi)

3. Learned Authorised Representative relied on the impugned order. He argued that in the case of decision of larger bench in the case of Sri Bhagwathy Traders 2011 (24) S.T.R. 290 (Tri-LB) which has been held that only when the amount is spent in the capacity of pure agent, the same can be excluded from the assessable value. He argued that since in the instant case, amount is not paid in the capacity of pure agent, the amount is includable in the assessable value.

4. We have considered rival submission. We find that appellants are undisputedly paying the Service tax onthe fixed charges received by them from Gujarat Gas. The issue under consideration is if the appellants are liable to pay Service tax on the electricity charges on actual basis paid by them in terms of para 4.6 of their contract with Gujarat Gas. Para 4.6 of the contract reads as under:

“4.6 The firm shall bear and pay all property taxes, municipal taxes, rents, rates, outgoings, land revenue, assessment or levies payable by the firm in respect of the site and shall pay all bills for electricity, water and other utilities utilized at the outlet. However, electricity charges for compressor, dispensers installed at the particular outlet shall be borne by GGCL. An independent electricity meter will have to be provided for this purpose.”

It is seen that the contract puts the liability of expenditure of Service Tax on Gujarat Gas and they have also placed a separate meter for assessment of the actual electricity consumed. We find that the issue is squarely covered by the decision of this Tribunal in the case of Kiran Gems Pvt. Ltd. (supra) where after relying on the decision of Tribunal in the case of ICC Reality (India) Pvt. Ltd. vs Commr. 2013 (32) S.T.R. 427 (Tribunal), Hotel Lake view Ashok vs. CGST 2018 TIOL 2195 CESTAT-Mad and S.B. Developers Ltd. vs. Commissioner 2018 TIOL 1866 CESTAT-Del., it was held that electricity charges reimbursed to the service provider by the service recipient are not includable in gross value of renting of immovable property service. We find that the said principle is equally applicable in the instant case. The said principle has also been pronounced by Hon’ble Apex Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. 2018 (10) G.S.T.L 401 (SC). Accordingly, the appeal is allowed.”

4.1 From the above decision of this Tribunal, it can be seen that the electricity charges which is reimbursed on actual basis in terms of the contract is not includible in the gross value of service provided by the appellant to Gujarat Gas Company Limited.

5. Accordingly, the issue is no longer res Integra. Hence, the impugned order is set aside, appeals are allowed.

4.3 In view of the above judgments, the issue involved herein has been settled inasmuch as the electricity charges reimbursed to the service provider by the service recipient not includible in gross value of service. Following the ratio of the above judgment, we are of the view that the demand is not sustainable.