Benjamin Franklin may have invented electricity, but it is the man who invented the electricity meter who has minted the money. Everyone believes that electricity has been kept out of the preview of GST. Yes, it is true, but not completely so. Though electricity has been exempted from GST, yet the hire charges of electricity meters recovered by the distribution companies from customers are charged to GST at the rate of 18%.

Have you ever scrutinized the electricity or power bill you receive on monthly basis? A standard electricity bill would have the components of fixed charge, energy charge, surcharge, etc. The distribution companies may also levy additional charges in the monthly bills for issuing duplicate bills, rental charges for electricity meter, testing fees, labor charges for shifting of meters or other non-tariff charges. Whether distribution companies are liable to charge GST on such non-tariff charges from the customers has been a matter for adjudication before the Rajasthan Authority for Advance Ruling.

Under the pre-GST regime, charges for distribution of electricity and charges for non-tariff services in relation to power supply were exempt from levy of service-tax. It is pertinent to mention here that the exemption notification didn’t define the meaning of ‘distribution of electricity’. In this regard, the CBIC (earlier termed as ‘CBEC’) vide Circular No. 131/13/2010-ST, dated December 7, 2010 had clarified that supply of electricity meters for hire to the consumers, being an essential activity having direct and close nexus with transmission and distribution of electricity, shall also be covered by the exemption granted for transmission and distribution of electricity. Therefore, the Service-tax was not levied on hire charges recovered from the customers for the electricity meters by the distribution companies or distribution licensees.

For other allied charges recovered from the customers, inter-alia, charges for erection, commissioning, installation of meters, technical testing, etc., the Delhi Tribunal in the case of Purvanchal Vidyut Vitran Nigam Ltd. v. CCE [2012] 26 taxmann.com 148 extended the exemption from service-tax by holding that the allied services in case of electricity supply could easily be termed as services in relation to transmission and distribution of electricity.

Unlike Service-tax, the Govt. has only exempted the services of transmission or distribution of electricity by an electricity utility from levy of GST. For other charges recovered by the DISCOMS, the CBIC has clarified charges for other services, inter-alia fee for releasing connection of electricity, rental charges against metering equipment, testing fee for meters or transformers, labour charges for shifting of meters, charges for duplicate bills, etc. shall be chargeable to GST.

The Rajasthan Authority for Advance Ruling on application filed by M/s TP Ajmer Distribution Limited [2018] 95 taxmann.com 61 adjudicated on the issue of taxability of hire charges of electricity meters and other non-tariff charges recovered by DISCOMS or Distribution licensees from the customers. The Authority held that such charges shall be taxable under GST Law on the basis of clarification issued by Govt. vide Circular No. 34/8/2018- GST, dated March 1, 2018. In the above circular, the Govt. had clarified that rental charges for metering equipment would be taxable under GST Law at the rate of 18%.

There is no justification in change in standpoint of the Govt. in regard to taxability of non-tariff charges including rental charges for electricity meters. The burden of GST will be borne by the end-consumer in form of higher prices of electricity.

If CBIC cannot maintain the status-quo vis-à-vis service-tax, it should treat the electricity and non-tariff services on the footings of other essential goods or services. As all essential goods and services have either been exempted from tax or are chargeable to tax at concessional rate, non-tariff services rendered by the electricity companies which are in relation to distribution or transmission of electricity should also be treated on same footings.

In GST, multiple services rendered together are considered as composite supplies if they are bundled naturally. In that case, the rate of GST to be applied would be the rate as applicable to the principal component in the composite supply. The same concept should be applied to decipher the issue of levy of GST on charges recovered for non-tariff services.

Such an exemption is much needed to take forward the Government’s vision of electrifying the rural and remote areas of the country under the Pradhan Mantri Sahaj Bijli Har Ghar Yojana or Saubhagya Yojana.

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Author:

CA Shubham Mittal, Taxmann.com