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GST Shock on Electricity Meters Hire Charges

Legal Desire — Thu, 09 Aug 2018 11:27:35 +0000

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

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Read to Know: All About GST Bill

Legal Desire — Wed, 03 Aug 2016 13:01:16 +0000

It has been hailed as India’s ‘biggest tax reform.’ After months of political wheeling and dealing, the government has won a political consensus on the much awaited goods and services tax (GST) bill, which the Rajya Sabha is expected to pass today. The GST will create a common market for over 1.25 billion people. Here’s a refresher on what it is:

What is the GST?

It’s a blanket indirect tax that will subsume several indirect state and federal taxes such as value added tax (VAT) and excise duty, and different state taxes, central surcharges, entertainment tax, luxury tax and a slew of related levies by local bodies.

The GST is likely be at 18 per cent, and is widely expected to be implemented next year in April.

GST is a ‘destination-based’ tax, which means it’s charged where goods are consumed, as opposed to where they are produced. Because it shifts the power that several Indian states have had in imposing indirect taxes on the production and movement, a centralised GST Council has been set up that will decide which taxes will fall in the purview of states and which can be subsumed into the GST. A dispute resolution mechanism will also be established to resolve any GST-related disputes.

What will become cheaper?

Expect many goods and purchases to become cheaper with the exception of fuel, liquor and tobacco. While several industries are expected to be beneficiaries, the entertainment industry may be a big winner as it will significantly bring down the 27 per cent entertainment tax. Here’s how going to the movies will become cheaper: the central and state taxes come to about ₹66 on a ₹300 movie ticket. The tax could come down to about ₹46. Stocks of PVR cinema have shot up in recent weeks. Another beneficiary is the construction and building materials industry, which means the housing sector may also be a big winner with things like paints and cement becoming cheaper.

Why is it a big deal?

The GST is expected to add two per cent to the country’s GDP, besides making the movement of goods easier across states. Because so far taxes have varied across states, often commercial trucks have had to go through multiple checkpoints to obtain the necessary permits and pay several taxes to the states they pass on their routes, which causes delays and encourages bribery. A uniform tax will make that movement of commercial products smoother.

GST’s history and politics

The GST has been in the making for more than a decade. Congress originally mooted GST in 2006 and a constitution amendment bill was introduced in Lok Sabha in March 2011 but it lapsed with the dissolution of the 15th Lok Sabha.

The GST Bill was passed by the Lok Sabha in May 2015, but got stuck in the Rajya Sabha where BJP does not have a majority. The bill needs a nod from the two-thirds in both Houses of Parliament and will have to later ratified by 50 per cent of state legislatures.

The government had to address several concerns and agree to key amendments demanded from the opposing political parties on the key proposed provisions of the GST bill. One such amendment has been the scrapping of an additional one per cent tax, which was proposed earlier as a way to compensate states on any revenue losses. This would have resulted in a cascading tax and defeated the intent of a “destination-based” tax that is GST. The Modi government has also agreed to grant more powers to states for providing them full compensation for a period of five years, for revenue losses.

The opposition demand for the setting up of a dispute resolution mechanism as part of the GST council has also been agreed upon by the government.

What happens next?

However, with the impending passage of the GST Bill, the government will have to put up a mad scramble to put together all the mechanisms and state approvals in place to implement the GST by its rollout date of April 1, 2017.

Additionally, companies and tax collectors will have to be prepared on the necessary changes. Some companies may even have to overhaul their business processes to make way for the new tax change.

With agency inputs

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