No Service Tax On Reimbursement Of Actual Electricity Charges Recovered From Tenants: CESTAT Chennai

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that reimbursement of actual electricity charges recovered from tenants is not liable to service tax, observing that electricity is "goods" and such recoveries cannot be treated as consideration for a taxable service.

The tribunal observed, “Further, eelectricity is specifically recognized as "goods" under the Central Excise Tariff Act and various State VAT laws. Hence reimbursements or collections of actual electricity charges as per the unit of consumption, from tenants cannot be recogonised as a consideration for a service rendered.”

The bench of Judicial Member Ajayan T.V. and Technical Member M. Ajit Kumar partly allowed the appeals filed by Valmet Technologies Engineering Pvt. Ltd.

The company, which provides consulting engineer and renting of immovable property services, had taken premises on lease and sub-leased them to its sister concern and an associate entity.

Following an audit, the Service Tax Department issued a show cause notice demanding service tax on the sub-lease rentals, tax on electricity charges recovered from the occupants, and reversal of certain CENVAT credits, along with interest and penalties. A subsequent statement of demand also proposed denial of additional CENVAT credit.

Before the tribunal, the company argued that the extended period of limitation could not be invoked because the dispute involved interpretation of law. It also contended that the electricity charges represented reimbursement of actual consumption and that the CENVAT credit demands were barred by limitation.

The revenue argued that the sub-leasing activity attracted service tax. It also contended that there was no evidence to show the electricity charges were recovered only as reimbursement without any mark-up. The Revenue further maintained that the company had wrongly availed CENVAT credit on several input services.

On the electricity demand, the tribunal held that electricity is recognised as "goods." It observed that reimbursement or collection of actual electricity charges based on units consumed cannot be treated as consideration for a service. The tribunal therefore set aside the service tax demand on electricity charges.

Turning to the demand on sub-lease rentals and CENVAT credit, the tribunal first rejected the company's contention that the dispute involved interpretation of law. It found that no submissions had been made to show any ambiguity or dispute over the taxability of sub-lease rentals that would make the issue interpretational. The tribunal nevertheless held that the Revenue had failed to establish deliberate suppression with intent to evade tax.

The tribunal observed, “The OIO merely alleges the omission/ non-disclosure of tax liability in ST-3 returns, as reflecting the Appellants intention to suppress facts and evade duty, without recording any positive act of willful suppression.”

The tribunal noted that omission to disclose the tax liability in ST-3 returns, by itself, did not amount to suppression. It also found that the audit had not unearthed any transactions that were not recorded in the company's books of account. The tribunal therefore set aside the service tax demand on the sub-lease rentals and the CENVAT credit demand covered by the show cause notice as barred by limitation.

The tribunal, however, upheld denial of ₹12,706 towards certain inadmissible CENVAT credit covered by the subsequent statement of demand, along with applicable interest. It directed the adjudicating authority to verify the quantification before recovery. If there is any dispute over the calculation, the adjudicating authority must furnish the worksheet to the company, grant it an opportunity of hearing and pass a reasoned order.

Accordingly, the tribunal partly allowed the appeals.

For Appellant: Advocate Raghav Rajeev, 

For Respondent: M. Selvakumar, Authorised Representative