No Service Tax Payable On Supply Of Water And Electricity To The Tenants: CESTAT

The Hyderabad Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that there is no requirement to discharge any service tax on the supply of water and electricity to their concessionaires or tenants, who were paying for these two utility services on an actual basis plus a markup of 10%.

The bench of Anil Choudhary (Judicial Member) and A.K. Jyotishi (Technical Member) has observed that the supply of water and electricity is essentially a sale of goods and therefore not chargeable under the provisions of the service tax.

The appellant/assessee entered into an agreement with various concessionaires. The agreement is for the grant of the right to use the various locations, which are primarily for use in the course of their business in the airport. As per the agreement, the concessionaires should utilize the locations for the sole purpose for which they are specified.

The appellants had also recovered the specified amounts towards the supply of electricity and water for the period October 2008 to June 2010 from the concessionaires, in addition to consideration for providing space as per the terms of the agreement with them against the right to use the space in the airport.

The government issued a notification dated June 22, 2010, providing exemption for various services provided within the port or airport, including the supply of water and electricity.

In the course of the audit of the accounts of the appellant, it appeared to the department that the appellant had recovered towards reimbursement of electricity and water charges, with an addition of 10% to actual expenses incurred by the tenants and licensees located within the premises of the airport.

The department noted that the amount recovered under these two heads falls under the taxable category of “Management, Maintenance, and Repair Service” under Section 65(64) of the Finance Act prior to July 1, 2010.

The SCN was issued on March 6, 2013, invoking an extended period of limitation and demanding a total amount of Rs. 1,47,74,774, including cess. Further, the SCN also proposed to disallow Cenvat credit availed on input services such as membership in clubs and outdoor catering, totaling Rs. 18,88,042. The SCN also proposed to demand interest and proposed the imposition of penalties under Sections 76, 78, and Rule 15 of the CCR.

The assessee contended that both electricity and water are "goods,” and thus the demand for service tax under these two heads is erroneous and fit to be set aside. The assessee is managing and running the airport, including navigation and non-navigation services. The airport is neither the property of the appellant nor of the concessionaires or tenants. The charges for water and electricity have been collected from the tenants and concessionaires on an actual basis, after adding 10% towards development charges under the agreement between the parties. By no stretch of imagination, the amount collected can be charged to service tax under the heading “Management, Maintenance, and Repair Service” (MMRS).

The department contended that the appellant has supplied electricity and water by way of service, and the tax has been rightly demanded.

The tribunal held that there was no liability for payment of service tax on the supply of water and electricity in view of Notification No. 12/2003 dated June 20, 2003.

Counsel For Appellant: Anil Kathuria

Counsel For Respondent: Chittaranjan W. Prakash

Case Title: GMR Hyderabad International Airport Ltd Versus Commissioner of Central Excise & Service Tax, Hyderabad - IV

Case No.: Service Tax Appeal No. 20883 of 2014

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