Pro-Rata, Development, Erection Charges Linked to Power Transmission Not Liable to Service Tax: CESTAT

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad Bench, has held that pro-rata charges, development charges and erection charges collected in connection with transmission of electricity are not liable to service tax, reiterating that all activities intrinsically linked to electricity transmission constitute a single exempt service under the Finance Act, 1994. The bench of Dr. Ajaya Krishna Vishvesha (Judicial Member) and Satendra Vikram Singh (Technical Member) has ruled that the extended period of limitation was wrongly invoked and remanded the matter for limited re-computation. The dispute arose from an audit covering the period March 2012 to March 2016, during which the department alleged non-payment of service tax on various charges collected by the electricity transmission utility, including material cost, erection charges, contingency charges, supervision charges, pro-rata charges, development charges, revenue loss charges and crop compensation charges. A show cause notice dated 1 September 2017 proposed a service tax demand of ₹33.43 lakh, along with interest and penalties under the Finance Act, 1994. In adjudication, the original authority dropped the demand relating to penal charges recovered from contractors but confirmed the remaining demand with interest and penalties. On appeal, the Commissioner (Appeals) held that crop compensation charges and revenue loss charges were not taxable, accepted exclusion of material cost, and remanded the matter for re-quantification due to lack of supporting documents. This led to the appeal before the Tribunal. The CESTAT bench, comprising Dr. Ajaya Krishna Vishvesha (Judicial Member) and Satendra Vikram Singh (Technical Member), examined the statutory framework and reiterated that transmission of electricity is exempt from service tax under Notification No. 11/2010-ST, Notification No. 45/2010-ST, and later under the negative list regime (Section 66D(k)). The Tribunal observed that all services ancillary or incidental to transmission must be treated as part of one composite exempt service. On pro-rata charges and development charges, the Tribunal noted that these amounts are collected to expand and strengthen the transmission network, meet future load growth and ensure uninterrupted power supply. As these charges are mandated by regulatory provisions, capitalised by the utility, and directly linked to its statutory obligation, the Tribunal held that no service tax can be levied on such collections. With respect to erection charges, the Tribunal relied on CBIC Circular No. 123/5/2010-TRU, holding that activities such as shifting of overhead cables and laying of transmission lines between substations do not amount to taxable services. Accordingly, erection charges recovered for such purposes were held to be outside the ambit of service tax. The Tribunal accepted that material cost represents reimbursement of actual expenses and is not taxable, while contingency charges refunded to consumers are also not liable. However, since exact figures were not furnished earlier, the Tribunal upheld the remand for fresh computation, without disturbing the findings on taxability. The Tribunal rejected the department’s reliance on the extended period of limitation, noting that similar show cause notices had been issued to other units and all material facts were already within the department’s knowledge. It held that any surviving demand must be restricted to the normal period of limitation, with interest and penalties to be re-determined accordingly. The Tribunal directed the adjudicating authority to re-compute the liability strictly in line with the findings, excluding exempt charges and confining any demand to the normal limitation period. The ruling significantly reinforces the principle that electricity transmission is a composite exempt service and ancillary charges cannot be artificially taxed in isolation. Case Details Case Title: Gujarat Energy Transmission Corporation Ltd Versus Commissioner Of Cgst & Central Excise- Gandhinagar Case No.: Service Tax Appeal No. 10866 of 2020- DB Date: 09.01.2026 Counsel For Appellant: J. C. Patel and Shri Rahul Gajera, Advocates Counsel For Respondent: Himanshu P Shrimali, Superintendent (AR) Click Here To Read Order Read More: Dept. To Pay 12% Interest on Refund of Unjustly Retained Pre-Deposit: CESTAT

Pro-Rata, Development, Erection Charges Linked to Power Transmission Not Liable to Service Tax: CESTAT

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