Power back-up services to attract VAT

Updated: Dec 7 2012, 07:30am hrs
Queries on taxation and service tax liabilities, addressed by Amit Bhagat & Jayanta Kalita of Ernst & Young.

We develop small residential complexes. Typically, we apply for a single electricity meter for the entire building. We also provide 100% power back- up to ensure continuous supply of electricity to residents. For such facility, we recover a fixed amount every month from flat owners. Should we deposit service tax for such charges under the negative list regime

From the information provided by you and on the preliminary analysis of your activity, it appears to us that you are providing power back up to all the apartments in the complex. We understand that such charges are an integral part of the agreement entered into with the flat owners/residents. In this case, one may adopt a position that since the power back-up services are provided along with other maintenance services such charges may attract service tax.

Alternatively, one may also view the transaction to be separate for supply of power back-up to the residents. In such a case, one may contend that such services may be opted for by the residents and are charged for separately. Additionally, electricity being in the nature of goods, supply of electricity would not amount to provision of services but sale of goods/trading. Therefore, charges for providing such power back-up would not attract service tax but VAT. However, the position is litigative. A definite position on this issue would depend upon on the precise facts of the case and terms of the agreement.

Exemption from SAD

We are an SEZ unit engaged in the manufacture and export of footwear. In certain months, when production exceeds demand, we clear some goods in the domestic tariff area (DTA) to our group company. Our group company is paying Customs duty on the purchase of such goods. However, we have been recently advised that the clearance of our goods from SEZ to DTA would not attract special additional duty (SAD), which is charged in lieu of sales tax. Is this correct

As per the SEZ regulations, an SEZ area is considered to be a foreign territory for the purpose of trade operations and duties/tariffs. Accordingly, where goods are supplied from an SEZ unit to DTA, the DTA unit would be liable to pay appropriate customs duty. Under customs notification no. 45/2005Cus, dated May 16, 2005, goods produced or manufactured within an SEZ and cleared to the DTA are exempted from SAD. This exemption would not be applicable in case the goods are exempt from sales tax/value added tax. In the present case, since the goods are manufactured by an SEZ unit, the group company would be exempt from the payment of SAD on such imports. However, in the event such footwear is exempt under the VAT schedules in the state of import, the DTA unit would be liable to pay SAD.

Cenvat credit regularisation

Our company is engaged in the activity of laminating on films and we are registered under the central excise law. We are currently paying excise duty after claiming Cenvat credit for inputs utilised for paper cutting/slitting activity. However, recently the excise officers have issued a notice declaring our activity as being a process not amounting to manufacture. Therefore, they have issued a show- cause notice demanding a reversal of Cenvat credit which we have taken for setting off against the excise duty paid on this activity. Kindly advise us.

Section 5B of the Central Excise Act, 1944 (the Excise Act) empowers the central government to regularise the Cenvat credit availed of by a manufacturer in cases where such manufacturer has paid excise duty on a process which is subsequently held by the Courts as not amounting to manufacture. In the light of this above section, the Central Board of Excise & Customs has clarified, vide Circular No. 911/ 01/ 2010CX, dated 14 January 2010 that where an assessee has paid duty on a particular activity which is subsequently held by the Courts as not amounting to manufacture, the assessee can approach the central government for regularisation of the Cenvat credit already availed of by him in relation to that process. Given the above, it is recommended that you review your case and accordingly, approach the central government for issuing an order in this regard for non-reversal of Cenvat credit already availed by you.

The replies do not constitute professional advice. Neither Ernst & Young nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to [email protected]