Centre against service tax waiver on transmission

Written by Sanjay Jog | Mumbai | Updated: Feb 19 2009, 05:53am hrs
The ongoing investment of Rs 55,000 crore by central transmission utility PowerGrid Corporation of India to lay a national transmission grid by 2012, as well as other transmission projects, either in JV or through private sector participation are in jeopardy as the Centre has turned down the power ministrys plea for service tax waiver on wheeling/transmission of power. At a crucial meeting held with the revenue secretary PG Bhide on Tuesday, the power ministry had argued that transmission of power is not subject to service tax.

The service tax imposed on the PowerGrid Corporation for 2006-07 is worth Rs 461 crore at 12.24%, Rs 557 crore in 2007-08 at 12.35% and for nine months up to December 2008-09 Rs 529 crore at 12.36%. In these three years, the service tax per unit totals up to two paise.

Any imposition of tax will hamper the electricity reforms of unbundling, which is still pending with various state electricity boards. The power ministry said wheeling of power is yet to be specifically included as a taxable services in the Service Tax Act. Besides, only licence holders are permitted to undertake transmission. The allocation of power from generating stations to beneficiaries are decided by concerned central/state government.

Power ministry sources told FE, Legislative intention is only to tax the outsourced activities. However, all the power transmission companies, including PowerGrid Corporation, are running the system on their own and the transmission charges have not been charged as outsourcing of the transmission system. Sources said transmission of power is not specifically covered under service tax, however, various transportation services like transportation of goods by road and via pipeline are covered. Business support services only covers outsourcing activities. Transmission is an independent core activity carried out by PowerGrid Corporation as such it cannot be called outsourced, sources added.

However, the revenue department and the service tax authorities said the demand for service tax is being made under managing distribution and logistics. It is being interpreted under business auxiliary service or business support services

Sources informed that PowerGrid Corporation has received service tax notices under Business Support Service for Rs 65 crore (May 2006 to August 2008) for north eastern region and Rs 413 crore (May 2006 to September 2008) for northern region. In addition, the department of revenue and service tax authorities have conveyed that penalty and interest also could be levied under various provisions of Finance Act, 1994.