States urge finmin to keep power transmission out of service tax net

Written by Sanjay Jog | Mumbai | Updated: Nov 12 2009, 08:29am hrs
States that are struggling to achieve 11th Plan capacity addition targets have made a fresh appeal to the finance ministry not to levy service tax of 12.36% on power transmission. Besides, the central transmission utility Power Grid Corporation, which is engaged in the completion of national grid of 37,000 mw, has also appealed that the service tax on transmission be excluded. The issue is expected to come up for discussion at the meeting convened by the power ministry on November 15 with the states.

Power ministry sources told FE on Wednesday, Some states such as Orissa, Maharashtra, Karnataka and Delhi, which have either taken a legal course of action or in the midst of preparation for it, have strongly argued that wheeling of power is not specifically included as a taxable service and said service tax will hamper the electricity reforms of unbundling. Sources admitted that the finance ministry is yet to reconsider the levy of service tax on power transmission.

Further, states noted that only licence holders are permitted to undertake transmission and the allocation of power from generating stations to beneficiaries are decided by concerned central and state government. According to them, business auxiliary service is applicable only if service or promotion or marketing or sale of goods on behalf of another person/principal.

Besides, business support service was introduced to tax the outsourcing activities including managing distribution and logistics. However, states opined that power transmission companies have not outsourced nor are managing the transmission activities. They themselves handle the same. 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.

Morerover, states argued there is no specific provision in norms issued by the Central Electricity Regulatory Commission (CERC) to reimburse service tax in case the same is made applicable to transmission sector.