The cloud over the issue of whether power transmission is taxable or not is unlikely to be resolved any time soon, with the country?s only power transmission firm, Power Grid Corporation of India (PGCIL), and the finance ministry at loggerheads over the issue. As the ministry?s claim of Rs 1,200-crore service tax from PGCIL is yet to be paid, the uncertainty on the issue may threaten future investments in power transmission. In the absence of any directive from the Central Board of Excise and Customs on the issue, PGCIL has neither paid any service tax, nor has it been registered with the service tax authorities.
Service tax is levied at 10% (after a 2% cut, as part of the stimulus) on the income earned through the transmission of electricity or wheeling charges when a transmission firm allows the use of its network. The industry was hoping that the issue would be settled in Budget 2010-11 but the matter is unlikely to be addressed, according to government officials. ?The tax department had sought data from some power transmission firm but it hasn?t received it yet. In fact, the issue has taken a backseat. Any decision on it is not likely in the Budget session,? a senior official told FE.
Tax authorities feel power transmission falls under the ?business auxiliary service? category of services and hence, service tax should be levied on it. However, PGCIL and the power ministry feel the service should be exempt from service tax as the charge could levy an additional burden on the consumer. Tax experts also say a decision on tax liability should be announced soon in order to enable new firms in the same business to estimate their tax liability.
?There is no category under which power transmission service is taxable. The tax department says it is a business support service. Also, seeing the importance of a sector like power, infrastructure and land should be exempt from service tax,? said Prateek Jain, executive director, KPMG.
Tax authorities have already issued show-cause notices across the country worth Rs 1,200 crore to PGCIL through various service tax commissionerates. PGCIL, however, contested the claim, saying the charge, if levied, will be passed on to consumers. PGCIL is one of the largest transmission utilities in the world and accounts for about 45% of the total power generated in the country.