The Uttar Pradesh Authority for Advance Ruling (AAR) recently ruled that Goods and Services Tax (GST) is not payable by an electricity distribution company ( DISCOM ), when the procurement of materials and installation of electricity distribution systems are done entirely by the consumers, with the DISCOM serving in a supervisorial role only. The Application for Advance Ruling was filed by Pashchimanchal Vidyut Vitran Nigam Limited, a subsidiary company of the state-owned Public Sector Undertaking Uttar Pradesh Power Corporation Ltd. based in Meerut, Uttar Pradesh.
The DISCOMs are distributors licensed through the Electricity Act, 2003 and are involved in the development, maintenance and operation of distribution systems in the State of UP. Additionally, the DISCOMs also undertake ‘deposit works’ including providing assistance in the development of electricity infrastructure as requested by consumers or intending agencies in accordance with the provisions of Section 40 of the Electricity Act, 2003 and Clause 4 of the Electricity Supply Code, 2005. Know When to Say No to Cash Transactions, Click Here The present Application, among other issues, queries the GST payable on the Method of Deposit Work where entire work and material are arranged by the consumer(s) including hiring contractors for the installation work.
The DISCOM’s responsibility in this instance is to supervise the commissioned work and ensure their adherence to the technical standards of operation and maintenance of distribution lines as specified by the Central Electricity Authority/ Central Regulatory Commission. As remuneration, the consumer is required to pay supervision charges and shut down charges with GST at a fixed percentage, based on total cost estimate to the DISCOM.
The two-member Bench of the Uttar Pradesh Authority for Advance Ruling comprising Amit Kumar, Central Tax Member and Harilal Prajapati, State Tax Member observed that the where the value of materials and cost of execution of work for installation of electric lines are borne by the recipient of service and the applicant charges supervision fees only, the Applicant shall not be liable to pay GST on the value of such materials and installation. Know When to Say No to Cash Transactions, Click Here Moreover, the Bench ruled that such supervisory work undertaken by the Applicant qualifies to be a supply in terms of Section 7 of the CGST Act, and that the value of material and cost of installation shall not be included in the value of supply for determination of taxable value under GST laws, with the Applicant being liable to pay GST on the supervision charges received by them only.