Maharashtra AAR Rules 18% GST on MSETCL Line Shifting and Transmission Construction Services
Facts and Issues of the Case
In a recent ruling by the Maharashtra Authority for Advance Ruling (Maharashtra AAR), the question concerned the services rendered by the Maharashtra State Electricity Transmission Company Limited (MSETCL) when it undertakes certain works at the request of dedicated consumers (for example, government agencies like the National Highway Authority of India (NHAI), railways etc.). Specifically, MSETCL sought advance clarification on whether:
- The activity of shifting or height-raising existing transmission towers/lines belonging to MSETCL, when done at the request of a dedicated user (for example because the user needs widening of highways, or railway works).
- The activity of construction of new Extra High Voltage (EHV) sub-stations or EHV transmission lines for dedicated users by MSETCL through contractors, funded by deposits or supervision charges paid by the dedicated consumer (not general electricity consumers).
Would such services constitute a “supply” under the Central Goods and Services Tax Act, 2017 (CGST Act) / GST regime, and if so, whether they are taxable (and at what rate) or exempt under the notification governing the exemption of services relating to transmission and distribution of electricity. The applicant noted that the user pays an “adjustable deposit” for estimated cost of work (plus supervision charges to MSETCL) and that after work completion the asset is capitalized at Re. 1 in MSETCL’s books. The key issues, therefore, were: Is this activity a taxable supply of service? If yes, what SAC/HSN classification and what rate of GST apply? Are these services exempt because they relate to electricity transmission and distribution? Are the works simply acting as a “pure agent”? What is the time and value of supply? And what about input tax credit eligibility?
Observation by the AAR / Tribunal
The Maharashtra AAR meticulously analyzed the facts and the legal provisions. The AAR observed that the nature of work undertaken by MSETCL for a dedicated consumer is not the typical transmission of electricity supplied to general consumers. Rather, it is a contractually agreed activity at the specific request of a dedicated user, for example shifting or height-raising lines to facilitate the user’s project, or erecting new EHV infrastructure exclusively for that user. The AAR pointed out that such works are done on deposit basis by the user, with MSETCL appointing contractors for execution, after which the asset is capitalized in MSETCL books and the ownership remains with MSETCL (but the dedicated user gains benefit/use). The AAR found that this work does not fall under Entry 25 or Entry 25A of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (as amended) which provide exemption for:
- “Services by a transmission or distribution utility to an electricity consumer” (Entry 25) and
- “Services by way of metering equipment on rent, testing for meters/transformers/capacitors, releasing electricity connection, shifting of meters/service lines, issuing duplicate bills etc., which are incidental or ancillary to the supply of transmission or distribution of electricity” (Entry 25A).
The AAR held that the service in question is neither the supply of electricity to consumers nor an ancillary incidental activity, but the creation of infrastructure upon request of a specific consumer (dedicated user) for their dedicated use. Therefore, the exemption does not apply. Consequently, the AAR held that the activity amounts to a “supply” of service under Section 7 of the CGST Act. Further relying on Circular No. 178/10/2022-GST dated 03-08-2022, the AAR concluded the services fall under SAC 9997 (“Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act”) — though in many write-ups it is linked to SAC 9983/99833 (construction services) — and is taxable at 18% GST (9% CGST + 9% SGST). The AAR also observed on the input tax credit front that eligibility will depend on whether the resultant asset qualifies as “plant and machinery” under Section 17 of the CGST Act; if not, then the ITC may be restricted under Section 17(5)(d) (goods or services for construction of immovable property other than plant & machinery). The AAR further addressed that the “time of supply” will be determined under Section 13 and the “value of supply” under Section 15 of CGST Act.
Law Applicable
Under the CGST Act, Section 7 defines “supply” to include all forms of supply of goods or services or both made for a consideration by a person in the course or furtherance of business. The CGST Act also provides for time of supply (Section 13) and value of supply (Section 15). The exemption scheme for GST is given under Notification No. 12/2017 (Central Tax-Rate) as amended, which exempts certain services related to transmission and distribution of electricity. Entry 25 exempts services by transmission or distribution utilities to electricity consumers, and Entry 25A exempts certain incidental services (such as shifting of meters/service lines) which are “incidental or ancillary” to supply of electricity. The question thus hinges on whether the service by MSETCL is a service to an electricity consumer (in the sense of general consumption) or is an infrastructure-creation service for a dedicated user (which is outside the exemption). The Circular No. 178/10/2022-GST explains that services falling under “agreeing to do an act” (SAC 999792) are taxable at 18%. Also the input tax credit provisions: Section 16 allows ITC subject to conditions; Section 17(5)(d) restricts ITC on goods or services for construction of immovable property (other than plant & machinery) on own account. The AAR applied these legal provisions and held that the services in question fall outside the exemption, are supply of taxable service, and attract 18% GST.
Conclusion by the Tribunal / Court
The Maharashtra AAR concluded that the services provided by MSETCL — namely shifting or height-raising transmission towers/lines and construction of new EHV substations/lines for a dedicated user at the user’s request via deposit/supervision charge mechanism — constitute a taxable supply of service under the GST regime, and do not qualify for exemption under Notification No. 12/2017 (since the recipient is a dedicated consumer and not a generic electricity consumer, and the service is not incidental/ancillary to supply of electricity). As a result, the services are liable to GST at the rate of 18% (9% CGST + 9% SGST). The AAR further clarified that ITC eligibility will depend on whether the assets created are plant & machinery or immovable property (for which ITC could be restricted). The applicant should determine the time and value of supply in accordance with Sections 13 and 15 of the CGST Act. In effect, organisations and utilities involved in similar contracts should treat these works as taxable services and factor in GST of 18% rather than assuming exemption for transmission/distribution activities.
