2026-VIL-519-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - Exemption for services relating to transmission and distribution of electricity – Appellant received services relating to erection, commissioning, installation and dismantling of transmission towers, lines and substations, as well as construction and allied works at substations, through contractors - Demand of service tax on various services received by the appellant, such as works contract service, manpower supply service, and rent-a-cab service, under the reverse charge mechanism - Whether the services received by the appellant for the purpose of transmission and distribution of electricity are exempt from service tax – HELD – The Section 66D(k) of the Finance Act, 1994 excludes “transmission or distribution of electricity by an electricity transmission or distribution utility”, from service tax. While Section 66D(k) excludes transmission or distribution of electricity by a utility, it does not expressly extend the exclusion to direct or ancillary services. However, transmission or distribution of electricity cannot be done in a vacuum and require the involvement of a transmission or distribution system supported by direct or ancillary services in successfully undertaking the said service. The principle that tax relief provisions for public utility services should be broadly or liberally construed to advance the legislative intent of public benefit is well-established tax jurisprudence - The Gujarat High Court in Torrent Power Ltd. v. UoI and the Rajasthan High Court in Jodhpur Vidyut Vitran Nigam Ltd v. UoI, held that the expression "transmission and distribution of electricity" encompasses not only the core activity but also all direct and ancillary services having a proximate and integral nexus, without which transmission or distribution would not be possible or commercially impracticable - The Tribunal applied the "dependence test" to determine whether the impugned services are integrally connected with the entire process of transmission or distribution of electricity, without which such service would be impossible or commercially inexpedient. The works contract service and manpower supply service are directly related to the transmission and distribution of electricity and are therefore exempt. However, the rent-a-cab service does not have a direct and proximate nexus with the transmission or distribution of electricity and is therefore would not be exempted from the payment of tax on partial reverse charge basis - while the demand warrants to be dropped on merits in the case of ‘works contract service’ and ‘manpower service’, the SCN is time barred in the case of ‘rent-a-cab service’ - The impugned order is set aside and the appeal is allowed
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