2026-VIL-1258-CESTAT-DEL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Declared Services - Taxability of Wheeling Charges and Cross Subsidy Surcharges - Transmission and Distribution of Electricity - Wheeling charges are collected for transmitting power from independent power producers to their customers through the distribution network. Cross-subsidy surcharges are collected to meet the requirements of current level of cross subsidy as per the Electricity Act and Regulations - Whether wheeling charges and cross subsidy surcharges constitute consideration for declared services under Section 66E(e) of the Finance Act and are leviable to service tax - HELD - Wheeling is nothing but transmission of electricity undertaken using the infrastructure as the power producer is not permitted to transmit electricity. Transmission is not leviable to service tax. Even assuming wheeling charges are collected as charges for permitting the power producer to transmit its electricity using the infrastructure, since it is an activity related to transmission of electricity and the main activity of transmission is done by the distribution company, wheeling charges would not be leviable to service tax - Collection of cross subsidy charges is provided under the Electricity Act and Regulations to meet the requirements of current level of cross subsidy within the area of supply of the distribution licence and is in relation to transmission and distribution of electricity and cannot be treated as a declared service since it is not for agreeing to tolerate an act of any other person. The cross-subsidy surcharges are not generated out of any service provided by the distribution company and therefore service tax cannot be levied on these charges. No service tax is leviable on wheeling charges and cross subsidy surcharges. The appeal is allowed and the impugned order is set aside - Service Tax - Extended Period of Limitation - Service Tax Not Levied or Short Levied - Scope of Proviso to Section 73(1) of Finance Act 1994 – Dept-Appellant contended that extended period of limitation under the proviso to Section 73(1) of the Finance Act 1994 was invokable as the Respondent had withheld material facts and failed to disclose receipts of wheeling charges and cross subsidy surcharges in service tax returns, and further failed to respond to summons for providing month-wise details of such charges - Whether the ingredients necessary to invoke extended period of limitation namely fraud, collusion, willful mis-statement, suppression of facts or contravention of provisions with intent to evade payment of service tax were established in the case - HELD - It is well-established that in order to invoke extended period of limitation one of the elements namely fraud, collusion, willful mis-statement, suppression of facts or violation of Act or Rules with intent to evade must be established, wherein mens rea is an essential ingredient to invoke extended period of limitation. In the present case, the Department itself was not aware about the levy of service tax on wheeling charges and cross subsidy surcharges. Not only the Respondent but even the Finance Ministry itself was not sure whether these were taxable - Neither the authority who issued the show cause notice nor the Respondent had any malafide intent. It was purely a question of interpretation. Absence of mens rea or fraudulent intention negates the invocation of extended period of limitation even if material facts were not initially disclosed - The order of the Commissioner dropping the demand for extended period of limitation is upheld and the appeal is dismissed
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