1. Back Ground

Facts:

The applicant is a company registered under the companies act 1956 vide registration no 028687 (CIN No. U40101UP2004SGC028687) with its registered office at Vidyut Shakti Bhawan, 14A Ashok Marg Lucknow UP. It was established on 31^st May 2004 by Government of Uttar Pradesh.

Under the provision of the Electricity Act, 2003, UPPTCL has been declared as State Transmission Utility (STU) by Government of Uttar Pradesh. As per section 40 of The Electricity Act, 2003, the duty of a transmission licensee is to build, maintain and operate an efficient, coordinated and economical inter-State transmission system or intra-State transmission system. As the UPPTCL is a transmission licensee and being an owner of its transmission system, the exclusive right of modification/ augmentation/ shifting/ additions to its transmission system (hereinafter referred as Deposit Work) remains with UPPTCL. Further, section 34 of Electricity Act 2003 deals with ‘Grid Standards’ and it stipulates that every transmission licensee shall comply with such technical standards, of operation and maintenance of transmission lines, in accordance with the Grid Standards, as may be specified by the Central Electricity Authority. Relevant extracts of aforesaid provisions of the Electricity Act 2003 are as under:-

Section 40 – Duties of transmission licensees

It shall be the duty of a transmission licensee-

1. a) to build, maintain and operate an efficient, coordinated and economical inter-State transmission system or intra-State transmission system, as the case may be;
2. b) to comply with the directions of the Regional Load Dispatch Centre and the State Load Dispatch Centre as the case may be;
3. c) to provide non-discriminatory open access to its transmission system for use by-

(i) any licensee or generating company on payment of the transmission charges; or

(ii) any consumer as and when such open access is provided by the State Commission under sub-section (2) of section 42, on payment of the transmission charges and a surcharge thereon, as may be specified by the State Commission:

Section 34 – Grid Standards

Every transmission licensee shall comply with such technical standards, of operation and maintenance of transmission lines, in accordance with the Grid Standards, as may be specified by the Authority.”

As a transmission licensee, UPPTCL is required to develop transmission system in the State of Uttar Pradesh and provides the pathway for power within whole of Uttar Pradesh. UPPTCL owns, builds, maintains and operates the high-voltage electric transmission system that helps to keep the lights on, businesses running and communities strong. The main source of revenue of UPPTCL is the Transmission Charges as per tariff decided by the Uttar Pradesh Electricity Regulatory Commission (UPERC), which are recovered from the State DISCOMS and other customers against services of Transmission of electricity through the Transmission system. The transmission system so developed is accounted for as Fixed Assets in the books of UPPTCL to be depreciated over a useful life as per UPERC Tariff Regulations. Simultaneously the Transmission charges are recovered as per Tariff approved by the UPERC against services of Transmission of electricity through the Transmission system.

In terms of GST Notification No. 12/2017 Central Tax (Rate) dated 28th June 2017, as amended, the services of transmission of Power by an electricity transmission utility are subject to NIL rate of GST.

In addition to the principal activity of providing services of Transmission of electricity, the applicant is also providing services in the form of Deposit Works for various consumers/ intending agencies, which comprise deposit works to the existing transmission system of the applicant. Sometimes additions are made to the existing transmission system of the applicant or the existing system is modified/ augmented/ shifted on the specific request of the consumer/ intending agency, which is termed as ‘Deposit Works’ by the applicant. The consumer/intending agency asks for the addition to the transmission system of the applicant generally for the places where such transmission system does not exist or some time asks for modification/ shifting of transmission system from one place to another as per their specific requirements.

As discussed, aforesaid, as per Regulatory requirement of Electricity Act 2003, since the exclusive right of deposit work to the applicant’s transmission system remains with the applicant and it has also to comply with the technical Grid standards of operation and maintenance of transmission lines specified by the Central Electricity Authority, the deposit work to the applicant’s transmission system is carried out on the request of consumer/intending agency under two methods/options, i.e.

1. either whole work is executed by the applicant or
2. the whole work is executed by the consumer/intending agency under the supervision of the applicant.

Under both options the ownership of the transmission system after execution of deposit works shall remain with the applicant in the capacity of a State transmission licensee as per the provisions of the Electricity Act 2003.

Option-1

When whole work is done by the applicant itself at the requirement/ instance of the consumer/intending agency

In this case the whole cost is incurred by the applicant and such cost including other charges/overheads plus GST is recovered by the applicant from the consumer/ intending agency. Being a transmission licensee, the ownership of the transmission system requiring modification/ augmentation/ shifting/ additions remains with the applicant even though the cost/charges are borne by the intending agency/consumer.

The applicant being the owner of such transmission system is accounting in its books by creating Asset on one hand and Income on the other hand.

Option-2

When work is to be done at the requirement/ instance of the consumer/ intending agency on supervision basis, i.e., work is got done by the consumer/intending agency itself under the supervision of applicant.

Under this option the whole expenditure is directly incurred by the consumer/ intending agency itself, however, such consumer/intending agency is responsible for getting the design/drawings approved from the applicant for material/work and to arrange for inspection of material at manufacturer’s site, if required by the applicant. Under this option the consumer/ intending agency is required to pay supervision charges to the applicant calculated at fixed % on the total cost estimate and shutdown charges with GST. A demand note is also raised for GST on total cost estimate, i.e., on the value of asset/infrastructure built/ modified by the consumer/ intending agency itself by treating the amount incurred by it as value of supply of service in accordance with Section 15(2) (b) of the GST Act 2017.

The deposit works of Transmission system on supervision basis generally involves following actions:-

1. All work is supervised by the competent team of UPPTCL.
2. The work has to be got done as per the norms of the UPPTCL.
3. The Consumer/ Indenting agency is responsible for getting the design/drawings approved from UPPTCL for material/work and shall arrange for inspection of material at manufacturer’s site, if required by UPPTCL.
4. In case of work involving modification/ shifting of the existing TransmissionAsset/Infrastructure, the new transmission asset/infrastructure is built/created first at a particular trench (where modification is required) so that the electricity supply in the related areas is not affected. After completion of such work of new transmission asset/infrastructure, shutdown (of electric flow) takes place for disconnecting old line at a particular trench (where modification is required) and connecting new line. The old asset/ Infrastructure (Line) is then dismantled. Therefore, practically new asset/ infrastructure is created even in case of shifting/modification. The applicant also remains the owner of the dismantled material/scrap.

1. Being a transmission licensee under the Electricity Act 2003, the applicant will be the owner of the asset/infrastructure built/modified even though the cost/ charges are borne by the intending agency/ consumer.

2003. Therefore, under both the methods/options, the ownership of the asset/ infrastructure built/ modified remains with the applicant only is being a Transmission Licensee under the Electricity Act 2003. The only procedural difference in the two methods/options is that in the first option, the complete deposit works are executed directly by the applicant with recovery of costs as per cost estimate with taxes and in the second option the work is got executed by the consumer/ intending agency under supervision of the applicant. The cost is directly incurred by the consumer/ intending agency, still the applicant is exclusively liable and responsible for modification/alteration of the transmission infrastructure as per Electricity Act 2003 so as to comply with the grid standards and that’s why the work is mandatorily to be executed under the supervision of the applicant. Thus, according to section 15(2) (b) of GST Act, 2017, the cost of such asset/infrastructure incurred by the consumer/intending agency is to be included in the value of supply. However, certain consumers / intending agencies are of the view that GST should not be charged by the applicant on the cost incurred by customer/intending agency directly.

 

2.Question Raised

1. Whether facilitating the execution of works requiring modification/ augmentation/ shifting/ additions to the transmission system of UPPTCL at the specific request of the consumer/intending agency under Deposit Work is a `Supply’ in terms of Section 7 of the CGST Act, 2017?
2. If the Deposit Work as aforesaid is a ‘Supply’, what shall be the value of the supply in terms of Section 15 of the GST Act, 2017 in the event of :
   1. Work executed by UPPTCL itself
   2. Work executed by the consumer/ intending agency under supervision of UPPTCL

3.Analysis

The applicant is engaged in providing services/ facilitation to customers/ intending agencies under Deposit Works to the UPPTCL’s transmission system in two options. Under the first option where complete work is executed by the applicant itself for customer/intending agency, complete cost incurred by the applicant (comprising of material cost, labour charges, overhead and other charges) is recovered from the consumer/intending agency along with GST. Under the second option, the customer/intending agency executes the work itself under the supervision of the applicant.

As per section 40 of Electricity Act 2003, the duty of transmission licensee is to build, maintain and operate an efficient, coordinated and economical transmission system. Further as per section 34, every transmission licensee is required to comply with the technical grid standards, of operation and maintenance of transmission lines as specified by the Central Electricity Authority. As the applicant is a State transmission licensee under the Electricity Act 2003, therefore it owns the transmission system/ infrastructure with exclusive right and responsibility of its deposit work of transmission lines.

When deposit work is done by the consumer/intending agency itself under the supervision of the applicant. Under this option the consumer/intending agency is required to pay supervision charges to the applicant calculated at fixed % on the total cost estimate along with GST.

Being a transmission licensee under the Electricity Act 2003, the applicant will be the owner of the asset/infrastructure built/modified even though the cost/charges are borne by the intending agency/consumer. Thereby, the asset/infrastructure built/ modified by the intending agency/consumer under supervision of the applicant is required to be transferred to applicant and any expenditure or taxes incurred or to be incurred by the applicant is to be borne by the consumer/intending agency. In this transaction, though the expenditure in actual is incurred by the consumer/intending agency but the applicant being the owner of the asset/infrastructure under Regulations, account it in its books by creating Asset on one hand and Income on the other hand as a `Consumer Contribution’.

In other words, we observe that even though the expenditure and the work in actual is done by the consumer / intending agency but the same will be treated as the work has been done by the applicant.

Therefore, under both the methods/options, the ownership of the asset/infrastructure built/modified remains with the UPPTCL only.

It is also pertinent to mention here that both these cases are transactions of supply of pure services and there is no supply of goods. The only procedural difference in the two methods/options is that in the first option, the complete deposit works are executed directly by UPPTCL with recovery of costs as per cost estimate plus taxes and in the second option the work is got executed by the consumer/intending agency itself (by incurring costs directly) under the supervision of UPPTCL with payment of supervision & other charges with taxes along with tax on the value of asset/infrastructure built/modified by the consumer/intending agency itself, by treating it as value of supply of service in accordance with Section 15(2)(b) of the CGST Act 2017.

The term ‘supply’ has been defined in Section 7 of GST Act, 2017 and it includes all forms of supply (goods or services) and includes agreeing to supply when they are for a consideration and in the course or furtherance of business. It specifically includes sale, transfer, barter, exchange, license, rental, lease or disposal.

For a transaction to qualify as ‘supply’, it is essential that the same is ‘in the course or furtherance of business’.

For the purpose of transaction to be covered under the “Scope of Supply” under Section 7(1)(a) of GST Act, 2017, following four components are important:

• There must be any one of the forms of supply, involved, viz. of sale, transfer, barter, exchange, license, rental, lease or disposal.
• Such supply should be for a consideration.
• It should be made by a person (supplier).
• It should be in the course of or in furtherance of business.

In the instant case, the transaction of facilitating the execution of deposit works to the applicant’s transmission system at the specific request of the consumer/ intending agency is included under the ‘scope of supply’ in terms of section 7 of GST Act, 2017 as the same fulfils all the essential ingredients of ‘supply’ as it is a supply of service in the form of facilitation.

Further there is a consideration as the construction activities carried out by the customer / intending agency will ultimately be the property of the applicant. Also, the applicant by facilitating the access to its transmission system becomes the supplier of services and the activities are duly in the course of furtherance of business.

Thus, all the ingredients of section 7(1)(a) are present to be categorized the transaction as supply of services.

Considering the fact that the ownership of asset remains with the applicant, it is evident that the execution of works requiring deposit works is a facilitation for the access/use of such transmission system and thus such facilitation is a ‘supply’ of services.

Further act of facilitating the execution of deposit work falls under the term ‘to do an act’ as specified in clause (e) of para 5 of Schedule II referred in Section 7 to the GST Act 2017. Same is reproduced as under:-

Section 7

 

(1A) Where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.

 

Schedule II of CGST Act 2017: Activities or transactions to be treated as supply of goods or supply of services:

Para 5, clause (e) – agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; shall be treated as supply of service.

Thus, the act of facilitating the execution of works requiring modification / augmentation / shifting / additions to the applicant’s transmission system are a ‘supply’ of services.

In a contract of supply of services, there are two parties, i.e., supplier of services and recipient of services. In respect of supply of goods or services, three methods of payment have been considered- by way of money, goods in kind, services in kind. Thus, consideration includes the payment in money, payment in kind through goods, and payment in kind through provision of services.

The applicant is the supplier and the consumer/ intending agency is the recipient of service.

The services of facilitating the deposit work to the applicant’s transmission system on specific request of the consumer/intending agency for a consideration is subject to charge of GST as the following conditions are satisfied –

1. Services are provided by one person (UPPTCL) to another person (consumer/ intending agency).
2. Services are not in the exempted list.

• Services are provided in taxable territory.

For this service of facilitating the recipient, the applicant is receiving the consideration from intending agency/ consumer in three components:-

1. supervision charges (in cash);
2. ownership of asset created due to deposit work (in kind/barter – the cost thereto is directly incurred by the consumer/ intending agency and practically new asset/ infrastructure is created even in case of modification/ shifting as discussed aforesaid).

In case this deposit work is to be executed directly by the applicant, the consideration to be received from the consumer/ intending agency would be total cost estimate (including overhead and other charges) with GST

Section 15 of the GST Act, 2017 deals with valuation of supply of goods and services. Valuations under the GST law refer to ‘value of taxable supply‘. The value of a supply of goods or services shall be the transaction value, that is the price actually paid or payable for the said supply of goods and/or services where the Supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. The value of supply shall include amount that the applicant is liable to pay but which has been incurred by the recipient, by reason of, or in connection with the new infrastructure created.

In the present case where the deposit work is undertaken by the consumer/intending agency under supervision of the applicant, the cost is directly incurred by the consumer/ intending agency, still the applicant is exclusively liable and responsible for modification/ alteration of the transmission infrastructure as per Electricity Act, 2003 so as to comply with the grid standards and that’s why the work is mandatorily to be executed under the supervision of applicant. Thus, as per the above discussions, since the applicant is liable and responsible for such work, therefore, according to section 15(2)(b) of GST Act, 2017, the cost of such asset/ infrastructure incurred by the consumer/intending agency is to be included in the value of supply.

Therefore, in view of the above discussion, the transaction of facilitating the execution of deposit works to the applicant’s transmission system at the specific request of the consumer/intending agency amounts to ‘supply’ in terms of section 7 of GST Act, 2017 as the same fulfils all the essential ingredients of ‘supply’, more particularly when the ownership of asset remains with the applicant, the deposit work is a facilitation for the access/use of such transmission system and thus in our view such facilitation amounts to ‘supply’ of services.

Therefore, in addition to supervision/ shutdown charges, by virtue of section 15(2) (b) of GST Act, 2017 the cost incurred by the consumer/intending agency, for creating the infrastructure is also required to be included in the transaction value and to be considered as value of supply for the purpose of levy of GST.

When the applicant incurred such cost, then GST would automatically be leviable on total transaction value without any recourse to section 15(2)(b) of GST Act, 2017.

Accordingly, even when the cost of deposit work to the applicant’s transmission system is incurred by the consumer/intending agency itself, such cost is also required to be included in the transaction value and to be considered as value of supply for the purpose of levy of GST in terms of section 15(2)(b).

In our view, the transaction of facilitating the execution of works (Deposit Work) to the applicant’s transmission system at the specific request of the consumer/intending agency is covered under the ‘scope of supply’ in terms of section 7 of CGST Act, 2017.

As the deposit work itself is a supply, in the event of work executed by the applicant itself, ‘Value of Supply’ in terms of Section 15 of the GST Act 2017 shall be the total cost estimate (including overhead and other charges) as per section 15 of the CGST Act, 2017.

In the Second Option, Work executed by the consumer/intending agency under supervision of UPPTCL ‘Value of Supply’ in terms of Section 15 of the GST Act 2017 shall comprise-:

4.Conclusion

We conclude that:-

• Facilitating the execution of work (Deposit Work) by the applicant to the consumer/intending agency is covered under the ‘scope of supply’ in terms of section 7 of GST Act, 2017.
• In both the cases as mentioned by the applicant, value shall be the transaction value, that is the price actually paid or payable in terms of Section 15 of the GST Act 2017.