INTRODUCTION of Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY):

 

To achieve the objective to electrify all villages and habitations and to provide access to electricity to all rural households and provide electricity Connection to Below Poverty Line (BPL) families free of charge, a new scheme had been launched by the Government in April 2005 known as the “Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) – Scheme for Rural Electricity Infrastructure and Household Electrification."

 

Since the target of providing access to electricity to all households which is proved to be a daunting task, today many Infrastructure companies recognizing that electricity being one of the key drivers for rapid economic growth and poverty alleviation, are entering into Rural Electrification projects with various power distribution companies Under the RGGVY Scheme, such as South Bihar Power Distribution Companies so that million people in various districts are benefitted.

 

Further here the service tax chargeability has been discussed in respect of the companies entering into Rural Electrification programmes under RGGVY-Rural Electrification Scheme.

 

Service tax chargeability for orders placed by South Bihar Power Distribution Companies Ltd.(SBPDCL) with various Infrastructure companies for rendering Rural Electrification services such as erection & commissioning of power transformer, distribution Transformer, sub Stations, Control Room Building, structures, cable laying etc including civil work under RGGVY-Rural Electrification Scheme.

 

As per the necessary amendments in the Finance Act 2012 effective from 01.07.2012 all services shall be chargeable to service tax with the exception of services specified in the Negative List & services exempted from the levy of service tax vide Notification No 25/2012 dated 20.06.2012.

 

As per Point No 12(a) of Exemption Notification No 25/2012, Services provided to the Government, Local Authority or a Governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a civil structure or any other original works meant predominately for use other than commerce, industry or any other than for commerce, industry or any other business or profession.

 

Based on the interpretation of Point No 12(a) of Exemption Notification No 25/2012, we have to understand whether rural electrification services provided to South Bihar Power Distribution Companies Ltd (SBPDCL) falls within the ambit of service tax or are exempted.

 

Exemption should be granted if falling conditions are satisfied:

 

• Specific services are in relation to civil Structure or any other original work.
• Its usage is predominately for use other than commerce, industry or any other business or profession.
• Recipient of service falls within the ambit of Government, local or Governmental Authority.

As per the analysis of the term original work, erection & commissioning of power transformer, distribution Transformer, sub Stations, Control Room Building, structures, cable laying, is covered in the definition of original work.

 

Secondly the primary objective of electrification should not be for commerce, industry, business or profession i.e. organizations or institutions being established solely for educational, religious, charitable, health, sanitation or philanthropic purposes& not for profit making or commercial purpose. As per our analysis we can form the opinion that infrastructure companies providing rural electrification services to government bodies can be interpreted as services provided for philanthropic purpose i.e. services provided showing concern for humanity or for welfare of others. Rural Electrification service is service provided for benefitting people below poverty line in rural areas so it is not a commercial profit making purpose. Thus second condition in our perspective is satisfied.

 

Thirdly service recipient i.e. South Bihar Power Distribution Companies Ltd.(SBPDCL) being Public Sector Undertaking neither falls under the definition of Government nor Local authority but may satisfy all the three conditions of Governmental Authority being.

 

• It has been established with 90% or more participation by way of equity or control by the Government.
• The entity has been set up under the Act of parliament or State Legislature.
• It should be formed to carry out the functions under Article 243W of the constitution.

So as per the first condition, SBDCL is established with more than 90% by way of equity from Bihar State Power Holding Company Limited (BSPHL). Further BSPHCL has been established with more than 90% by way of equity from Government of Bihar. Thus the first condition is deemed to be met as per our examination.

 

A statutory body, corporation or an authority created by the Parliament or a State legislature is neither ‘Government’ nor a ‘local authority’ as would be evident from the meaning of the respective terms as defined in General Clauses Act, 1897 since CBEC has clarified that the phrase ‘Government’ has not been defined in the Finance Act. Such statutory body, corporation or an authority are normally created by the Parliament or a State Legislature in exercise of the powers conferred under article 53(3)(b) and article 154(2)(b) of the Constitution respectively. It is a settled position of law of Government (Agarwal Vs. Hindustan Steel AIR 1970 Supreme Court 1150) that the manpower of such statutory authorities or bodies do not become officers subordinate to the President under article 53(1) of the Constitution and similarly to the Governor under article 154(1). Such a statutory body, corporation or an authority as a juristic entity is separate from the state and cannot be regarded as Central or State Government and also do not fall in the definition of ‘local authority’. Thus regulatory bodies and other autonomous entities which attain their entity under an act would not comprise either government or local authority. Here BSPHL has been set up and vested with the interest in property, rights & liabilities of Bihar State Electricity Board & as per Government of Bihar’s decision the Board is to be recognized under the provisions of Part-XIII of Electricity Act 2003.Thus it can be concluded that Bihar State Electricity Board has been set up by an act of legislature.

 

Thirdly, in respect of functions entrusted to a municipality under article 243W of the Constitution, following clarification has been provided by CBEC, ‘Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow—

• The Municipalities with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as may be specified therein, with respect to—
  • The preparation of plans for economic development and social justice.
  • The performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule.
• the Committees with such powers and authority as may be necessary to enable them to carry out the responsibilities conferred upon them including those in relation to the matters listed in the Twelfth Schedule.’
  
  Matters listed in twelfth schedule are:
  
  • Urban planning including town planning.
  • Regulation of land-use and construction of buildings.
  • Planning for economic and social development.
  • Roads and bridges.
  • Water supply for domestic, industrial and commercial purposes.
  • Public health, sanitation conservancy and solid waste management.
  • Fire services.
  • Urban forestry, protection of the environment and promotion of ecological aspects.
  • Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.
  • Slum improvement and upgradation.
  • Urban poverty alleviation.
  • Provision of urban amenities and facilities such as parks, gardens, playgrounds.
  • Promotion of cultural, educational and aesthetic aspects.
  • Burials and burial grounds; cremations, cremation grounds; and electric crematoriums. (Para 7.3.2).

Further Services by a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution are only exempt and not all service provided by governmental authority are exempt (Para 7.3.3)

 

Since “Rural electrification” will pace up the process of economic development & poverty eradications in rural & remote inaccessible areas, it can fall under the ambit of the functions mentioned in point (iii), (ix) or (x) listed under the twelfth schedule. Thus the third condition is deemed to be satisfied.

 

Hence it can be said based on the interpretation of the above three conditions that South Bihar Power Distribution Companies Ltd.(SBPDCL) falls within the meaning of governmental authority.

 

Conclusion :

 

Thus on the basis of following observation we can conclude that rural electrification services provided to South Bihar Power Distribution Companies Ltd.(SBPDCL) under RGGVY may not fall under the ambit of service tax based on the Point No 12(a) of Exemption Notification No 25/2012 analysis.

 

However the primary objective of SBPDCL is distribution of electricity on commercial basis & it is not exclusively engaged in rendering above services. Thus still the applicability of service tax in the above situation can be raised.

 

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