Petition No. 337/2010. Case: Power Grid Corporation of India Ltd. Vs Delhi Transco Limited and Ors.. Central Electricity Regulatory Commission
| Case Number | Petition No. 337/2010 |
| Counsel | For Appellant: Pradeep Mishra and Manoj Kumar Sharma, Advocates |
| Judges | Gireesh B. Pradhan, Chairperson, A.K. Singhal and A.S. Bakshi, Members |
| Issue | Income Tax Act, 1961 - Sections 119, 192, 193, 194, 194(c), 194-I, 194A, 194C, 194D, 194H, 194I, 194J, 194K, 194LA, 195, 197, 199 |
| Judgement Date | May 18, 2015 |
| Court | Central Electricity Regulatory Commission |
Order:
-
This petition has been filed by Powergrid Corporation of India Limited (PGCIL), under Regulation 21 of the Central Electricity Regulatory Commission (Sharing of Inter State Transmission Charges and Losses) Regulations, 2010 (hereinafter "Sharing Regulations") for removal of difficulties arising on account of billing, collection and disbursement of inter-State Transmission Charges which has been entrusted to the petitioner under the Sharing Regulations.
-
The petitioner has submitted that as per the Sharing Regulations, recovery of transmission charges of the ISTS licensee is based on the usage of the ISTS network and a composite Point of Connection (PoC) charge is assigned to each zone. The PoC charges so arrived for each zone are payable by the Designated ISTS Customers (DICs) in that zone. The petitioner has submitted that under the Sharing Regulations, the petitioner has been entrusted with the responsibility for raising the bills and collection of PoC charges on behalf of all ISTS licensees and thereafter, disbursement of the collected transmission charges amongst the eligible ISTA licensees (hereinafter referred to as 'BCD activity'). The petitioner has submitted that the sharing mechanism under the Sharing Regulations apart from being an intricate exercise also throws up a host of challenging tax related issues and the petitioner being entrusted with the BCD activity is particularly, impacted in this regard.
-
The petitioner has submitted that being a commercial organization, the petitioner is subject to all provisions of the Income Tax Act, 1961 and Finance Act,1994 with regard to service tax and no special dispensation is provided for the petitioner. The petitioner has further submitted that at the stage of draft Sharing Regulations, the petitioner had raised the queries regarding Tax Deducted at Source(TDS). However, in the Statement of Reasons issued on 11.6.2010, the Commission after consultation with the Income Tax experts had clarified that "considering the materiality of the amount of TDS to be deducted from the other transmission licensees and annual tax liability of the CTU which is more than 2.5%, it may not hamper the cash flow of the CTU. Moreover, CTU can apply for TDS exemption under the provisions of Section 197 of the Income Tax Act."
-
The petitioner has submitted that after examination of the issues in consultation with concerned tax experts, the following difficulties have emerged:
"(a) The premise that TDS is deducted by all the beneficiaries @ 2% under Section 194(c) of the Income Tax Act which was the basis of Commission's decision is not aligned to reality as TDS is actually deducted by a set of beneficiaries @ 10%. The petitioner approached the Tax authorities under Section 197 of the Income Tax Act for allowing deduction of TDS @ Nil or utmost @ 2%. However, the Tax authorities have refused to grant any certificate for lower deduction. Moreover, there is no provision in the Income Tax Act for deduction/rate of deduction of TDS on transmission charges and the views of Tax authorities vary from one jurisdiction to another. Transactions by the petitioner during disbursement of the transmission charges to other ISTS licensees also call for TDS and the debate for applicable rate of TDS would once again surface and may lead to litigation.
(b) TDS is deducted on the gross billing whereas the petitioner is liable to pay the income tax on its profits quarterly/annually and therefore, there is bound to be difference between the TDS pool and its quarterly/annual tax liabilities. If the TDS rate does not exceed 2% as per Section 194(c) of the Income Tax Act, the differential impact is expected to be within tolerance limit. Since some of the State, IT authorities are insisting on deduction of tax @ 10%, there will be significant differential impact between TDS pool and the IT liability of the petitioner leading to substantial cash flow risks. The risk can be mitigated if Central Board of Direct Taxes (CBDT), Ministry of Finance is persuaded to undertake some procedure to streamline the system of TDS on the billing of transmission charges.
(c) The petitioner had raised the issue of service tax during the process of making the Sharing Regulations that service tax will be applicable if the billing is done by CTU as an agency of other licensees. The Commission in the Statement of Reasons issued on 11.6.2010 had clarified that "the Regulation stipulates signing of a Revenue Sharing Agreement between the CTU and the Transmission Licensees. In this set-up, CTU shall only bill for the transmission service which are exempted from service tax." The clarification does not fully meet the attendant issues regarding service tax which remain unresolved. The two service activities envisaged under the Sharing Regulations are transmission service and BCD activity. Presently, transmission service is exempted from service tax. However, BCD activity being undertaken by the petitioner is a distinct activity which is not exempted from service tax. BCD activity falls under Business Support Services and shall be under the ambit of taxable service and as such shall be liable for service tax. A suitable methodology for reimbursement of the service tax on BCD activity to the petitioner needs to be provided for in the Sharing Regulations.
(d) Since the PoC represents a composite charge of all ISTS licensee's transmission charges, in the event of default/partial payment of PoC by any DIC, there is no mechanism to establish default against the dues of any particular ISTS licensee. The continuance of the payment security mechanism may be ensured which is presently in the form of Tri-partite Agreement between Government of India, State Government and Reserve Bank of India (RBI)."
-
The petitioner has submitted two possibilities to resolve the taxation issues in relation to TDS as under:
(a) Option A: As per the Sharing Regulations, transmission accounts are to be generated by RPCs which will state the total transmission charges to be paid by each DIC towards use of ISTS. The transmission charges to be paid by the DICs shall be apportioned to each ISTS licensee in proportion to their Yearly Transmission Charges. The petitioner in its capacity as CTU is prepared to act as an authorized agency on behalf of the ISTS licensees, to bill the aforesaid amount to the DICs and also to assist ISTS licensees in collecting the same. The amount shall be directly paid by the DICs to ISTS licensees. This will facilitate clean accounting and mitigate a host of tax related issues.
(b) Option B: The Commission may take up the matter with Ministry of Finance to resolve the tax related issues.
-
The...
To continue reading
Request your trial