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Laying cables under or alongside roads
01 February, 2012 Ahmedabad :
Laying cables under or alongside roads

Providing water and electricity to its citizens consist of the most important duties of a government. It is a well known fact even in its 65th year of independence, the country have not been able to achieve 100% electrification. The concept of electricity is still unknown in many parts of India. Except for few states, major portions of the country are reeling under severe shortage of power resulting in long hours of load shedding. Although government policies designed during the last decades were conceptualized to encourage power generation even in the private sector, somehow the policies have failed to hit the target. This situation has resulted in constant demand for electricity from the Central Government and has also led to such states resorting to purchase of power from other surplus states at exorbitant prices. Needless to say the ill-designed policies of the political parties in power in such state governments reeling under power shortages, have put the state run power utility provider under huge losses.

Laying of cables is one of the important activity undertaken by the utility provider which account for a major portion of their budget. Cable laying are needed for conversion of overhead supply of electricity to underground system, on account of renovation / widening of roads, new areas to be covered under the distribution system, increasing the load capacity of existing areas, providing public amenities, electrification of railways so on and so forth. The work of laying of cables involves laying of electrical cables under or alongside roads / railway tracks, between grids / sub-stations / transformers, between the source and distribution points of residential, commercial complexes, public facilities etc.

After the introduction of service tax, such activity of laying of cables were subjected to tax. Service Tax being an indirect form of taxation, the ultimate burden of such taxes were borne by the utility provider, who were burdened with huge losses due to the wrong policies of the power hungry politicians. This levy also dissuaded private investments in the power sector.

With a view to provide relief to the utility provider and to attract private investments in the power sector the Central Board of Excise and Customs, New Delhi in its Circular No. 123/5/2010-TRU, dated 24.05.2010 clarified that the shifting of overhead cables & wires for any reasons such as widening/ renovation of roads, laying of cables under or alongside roads, laying of electric cables between grids / sub-stations / transformer stations en route, laying of electric cables up to distribution point of residential or commercial localities / complexes, railway electrification and electrification along the railway tracks will not attract service tax.

The circular does not provide exemption to laying of electrical cables undertaken by or on behalf of residential or commercial units or its developers or contractors but exempts the activity of laying of electrical cables undertaken by the utility provider i.e. power distribution company or its contractors, agents from the ambit of Service Tax. The Board has also clarified that installation of transformer/sub-station undertaken independently i.e. not by the utility provider but by the consumer/end user or his contractors or agents are also subject to Service Tax.

But by direct departure from their stand of promoting the power generation and distribution industry, the Board has further clarified that public utility services like installation of street lights, flood lights, traffic lights etc will be subjected to the levy of Service Tax. It is not clear why the Government wants to subject such services which are for the benefit of public at large to tax and put brakes on such projects undertaken for public good.

Disputes have arisen in many parts of the country regarding applicability of service tax on certain activities of cable laying. The above circular clarifies that shifting of overhead cables/ wires for any reasons such as widening/renovation of roads not a taxable service under any clause of sub-section (105) of section 65 of the Finance Act, 1994. However no clarity is given if shifting of overhead cable or wires is undertaken otherwise than widening / renovation of road.

Another area of dispute has arisen wherein power transmission companies have refused to reimburse the service tax paid by the tower erection companies, on the activities of ‘erection, commissioning or installation’ of tower structures in guise of exemption under the said circular, as they have extrapolated the scope of cable laying to include erection of towers. The Board vide the said circular has clarified that such activities remain outside of the purview of the taxable services only if they do not result in emergence of an erected structure. Such mis-interpretation is leading to different practices followed by different service providers.

The circular also clarifies that Laying of electric cables up to distribution point of residential or commercial localities/ complexes and Laying of electric cables between grids/sub-stations/ transformer stations en route is not a taxable service under any clause of sub-section (105) of section 65 of the Finance Act, 1994. However if the cables are laid beyond the distribution point of residential or commercial localities/complexes it will be termed as taxable activity under ‘commercial or industrial construction’ or ‘construction of complex’ services.

Electricity is slowly developing as basic need for our developing country. Taxing its ancillary activities is not a move which shall be welcomed by people at large. However as revenue is tapping all infrastructure projects for achieving their target, the projects of laying cable are also bound to bear the brunt of it.

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Courtesy: From the desk of Monish Bhalla, Founder, www.servicetaxonline.com
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