The government has forfeited a service tax claim of over Rs 2,200 crore on Power Grid Corporation, a move that could facilitate smooth sailing for the proposed stake sale in the country’s largest transmission utility.The finance ministry has issued a notification relieving the transmission utility of any liability towards payment of service tax, a government official said. The finance minister had withdrawn service tax on power transmission in the Union budget 2010-11.Industry analysts said the move was good from the investor perspective as it removed a contingent liability from the balance sheet of the company.
“It removes uncertainty and presents a clearer financial picture of the organisation,” said Kuljit Singh, partner, infrastructure and real estate at consulting firm Ernst&Young.The move will also lift confusion over the tax treatment of transmission services and help the company step up investment in the fund-starved sector.
The decision will also benefit a host of state power utilities that were also slapped with showcause notices. Some utilities had approached courts and secured stay orders against the levy.“We are happy that the government has finally accepted our plea. It will not only help the company plan its investments freely, but also will prevent consumers from any rise in transmission tariff,” Powergrid chairman and managing director SK Chaturvedi said.
Power Grid was slapped with a showcause notice last year for non payment of tax from a period starting May 2006. Powergrid said the claim was around Rs 2,041 crore for the period between May 1, 2006 and March 31, 2009.
During this period, power transmission was considered for service tax by the revenue department under the head of ‘business support services’. The levy was made even though power transmission was mentioned in the schedule of items on which service tax can be levied. In the absence of any directive from the Central Board of Excise and Customs on the issue, Powergrid neither paid any service tax for the aforesaid period nor got itself registered with the service tax authorities.Powergrid along with other state transmission utilities had been objecting to this levy ever since they received the showcause notices on the ground that the charge could levy an additional burden on the consumer.
With the intervention of the few state government, the power ministry also took up the matter with the finance ministry earlier. While the budget in February this year waived service tax on transmission, the issue of past dues has only been addressed late this month.
Powergrid is one of the largest transmission utilities in the world with a network of about 74,297 circuit kms of transmission lines. The company has already set up a national grid with inter regional power transfer capacity of around 20,800 MW, which is being enhanced to 32,000 MW by 2012. It is investing Rs 55,000 crore in Eleventh Plan to carry out the expansion plan.
“It removes uncertainty and presents a clearer financial picture of the organisation,” said Kuljit Singh, partner, infrastructure and real estate at consulting firm Ernst&Young.The move will also lift confusion over the tax treatment of transmission services and help the company step up investment in the fund-starved sector.
The decision will also benefit a host of state power utilities that were also slapped with showcause notices. Some utilities had approached courts and secured stay orders against the levy.“We are happy that the government has finally accepted our plea. It will not only help the company plan its investments freely, but also will prevent consumers from any rise in transmission tariff,” Powergrid chairman and managing director SK Chaturvedi said.
Power Grid was slapped with a showcause notice last year for non payment of tax from a period starting May 2006. Powergrid said the claim was around Rs 2,041 crore for the period between May 1, 2006 and March 31, 2009.
During this period, power transmission was considered for service tax by the revenue department under the head of ‘business support services’. The levy was made even though power transmission was mentioned in the schedule of items on which service tax can be levied. In the absence of any directive from the Central Board of Excise and Customs on the issue, Powergrid neither paid any service tax for the aforesaid period nor got itself registered with the service tax authorities.Powergrid along with other state transmission utilities had been objecting to this levy ever since they received the showcause notices on the ground that the charge could levy an additional burden on the consumer.
With the intervention of the few state government, the power ministry also took up the matter with the finance ministry earlier. While the budget in February this year waived service tax on transmission, the issue of past dues has only been addressed late this month.
Powergrid is one of the largest transmission utilities in the world with a network of about 74,297 circuit kms of transmission lines. The company has already set up a national grid with inter regional power transfer capacity of around 20,800 MW, which is being enhanced to 32,000 MW by 2012. It is investing Rs 55,000 crore in Eleventh Plan to carry out the expansion plan.
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