Crop Compensation Paid To Farmers For Transmission Lines Passing Their Land Not Taxable: CESTAT Ahmedabad

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that crop compensation charges paid to farmers for laying electricity transmission lines are not liable to service tax.

A coram of Judicial Member Ajaya Krishna Vishvesha and Technical Member Satendra Vikram Singh said these payments are compensatory in nature and not consideration for any service.

The tribunal held that developing and maintaining a transmission network is a statutory duty of a transmission utility and does not attract service tax. It observed that “pro-rata charges and development charges are actually collected for development of network for transmission of power which is the responsibility and duty of the appellant being a transmission utility” and therefore “no service tax is liable to be paid on these charges.”

The case concerned Gujarat Energy Transmission Corporation Limited, which constructs and operates high-voltage transmission lines. When such lines pass through agricultural land, GETCO pays compensation to farmers for crop loss, as required under the Electricity Act, 2003. These crop compensation charges are paid directly to farmers and later recovered from consumers along with other charges.

The dispute arose after an audit for the period March 2012 to March 2016 found that GETCO had collected various amounts under a deposit scheme without paying service tax. These included material cost, erection charges, contingency charges, supervision charges, development charges, pro-rata charges, revenue loss charges, and crop compensation charges.

A demand of about Rs 33.43 lakh was raised by classifying these recoveries as erection, commissioning, and installation service and declared service.

GETCO argued that transmission of electricity is exempt from service tax and later placed in the negative list under Section 66D(k) of the Finance Act, 1994. It said crop compensation charges were mere reimbursements paid to farmers and not linked to any service.

It also submitted that pro-rata and development charges were collected to expand and strengthen the transmission network, which it is legally bound to maintain.

Accepting these submissions, the tribunal held that crop compensation charges were not taxable. It noted that these amounts are “recovered to pay to the farmers due to erection of lines on their land” and cannot be treated as consideration for a taxable service.

The bench also held that erection charges recovered for shifting overhead cables were not taxable as per MaY, 2010 CBIC Circular.

On pro-rata and development charges, the tribunal held that they form part of the exempt activity of transmission of electricity. It also held that laying of electric cables between grids, substations, and up to distribution points is not taxable.

However, on material cost and contingency charges, the tribunal remanded the matter to the adjudicating authority for fresh computation after examining records. It also ruled that the extended period of limitation could not be invoked, noting that the department was already aware of the facts.

Any demand arising after recomputation, it said, must be limited to the normal period, with interest and penalty recalculated accordingly.

Case Title: Gujarat Energy Transmission Corporation Limited vs. Commissioner of CGST & Central Excise - Gandhinagar

Citation: 2026 LLBiz CESTAT (GUJ) 9

Case Number: Service Tax Appeal No. 10866 of 2020- DB

For Appellant: Advocates J. C. Patel, Rahul Gajera