KERALA STATE ELECTRICITY REGULATORY COMMISSION

THIRUVANANTHAPURAM

O.A. No. 17 of 2017

Present : Sri. Preman Dinaraj, Chairman

Sri. K. Vikraman Nair, Member
Sri. S. Venugopal, Member

In the matter of : Approval of the cost data of the rates of materials

and labour for the distribution works for the year
2018-19

Petitioner : M/s. Kerala State Electricity Board Limited

Vydhyuthi Bhavanam, Pattom Palace P.O.,
Thiruvananthapuram

Petitioner represented by : Sri Bipin Sankar, Dy.CE, KSEB Ltd

Sri Manoj G, AEE, KSEB Ltd

Order dated 27- 04 - 2018

1. Kerala State Electricity Board Limited (herein after referred to as the applicant
or KSEB Ltd) has submitted an application, on 22.11.2017 as per the provisions
of the Kerala Electricity Supply Code, 2014 (Supply Code, 2014), for the
approval of the cost data of the rates of materials and labour for the distribution
works for the year 2018-19 for the recovery of expenditure under Section 46 of
the Electricity Act 2003. The summary of the petition filed by KSEB Ltd is as
hereunder.
(1) As per the Regulation 33(1) of the Supply Code, 2014, KSEB Ltd shall
annually obtain approval of the Commission for Schedule of Rates for
recovery of expenditure under Section 46 of Electricity Act 2003.

(2) The Commission vide the order dated 20.05.2016 in OA No. 12 of 2015
had approved the cost data for the FY 2016-17. Further, vide order
dated 1.7.2015 in O.P. No. 4/2015, the Commission had approved the
rates of drawing different types of Aerial Bunched Conductors.

(3) The State Government vide the order dated 17.4.2013 ordered to adopt
CPWD data and Schedule of Rates (SOR) in Government departments
w.e.f 1st October 2013. The estimate rates is revised in accordance with
the latest CPWD schedule of rates.
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 (4) KSEB Ltd has followed the methodology approved by the Commission in
the order dated 20.05.2016 in petition OA No, 12 of 2015, while
estimating the rate of distribution works for the FY 2017-18.

(5) CPWD schedule of rates 2016 with cost index of March 2017 was
adopted for arriving cost of labour. The CPWD schedule of rates are
based on the prevailing market rates of materials in Delhi as on
01.04.2016. In order to arrive the cost index of Kerala as on March 2017,
the average cost of 14 districts of the state published by PWD, Kerala
being adopted and this index works out to 1.4699

(6) KSEB Ltd has adopted the rate of materials, centrally purchased by
them internally, for the year 2015-16, with due verification by Chief
Internal Auditor of KSEB Ltd. In the case of the items not purchased
internally, the rate approved by Commission in the order dated
20.05.2016 is taken as basis for estimation.

(7) The labour data estimated for each work is also provided in the petition.

(8) The basic data used for arriving at the transportation cost is also
submitted along with petition. In cases where basic data is not available,
the transportation cost is arrived by applying inflation rate in the
approved transportation cost for the year 2016-17.

(9) As a specialized work and not widely used, no change is proposed in the
cost data for aerial bunched conductors, approved by Commission vide
the order dated 1.7.2015.

(10) GST has been introduced in the State with effect from 1.7.2017. The
VAT applicable during the purchase (2015-16) is included in the cost of
materials. Hence GST is not claimed for cost of materials. However, for
labour charges and transportation, GST @ 18% is claimed, while
estimating the cost of distribution works.

2. The Commission admitted the application as OA No 17/2017. The copy of the

application is made available in the website of the Commission and also in the
website of KSEB Ltd. Further, the abstract of the application is published in two
Malayalam dailies and one English daily by KSEB Ltd. The public hearings on
the applications were conducted at Ernakulam on 15.01.2018, at Kozhikode on
16.01.2018 and at Thiruvananthapuram on 18.01.2018.

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 Comments/ views expressed by the Stake holders during the public
hearings.

3. Hearing at Ernakulam was held at Town Hall Kochi on 15.1.2018. Sri Bipin
Sankar, Deputy Chief Engineer (TRAC), KSEB Ltd presented the and
submitted that there is still some ambiguity regarding the applicability of GST.
Sri Shaji Sebastian, representing small scale industrial association submitted
that, KSEB Ltd may adhere to the time specified in the Kerala Electricity Supply
Code, 2014 for providing supply. Sri Abdul Rahman, representing the petty
contractors of KSEB Ltd requested that the revision of cost data may be done
periodically, along with revision of schedule of rates by Kerala PWD. Sri
Umesh Babu, representative of the petty contractor further added that, even
with this revision, the work done by petty contractors are not fully compensated.
He requested the Commission to approve the revision of rates at the earliest.

4. Hearing at Kozhikode was held on 16.01.2018 at Hotel Span. Sri Manoj G,

Assistant Executive Engineer, presented the application on behalf of KSEB Ltd.
Sri. Sajjad P K representing the petty contractors submitted that cost data may
be revised periodically. He also mentioned that the labour charges have
increased manifold after the issue of the last order and the contractors has
been incurring losses since they have to pay higher salary to labourers. He
added that KSEB Ltd has no clarity on the applicability of GST on the works
done through the petty contractors. There is confusion regarding the works for
which the administrative sanction was obtained before introduction of GST, but
executed after GST came in to force. The Chief Engineer, Distribution North,
KSEB Ltd noted the issue and submitted that necessary clarification will be
issued in this regard.

Sri. Nanda Kumar representing KSEB Engineers Association stressed the need
to adhere to the safety standards in force and also to ensure the quality of
materials used. He proposed that a surcharge may be provided over the
estimate as additional cost for safety compliance.

Sri Swaminathan, representing Power Board Officers Federation stated that the
cost for new technologies are also to be considered while revising cost data. He
stated that the cost data for lines using covered conductors are not included.
Thrust may be given to technology adaptation, while approving cost data.

5. Hearing at Thiruvananthapuram was held on 18.01.2018, at Court Room, office

of the Commission. Sri. Bipin Sankar, Deputy Chief Engineer (TRAC)
presented the petition on behalf of KSEB Ltd. During the hearing, KSEB Ltd
clarified that, the cost index published by PWD was applied on the DSR 2016.

Sri Sunil K, representing KSEB Engineers Association stressed the need for
confirming to the safety standards.

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6. Subsequent to the public hearings held at Ernakulam, Kozhikode and
Thiruvananthapuram, the Commission vide the daily order dated 01.02.2018,
issued the following directions to KSEB Ltd for immediate compliance.

(i) Copy of the purchase orders of the important items used for estimation
of cost of material.
(ii) Details of works done using Arial Bunched Conductors
(iii) Copy of the Board Order adopting the CPWD rates by KSEB Ltd.
(iv) Details of the procedures followed in KSEB Ltd regarding payment of
work contract tax and other taxes / deductions to the petty contractors
and the procedure now followed for claiming and reimbursing the GST.
(v) Justification of cost increase of distribution box and the 11kV lightning
arrestor.
7. KSEB.Ltd, vide letter No. KSEB/TRAC/Cost data/R3/2017/4610 dated
01.03.2018 submitted the following in compliance of the directions contained in
the daily order dated 01.02.2018.

(i) Copy of the purchase orders of the important items used for estimation
of cost of material.
(ii) Details of works done using Arial Bunched Conductor based on the
actual cost of completion.
(iii) Copy of the Board Order adopting the CPWD rates by KSEB Ltd
(iv) Details of the procedures followed in KSEB Ltd regarding payment of
work contract tax and other taxes / deductions from to petty contractors
and the procedure now followed for claiming and reimbursing the GST.

8. The abstract of the procedure followed in pre-GST regime and post-GST

regime for payment of work contract tax by KSEB Ltd as per the submission
dated 01.03.2018 is summarized below.

(a) Procedures followed in pre-GST regime

Payment of work contract tax and other taxes/deductions from/to petty
contractors-
The following are the Taxes and duties applicable on a works contract
awarded, by KSEBL, to petty Contractors:

Work Contract Tax

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 As per Section 2(lv) of KVAT Act 2003, “Works Contract” includes any
agreement for carrying out for cash or for deferred payment or other
valuable consideration the construction, fitting out, improvement, repair,
manufacture, processing, fabrication, erection, installation, modification
or commissioning of any movable or immovable property”.
Normally, the liability to collect and remit VAT on a work contract is on
the contractor. The contractor has to remit VAT u/s 6(1)(e) and (f) of
KVAT Act 2003.
Immediately before the introduction of GST, VAT rates applicable of
supplies made to KSEBL were 5% and 14.5%.
But as per Section 10 of KVAT Act 2003, KSEBL (as awarder) has to
deduct Works Contract Tax (under Kerala VAT Act) from the bills for
works contract involving transfer of goods in the execution of works
contract, whether in the form of goods or not, at the rate mentioned in
Form No.1EE (issued by the Commercial Taxes Department to the
contractor) and remit the same to the Government.
Where the contractor does not furnish the Certificate in Form No. 1EE,
tax will be deducted at the following rate -
1) Where the contractor is registered under KVAT Act 2003, at
8%; or
2) Where the contractor is an unregistered person, @ 10%.
Service Tax:
Where the contractor is a body corporate, the liability to collect and remit
the Service Tax is on the contractor. Where the contractor is a person
other than body corporate, the liability to remit service tax on such work
is partially passed on to KSEBL. KSEBL, in such cases, is liable to remit
50% of Service Tax liability on such works.
Service Tax rate immediately before the introduction of GST was 15%.
Where Service Tax is quoted separately by the petty contractor, the
same is reimbursed to the Contractor, on production of documentary
evidence of remittance of tax or on submission of an undertaking by the
contractor.
Other Recoveries / deductions:
In addition to the above taxes, KCWWF (Kerala Construction workers
welfare fund) Cess at 1% and Income Tax (at the specified rate) is also
deducted by KSEBL, and remitted to the concerned Departments. These
taxes are being recovered at the post-GST regime also.
(b) Procedures followed in post-GST regime
In the GST regime almost all the works applicable to KSEBL are taxable at
18%. Though the services of distribution and transmission of electricity was
exempt from GST, when KSEBL is getting any work related to distribution or
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 transmission of electricity done through an outside contractor, GST is
applicable on the same, and the same was already clarified by the Central
Excise Department vide letter attached as Annexure 4A.
The present method followed by KSEBL, regarding reimbursement of GST
to contractors under various situations are detailed in the circulars as per
Annexure 4B and 4C respectively. The GST claim is admitted and
reimbursed to the registered contractors following the procedures detailed in
the circulars.
Till 13/10/2017, reverse charge mechanism was applicable in respect of
supply of goods or services or both availed from unregistered contractors.
But, w.e.f. 13/10/2017, this provision is suspended till 31/03/2018. Since
most of the petty contractors of KSEBL are unregistered, KSEBL had
remitted GST under reverse charge mechanism directly to Government, on
payments made till 13/10/2017, the date of suspension of reverse charge
mechanism. The provisions of reverse charge mechanism (Section 9(4))
after March 2018 cannot be predicted at this juncture.
9. Justification submitted by KSEB Ltd for the cost increase of distribution
box and the 11kV lightning arrestor.

During year 2015-16, the cost of distribution box is wrongly entered as Rs

3412.00, which is the cost of DTR box and the same was approved by the
Commission in the order dated 20.05.2016, in the matter of approval of cost
data for the financial year 2015-16. The error is noted and corrected in the
present petition. In list of materials for 2015-16, the cost of DTR box was only
included and cost of distribution box was not provided in the estimate. While
submitting the petition for cost data revision for the FY 2014-15, the cost of
distribution box was Rs 20250.00. Now as per standardization, both DTR box
and distribution box is incorporated in the present estimate, since the central
schemes such as UDAY, PAT etc mandates metering for energy auditing. The
cost of distribution box is Rs 24200 and DTR box is Rs 3017 is used for
estimation in the present petition.
A comparison statement of cost of distribution box and DTR box used for
estimation in cost data for the years 2014, 2016 and 2017 is summarized
below.
Year Item Rs Item Rs

2014 Distribution box 20250 DTR box -

2016 Distribution box - DTR box 3142
2017 Distribution box 24200 DTR box 3017

Lightning Arrestor: The 11KV lightening arrestor used for estimation in the
previous cost data is 5 kA lightning arrestor. In the present petition 11KV
lightening arrestor selected for transformer station is station class 10kA instead

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 of normal lightning arrestor. The cost of 11kV station class 10kA lightning
arrestor is Rs 1967 and 5kA lightning arrestor is Rs 370 respectively. It is
observed that the station class 11kV lightning arrestor in transformer stations is
more reliable.
10. KSEB Ltd vide letter dated 16.03.2018 further submitted the clarification given
by Ministry of Finance on GST, which states as follows;
(1) Service by way of transmission or distribution of electricity by an
electricity transmission or distribution utility is exempt from GST under
notification No. 12/2017- CT (R), Sl. No. 25. The other services such as,-
i. Application fee for releasing connection of electricity;
ii. Rental charges against metering equipment;
iii. Testing fee for meters/ transformers, capacitors etc.;
iv. Labour charges from customers for shifting of meters or
shifting of service lines;
v. charges for duplicate bill;
provided by DISCOMS to consumer are taxable

Analysis and Decision of the Commission

11. Section 46 of the Electricity Act, 2003 empowers the distribution licensee to
charge from a person requiring supply of electricity, any expenses reasonably
incurred in providing any electric line or electrical plant used for the purpose of
giving that supply. Regulation 33 of the Kerala Electricity Supply Code, 2014
stipulates that the licensee shall obtain from the Commission annually, approval
of the schedule of rates for recovery of such expenditure. The Regulation 33 of
the Kerala Electricity Supply Code, 2014 is extracted below.

“33. Approval of Cost Data by the Commission:

(1) The licensee shall submit once in a year, a proposal to the Commission for
approval of the cost data of the rates of materials and work at which the
expenses as per Section 46 of the Act is to be recovered by the licensee.
(2) The licensee shall publish such proposal in its web site and publish an extract
in one Malayalam daily and one English daily having wide circulation in the
State, as directed by the Commission.
(3) The Commission shall, after conducting a public hearing on such proposal,
scrutinise the proposal, determine the reasonable rates of material and labour
and approve cost data with or without modification.
(4) The cost data approved by the Commission shall be published in the web site
of the licensee and it shall be valid for at least one year from the date of its
issue.
Provided that the Commission may, on the request of the licensee, enlarge the
period of validity of the cost data.”
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12. The Commission made detailed analysis of the issues in the preceding
paragraphs and the proposal submitted by KSEB Ltd and the observation of the
Commission is summarised below:

(a) The Commission vide the order dated 20.05.2016 in petition O. A No. 12
of 2015 had approved the rates for distribution works for the financial
year 2016-17. Further, vide order dated 1.7.2015 in O.A. No. 5/2015,
the Commission had approved the rates of drawing different types of
Aerial Bunched Conductors.
(b) Cost of materials.
(i) In the present application filed before the Commission for the
approval of the cost data, KSEB Ltd has adopted the rate of
materials, centrally purchased by them internally, for the year
2015-16, with due verification by their Chief Internal Auditor. In
the case of the items not purchased internally, the rate approved
by Commission in the order dated 20.05.2016 is taken as basis
for estimation. As instructed by the Commission, KSEB Ltd had
submitted the copies of the purchase orders for the year 2015-16,
as documentary evidence
(ii) The Commission has noted that, the cost of materials in the
present application is as per the purchase orders for the years
2015-16.
(iii) Further, KSEB Ltd has used ‘rabbit conductor’ instead of ‘weasel
conductor’ approved in earlier estimate. KSEB Ltd submitted that,
mechanical strength and scope for future expansion of ‘rabbit
conductor’ is better than that of ‘weasel conductor’. Hence
Commission approves the cost of ‘rabbit conductors’. K S E B Ltd.
had included three works with weasel conductor, viz, (a) re-
conductoring LT line with weasel one conductor, (b) adding one
conductor weasel where cross arm is available and ( c) adding
one conductor weasel where cross arm is not available in the
proposed estimate. Since K S E B Ltd. proposes to dispense with
the usage of weasel conductor, the Commission decides not to
approve the above three estimates involving weasel conductor.
(iv) It is also noted that in some estimates KSEB Ltd has increased
the number of stay set without providing detailed explanation on
the requirement of additional stay than that approved in the order
dated 20.5.2016. Commission, decides to adopt the number of
stay set, as in the order dated 20.5.2016.
(v) KSEB Ltd submitted that it purchased station class lightning
arresters for transformer station since these are more reliable and

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 the protection of the transformer which is costly and most
important component of the distribution system.
(vi) In the estimates for construction of LT single phase lines, KSEB
Ltd has proposed to use 8 M poles instead of 7M PSC poles
approved by the Commission. Further, KSEB Ltd proposed to
introduce fencing for all the transformer stations and also to install
distribution boxes to carry fuse units, in order to provide added
safety to the general public.
(vii) In the case of increase in the cost of distribution box, KSEB Ltd
submitted that there was an error in the cost of distribution box in
the proposal submitted in the earlier year, which was later
identified and rectified in the present proposal. The cost of DTR
box (metering cubicle) was erroneously entered as cost of
distribution box.

Based on the details and documentary evidence and the reasons

submitted by KSEB Ltd, the Commission decides to adopt the cost of
materials as proposed by KSEB Ltd.

(c) Cost index:

The Government of Kerala, vide order dated 17.4.2013 had issued

orders to adopt the CPWD data and SOR for the works in the State
Government Departments. KSEB Ltd, vide order dated 25.7.2014 has
decided to adopt CPWD data and SOR for works in KSEB Ltd also.
KSEB Ltd had adopted CPWD – DSR 2016 with cost index of 2017,
notified by the Kerala PWD vide its circular dated 31.03.2017 for arriving
at the labour cost. Accordingly, KSEB Ltd has adopted a cost index of
46.99% over the labour cost as per the CPWD-DSR 2016.

The Commission has noted that, subsequently, Kerala PWD vide the
circular dated 19.09.2017 has revised cost index, in line with the cost
index published by CPWD vide its circular dated 11.05.2017. The cost
index as per the circular dated 19.09.2017 is 1.43 only as against the
cost index of 1.4699 adopted by KSEB Ltd in the application filed before
the Commission. Hence the Commission decide to adopt the cost index
at 1.43 as against 1.4699 adopted by KSEB Ltd.

(d) Cost of transportation:

KSEB Ltd has estimated the cost of transportation as per the rates
specified in the CPWD- DSR 2016, considering the weight and rate for
lorry transport.

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 The cost of transportation of service connection proposed is Rs 208 per
connection, arrived at by providing an annual escalation of 3.90% on the
cost of transportation as per the order dated 20.05.2016.
(e) KSEB Ltd has proposed centage charges of 16% on materials and 10%
overhead charges on labour and transportation, as followed by Kerala
PWD. Further, the schedule II to the Kerala Electricity Supply Code ,
2014 includes the methodology for calculation of Cost of works as
follows;

Cost of works as in the distribution sector for which specific rates are not
given shall be arrived at as follows:
I. (a) Cost of materials as per cost data.
(b) Centage charge 16% of (a).
(c) Transportation charge, if any.
(d) Labour charges.
Total cost of work is [(a)+(b)+(c)+(d)]

II. Administrative Overhead Charges at the rate of 10% of I (c) and

of I (d)

Grand Total (I + II)

(f) KSEB Ltd submitted that, GST has been introduced in the State with
effect from 1.7.2017. Since the VAT was applicable during the purchase
made in the year 2015-16, which is included in the cost of materials,
hence GST is not claimed for cost of materials. However, for labour
charges and transportation, GST @ 18% is claimed while estimating the
cost of distribution works. Commission has noted that the applicability of
GST may vary during the terms of the cost data. Further, KSEB Ltd had
not claimed any service tax in the proposal for the year 2016-17 and
Commission did not propose to include the same. As per the clarification
provided by Ministry of Finance, the cost of works done by KSEB Ltd will
not attract GST, however GST is payable for the following.
(a) Application fee for releasing connection of electricity;
(b) Rental charges against metering equipment;
(c) Testing fee for meters/ transformers, capacitors etc.;
(d) Labour charges from customers for shifting of meters or shifting of
service lines;
(e) charges for duplicate bill;
Considering these aspects, the Commission decided to approve the cost
data without GST and directs KSEB Ltd to claim GST as per rules in
force and remit the amount as per actual.
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 (g) The cost data for Arial Bunched Conductors proposed by KSEB Ltd is
the same as that approved by the Commission in the order dated
1.7.2015. KSEB Ltd submitted that the works are not commonly
executed by KSEB Ltd. Hence the Commission ordered to adopt the
cost data for Arial Bunched Conductors, as approved by the Commission
vide the order dated 01.07.2015.

Orders of the Commission

13. Duly considering the application filed by KSEB Ltd, the objections and
comments of the stake holders, and other documents and details, the
Commission hereby orders that,

(1) KSEB Ltd is authorised to recover from a person requiring supply of electricity
in pursuance of Section 43 of the Act, the expenditure incurred by it for
various works in connection with providing electric line or electrical plant
required for giving the supply, at the rates given in the cost data as approved as
per Annexures 1 to 70, from the date of this order.

(2) KSEB Ltd is also authorized to collect the GST applicable for the works and
services rendered by them to the consumers and remit the same to the
Government, as per the orders issued by the Central Government and State
Government from time to time.

Sd/- Sd/- Sd/-

K. Vikraman Nair S. Venugopal Preman Dinaraj
Member Member Chairman

Approved for Issue

Santhosh Kumar. K.B

Secretary

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