Regulation Of Tariff, Inter-State Transmission Of Electricity & Issuance Of Licence Not Liable To GST: Delhi HC

The Delhi High Court held that the regulation of tariff, inter-State transmission of electricity, and the issuance of licence will not be liable to the Goods and Services Tax (GST).
The Court held thus in a batch Writ Petitions filed by the Central Electricity Regulatory Commission (CERC) as well as the Delhi Electricity Regulatory Commission (DERC) against the validity of Show Cause Notices (SCNs).
A Division Bench of Justice Yashwant Varma and Justice Dharmesh Sharma observed, “We find ourselves unable to accept, affirm or even fathom the conclusion that regulation of tariff, inter-State transmission of electricity or the issuance of license would be liable to be construed as activities undertaken or functions discharged in the furtherance of business. The respondents have clearly failed to bear in consideration the indubitable fact that even if these be functions which could be understood to be in the exercise of a regulatory function, those were being discharged by a quasi-judicial body which undoubtedly had all the trappings of a tribunal. The grant of a license to transmit or distribute is clearly not in furtherance of business or trade but in extension of the statutory obligation placed upon a Commission to regulate those subjects.”
The Bench clarified that, even though Section 2(102) of the CGST Act (Central Goods and Services Tax Act, 2017) defines the expression ‘services’ to mean “anything other than goods”, the expansive reach of that definition would have to necessarily be read alongside Schedule III and which excludes services per se rendered by a Court or Tribunal established under any law. It added that the provision made in Schedule III is intended to insulate and exempt the functions discharged by a Court or Tribunal from the levy of a tax under the CGST.
Senior Advocates Ajay Vohra and Sujit Ghosh represented the Petitioners while SSCs Harpreet Singh and Akshay Amritanshu represented the Respondents.
Brief Facts
The Petitioners challenged the validity of SCNs pursuant to which the Respondents had sought to call upon them to discharge liabilities emanating from the CGST Act and IGST Act (Integrated Goods and Services Tax Act, 2017) in respect of the fee received by them in the course of discharge of their regulatory functions under the Electricity Act, 2003. The Respondents sought to draw a dichotomy between the “adjudicatory” and “regulatory” functions which these two statutory bodies discharge to essentially hold that the revenue earned from the latter would be subject to tax under the CGST and IGST Acts. The Respondents asserted that the CERC was not discharging its GST liabilities on amounts received by it as tariff and license fee from various power utilities.
It was further asserted that such functions discharged by CERC would fall under “support services to electricity transmission and distribution services under Service Accounting Code 998631” as per serial no. 466 of the Annexure to Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017 read along with the Explanatory Notes to the Scheme of Classification of Services as adopted by the Central Board of Indirect Taxes and Customs (CBIC). They took the stand that the support services so rendered would be taxable and thus falling with the ambit of “Support services to mining, electricity, gas and water distribution”.
Reasoning
The High Court in the above regard, noted, “… while Section 2(17)(i) also encompasses activities or transactions undertaken by the Central or State Governments or a local authority, the said clause too would have no application since a Commission which comes to be constituted under the Electricity Act cannot be equated with the Central or State Governments. The expression “local authority” is defined by Section 2(69) to include local bodies such as Panchayats, Municipalities, Municipal Committees, Cantonment Boards or Regional Councils and other authorities which may come to be constituted in terms of Articles 371, 371A, 371J or the Sixth Schedule to the Constitution. A Commission which is constituted under the Electricity Act would undisputedly not fall within the ken of such authorities.”
The Court added that the payments in the form of fee as received by Commissions were an outcome of an inducement to supply goods or services. It further said that by virtue of Section 7, a supply would necessarily have to be of goods or services not only for consideration but more importantly in the course or furtherance of business.
“We have in the preceding parts of this decision clearly found that the regulatory function discharged by Commissions would clearly not fall within the scope of the word “business” as defined by Section 2(17). Thus, even if the fee so received by such Commissions were to be assumed as being consideration received, it was clearly not one obtained in the course or furtherance of business. We are thus of the considered opinion that the view as expressed by the respondents in the SCNs’ impugned before us are rendered wholly arbitrary and unsustainable”, it further remarked.
The Court enunciated that the mixed as well as composite supplies of services or goods are aspects which are duly and independently defined and explained and even those provisions cannot possibly be interpreted or stretched so as to hold that the fees received by Commissions could have been subjected to tax. It added that the assumption of jurisdiction in terms of the notices impugned is thus found to be ex facie wholly untenable.
“The Electricity Act makes no distinction between the regulatory and adjudicatory functions which it vests in and confers upon a Commission. Those functions are placed in the hands of a quasi-judicial body enjoined to regulate and administer the subject of electricity distribution. Electricity, undoubtedly, is a natural resource which vests in the State. We have thus no hesitation in observing that the SCNs’ infringe the borders of the incredible and inconceivable”, it also said.
The Court was of the view that a notification would neither expand the scope of the parent entry nor can it be construed as taking away an exemption which stands granted under the CGST Act and there cannot possibly be even a cavil of doubt that a Schedule constitutes an integral part and component of the principal legislation.
Accordingly, the High Court allowed the Writ Petitions and quashed the SCNs.
Cause Title- Central Electricity Regulatory Commission v. The Additional Director Directorate General of GST Intelligence (DGGI) & Anr. (Neutral Citation: 2025:DHC:168-DB)
Appearance:
Petitioners: Senior Advocates Ajay Vohra, Sujit Ghosh, ASC Anirudh Dusaj, SC Prashant Mehta, Advocates Vishal Kumar, Mannat Waraich, Ananya Goswami, and Pranav Singh.
Respondents: SSCs Harpreet Singh, Akshay Amritanshu, CGSC Piyush Gupta, Advocates Suhani Mathur, Prateek Gupta, Atishay Jain, Swati Mishra, Dristi Saraf, and Pragya Upadhyay.