In a significant ruling, the Delhi High Court has quashed the show cause notices (SCNs) issued to the Central Electricity Regulatory Commission (CERC) and the Delhi Electricity Regulatory Commission (DERC), holding that their regulatory functions do not constitute a taxable service under the Goods and Services Tax (GST) regime.
The Directorate General of GST Intelligence (DGGI) and the Additional Commissioner of CGST Delhi South had issued SCNs dated May 29, 2024, and July 23, 2024, to CERC and DERC, respectively. The notices sought to impose GST on fees collected 0by these regulatory bodies for tariff determination, licensing, and other statutory duties under the Electricity Act, 2003.
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The GST authorities argued that the commissions’ regulatory activities fell under ‘support services to electricity transmission and distribution services’ and were taxable at 18% under the CGST Act, 2017. They drew a distinction between adjudicatory and regulatory functions, asserting that revenue earned from the latter was subject to GST.
Furthermore, the tax authorities alleged that CERC failed to self-assess its tax liability correctly, leading to a failure in discharging its Integrated Goods and Services Tax (IGST) liability amounting to Rs. 112,83,21,226 (Rupees One Hundred Twelve Crore Eighty Three Lakh Twenty One Thousand Two Hundred and Twenty Six only) for the period from April 2019 to March 2023.
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This non-payment of IGST pertained to amounts received from power generation, transmission, and distribution utilities towards Tariff Petition Fees and License Fees, which were classified as taxable supply of service under SAC 998631. The authorities sought to impose tax at 18% as per SI. No. 466 of Annexure to Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017, as amended.
Rejecting the tax authorities stance, the court ruled that the commission’s functions do not fit within the definition of ‘supply’ under Section 7 of the CGST Act, which requires a transaction to be in the course or furtherance of ‘business.’ The court noted that the commissions operate as statutory regulators and not as business entities.
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Additionally, the court referred to the Schedule III of the CGST Act, which explicitly excludes services provided by a tribunal from the ambit of taxable supplies. Since CERC (Central Electricity Regulatory Commission) and DERC (Delhi Electricity Regulatory Commission) function as quasi-judicial bodies with powers akin to a tribunal, the court held that their activities fall outside the GST net.
The judgment also emphasized that fees collected by the commissions are statutory in nature and do not constitute ‘consideration’ for any commercial service. Therefore, the attempt to tax these fees was legally unsustainable.
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The judgment, delivered by a division bench comprising Justice Yashwant Varma and Justice Dharmesh Sharma, categorically stated that the statutory functions discharged by these commissions, including tariff regulation and licensing, cannot be equated with commercial activities that fall under the purview of GST.
Following the verdict, the Order-in-Original dated August 30, 2024, which upheld the tax demand against CERC, has also been set aside.
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