SC upholds GST exemption for electricity regulators, dismisses govt's plea

Time of India

4 days ago

In a big relief to the regulatory bodies, the Supreme Court has upheld the
Delhi High Court
's ruling that fees collected by the Central Electricity Regulatory Commission (
CERC
) and the Delhi Electricity Regulatory Commission (
DERC
) for the supply of electricity or grant of electricity distribution licences or as annual/other fees are exempt from Goods and Services Tax (GST).
The HC had in January also quashed the show cause notices (SCNs) issued by the Directorate General of GST Intelligence demanding an 18% tax on fees received by CERC and DERC for discharging their regulatory functions. It held that the demand notices were 'arbitrary and unsustainable.'
'We do not find any good grounds to entertain these special leave petitions (by Directorate General of GST Intelligence), a SC bench comprising Justices J.B. Pardiwala and R. Mahadevan said, while endorsing the HC's view that the GST department had clearly failed to grasp the "indubitable fact" that these regulatory functions were being discharged by a quasi-judicial body which had all the trappings of a tribunal.
The department had challenged the HC order alleging that the power regulators were not discharging their
GST liabilities
on amounts received as
tariff
and licence fees from various power utilities as these functions of the regulators fell under the category of "support services" to electricity transmission and distribution service providers.
The GST authorities in the SCN's had also alleged that CERC had even failed to carry out a correct self-assessment of its tax liability, thus failing to discharge its integrated GST of Rs 113 crore between April 2019 to March 2023. A similar notice was issued to the Delhi power regulator.
However, the HC had rejected the GST authorities' stand, saying it found 'unable to accept, affirm, or even fathom the conclusion that regulation of tariff, inter-state transmission of electricity, or the issuance of licence would be liable to be construed as activities undertaken or functions discharged in the furtherance of business."
According to HC, "the grant of a licence to transmit or distribute (electricity) 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 high court had said. The Electricity Act, 2003, makes no distinction between the regulatory and adjudicatory functions vested in and conferred upon an electricity commission, it had added. Those functions are placed in the hands of a quasi-judicial body enjoined to regulate and administer electricity distribution, it had said. "Electricity, undoubtedly, is a natural resource which vests in the State. We have thus no hesitation in observing that the SCNs (show cause notices) infringe the borders of the incredible and inconceivable," the January order stated.