Fees collected by electricity commissions exempt from GST: Delhi High Court

The Delhi High Court has ruled 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) [CERC v. Additional Director Directorate General of GST Intelligence]..A Division Bench comprising Justices Yashwant Varma and Dharmesh Sharma, therefore, quashed the Show Cause Notices (SCNs) issued to these two bodies on fees they received while performing their regulatory duties under the Electricity Act, 2003.The Court observed that these are quasi-judicial tribunals that also discharge regulatory functions and that tribunals are clearly exempted from being subject to GST under Schedule III of the GST Acts. The Court added that even the collection of fees by these bodies is not done in furtherance of any business interest, but is part of their statutory duties under the Electricity Act. Therefore, the Court held that these activities would not fall under the ambit of a taxable supply of "services.""Even though Section 2(102) of the CGST Act 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. The provision made in Schedule III is clearly intended to insulate and exempt the functions discharged by a court or tribunal from the levy of a tax under the CGST," it said in a January 15 ruling. .The Court was dealing with a plea challenging the validity of SCNs issued in May and July 2024 to the CERC and DERC. These notices alleged that fees collected by the two bodies for functions such as tariff determination, licensing, and other regulatory activities were taxable under the Central Goods and Services Tax Act, 2017 (CGST Act), and the Integrated Goods and Services Tax Act, 2017 (IGST Act). .The GST authorities contended that these activities constituted "support services to electricity transmission and distribution", attracting an 18 per cent GST according to a notification issued under the IGST Act in 2017. They admitted that tribunals and courts were exempt from GST under Schedule III of the GST Acts. However, they contended that these electricity commissions not only perform adjudicatory functions but also regulatory functions. They argued that only adjudicatory functions were exempt from GST. The Court, however, rejected this argument, opining, "We fail to appreciate how the respondents could have undertaken an exercise to bifurcate or draw a wedge between the adjudicatory and regulatory role of Commissions."It explained that the Electricity Act makes no distinction between the regulatory and adjudicatory functions of electricity commissions. It clarified that an electricity commission's activities would remain exempt from GST when it comes to fee collection."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 said. .Therefore, it allowed the plea filed by the CERC and DERC to challenge the SCNs issued against them. The Court ruled that these notices were arbitrary and unsustainable. “The regulatory function discharged by Commissions would clearly not fall within the scope of the word' 'business' as defined by Section 2(17) ... the view as expressed by the respondents in the SCNs‘ impugned before us are rendered wholly arbitrary and unsustainable,” the Court said..Senior Advocate Ajay Vohra, along with Advocate Vishal Kumar appeared for the CERC.The DERC was represented by Senior Advocate Sujit Ghosh, along with Advocates Mannat Waraich, Ananya Goswami, Additional Standing Counsel Anirudh Dusaj, and Senior Counsel Prashant Mehta with Advocate Pranav Singh.Senior Standing Counsel Harpreet Singh with Advocate Suhani Mathur, and Central Government Standing Counsel Piyush Gupta with Advocates Prateek Gupta and Atishay Jain appeared for the Additional Director, Directorate General of GST Intelligence.The Additional Commissioner of CGST, Delhi South Commissionerate, was represented by Senior Standing Counsel Akshay Amritanshu, along with Advocates Swati Mishra, Dristi Saraf, and Pragya Upadhyay..[Read Judgement]