The Delhi High Court ruled that fees collected by the Central Electricity Regulatory Commission (CERC) and Delhi Electricity Regulatory Commission (DERC) for electricity supply licenses and regulatory duties are exempt from GST. The Court clarified that these commissions, as quasi-judicial tribunals, perform statutory functions under the Electricity Act, 2003, and their activities do not qualify as taxable services under GST laws.
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NEW DELHI: The Delhi High Court declared that the fees collected by the Central Electricity Regulatory Commission (CERC) and the Delhi Electricity Regulatory Commission (DERC) for providing electricity supply services, issuing electricity distribution licenses, or collecting annual/other fees are not subject to Goods and Services Tax (GST).
A Division Bench of Justices Yashwant Varma and Dharmesh Sharma overturned the Show Cause Notices (SCNs) issued to these two regulatory bodies. These SCNs were related to the fees collected for carrying out their statutory functions under the Electricity Act, 2003.
The Court highlighted that these commissions operate as quasi-judicial tribunals, handling regulatory functions. It stated that tribunals are exempt from GST as specified in Schedule III of the GST Acts. The Court further clarified that the fees collected by these bodies are not tied to any business interests but are part of their responsibilities under the law.
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The Court ruled that the activities performed by the CERC and DERC do not qualify as taxable supplies 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, 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 its ruling on January 15.
The case revolved around SCNs issued in May and July 2024 to the CERC and DERC. These notices alleged that fees collected for activities like tariff determination, licensing, and other regulatory functions 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 argued that these fees represented “support services to electricity transmission and distribution,” which attract 18% GST under a 2017 notification issued under the IGST Act. While admitting that tribunals and courts are exempt from GST under Schedule III, the authorities claimed that only the adjudicatory functions of the commissions were exempt. They argued that regulatory functions should not qualify for exemption.
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Rejecting this argument, the Court stated,
“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.”
The Court elaborated that the Electricity Act does not differentiate between regulatory and adjudicatory functions performed by electricity commissions. It clarified that the collection of fees by these commissions as part of their duties under the Act is exempt from GST.
“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,”
-the Court noted.
The Court ultimately allowed the petitions filed by the CERC and DERC challenging the SCNs, declaring the notices 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 stated.
Legal Representation in the Case:
- Senior Advocate Ajay Vohra and Advocate Vishal Kumar represented the CERC.
- The DERC was represented by Senior Advocate Sujit Ghosh, 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 represented 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.
CASE TITLE:
CERC v. Additional Director Directorate General of GST Intelligence.
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