The Delhi High Court has delivered a significant judgment granting goods and services tax (GST) relief to the Central Electricity Regulatory Commission (CERC) and the Delhi Electricity Regulatory Commission (DERC).
The court ruled that fees collected by these commissions for activities related to tariff and licence regulation under the Electricity Act, 2003, are not subject to GST, effectively quashing the show cause notices (SCNs) issued by GST authorities that sought an 18% tax on such fees.
The case arose from petitions filed by the CERC and DERC challenging the validity of the SCNs issued under the Central Goods and Services Tax Act, 2017 (CGST Act), and the Integrated Goods and Services Tax Act, 2017 (IGST Act).
According to the plea, the SCNs demanded GST on fees received by these commissions for activities related to tariff and licence regulation under the Electricity Act, 2003.
On the other hand, the tax authorities contended that these fees constituted taxable “support services to electricity transmission and distribution” under Service Accounting Code (SAC) 998631, subject to 18% GST.
The court examined in detail whether the regulatory and adjudicatory functions of these commissions could be considered activities carried out in the course of “business” or “trade” under the CGST Act.
The court’s findings highlighted that the regulatory functions performed by the commissions, being statutory obligations, cannot be equated with business activities.
It emphasised that these functions are carried out in furtherance of statutory duties, not for pecuniary gain, and thus do not fall within the scope of “business” under Section 2(17) of the CGST Act.
Additionally, the court highlighted that Schedule III of the CGST Act explicitly excludes services rendered by courts or tribunals from GST.
Thus, it held that the commissions, as quasi-judicial bodies, discharge regulatory and adjudicatory functions inseparably, which are similar to those of a tribunal.
Based on this, the court rejected the tax authorities' attempt to distinguish between the regulatory and adjudicatory roles of the commissions, stating that such a bifurcation is neither statutorily supported nor rational.
The court also noted that notifications under the CGST or IGST Acts cannot override the exemptions provided in the parent statute. Thus, the classification of the commissions’ functions under SAC 998631 as taxable services did not detract from the statutory exemption under Schedule III.
The bench, comprising Justice Yashwant Varma and Justice Dharmesh Sharma, which had reserved judgment on 13 December 2024, pronounced it on 15 January 2025.
The court held that the SCNs were arbitrary and unsustainable, finding that the fees collected by CERC and DERC were not taxable under GST. The judgment reinforces the principle that statutory and regulatory functions carried out by quasi-judicial bodies are not commercial activities and are outside the scope of GST.
Meanwhile, experts called the judgment positive and favourable for the electricity regulatory commissions and related companies.
Sandeep Sehgal, Partner-Tax at AKM Global, a tax and consulting firm, stated, “The High Court has clarified that the Central and Delhi Electricity Regulatory Commissions, being quasi-judicial authorities, are not businesses, and their primary role is to regulate the electricity sector in the public interest. This includes tasks like setting tariffs, issuing licences, and ensuring fair practices, which are statutory obligations rather than services for profit. It emphasised that these regulatory activities cannot be equated to commercial services, and thus, any fees or charges they collect, such as processing fees for licences, are exempt from GST under the law. The judgment emphasised that the functions are carried out in furtherance of statutory duties, not for pecuniary gain, and thus do not fall within the scope of 'business' under Section 2(17) of the CGST Act.”
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