Tariff, License Fee Received By Electricity Regulatory Commissions Not Exigible To Tax: Delhi High Court

The Delhi High Court has made it clear that amounts received by the Electricity Regulatory Commissions under the heads of filing fee, tariff fee, license fee, annual registration fee and miscellaneous fee are not exigible to tax. A division bench of Justices Yashwant Varma and Dharmesh Sharma thus allowed the petitions filed by the Central Electricity Regulatory Commission as well as the Delhi Electricity Regulatory Commission against the show cause notices issued to them by the GST Department. It observed, “We find ourselves unable to accept, affirm or even fathom the conclusion that regulation of tariff, inter-State transmission of electricity or the issuance of license would be liable to be construed as activities undertaken or functions discharged in the furtherance of business. The respondents have clearly failed to bear in consideration the indubitable fact that even if these be functions which could be understood to be in the exercise of a regulatory function, those were being discharged by a quasi-judicial body which undoubtedly had all the trappings of a tribunal. The grant of a license to transmit or distribute is clearly not in furtherance of business or trade but in extension of the statutory obligation placed upon a Commission to regulate those subjects.” It was the case of the GST Department that the two Commissions were not discharging their liabilities under the CGST Act and the IGST Act, in respect of the amounts received by them as tariff and license fee from various power utilities. The Commission contended that it essentially discharges statutory functions and is not engaged in any trade or commerce, absent which the discharge of such statutory activities in public interest cannot be subjected to a levy under either the CGST or the IGST. The Department however sought to draw a dichotomy between the “adjudicatory” and “regulatory” functions of the Commissions, stating that the revenue earned from the latter would be subject to tax. The Department relied on Section 2(24) of the IGST Act which defines 'service' as anything other than goods, money and securities. It was contended that anything other than goods, money and securities will also include the activities of– regulating tariff, issuing licenses, levying fees. Thus, it was submitted that the Commissions' activities fall under the scope of “Supply of Services”. The Department also referred to Section 2(17) of the CGST Act which defines 'Business' to include any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit. It was contended that the fee received by CERC is in respect of business. Getting into the nitty-gritties of Section 2(17) CGST Act, the High Court remarked, “We find ourselves unable to fathom how a power of regulation which stands statutorily vested in a Commission could be countenanced to fall within the ambit of any of those activities under Section 2(17)(a)...Clauses (b) and (c) of Section 2(17) are again coupled to clause (a).” The Court then referred to Clause (d) of Section 2(17) which is concerned with the supply or acquisition of goods, which the Court said has no application in this case. Similarly, clauses (e), (f), (g) and (h) of the provision would also have no application whatsoever considering the nature of activities which are contemplated therein, the Court said. It then proceeded to consider Section 2(17)(i) which encompasses activities or transactions undertaken by the Central or State Governments or a local authority. Court said, “the said clause too would have no application since a Commission which comes to be constituted under the Electricity Act cannot be equated with the Central or State Governments.” Thus the Court concluded that the regulatory functions discharged by Commissions would not fall within the scope of the word 'business' as defined by Section 2(17). The Department had also contended that supply of services by CERC would fall within the ambit of the word “consideration” as defined by Section 2(31)(a) of the CGST Act. The High Court said, “The word “consideration”, in our considered opinion, would necessarily have to draw colour and meaning from Section 2(31) and which speaks of payment made in respect of, in response to or for the inducement of a supply of goods. Suffice it to note that it was not even remotely sought to be contended by the respondents that the payments in the form of fee as received by Commissions were an outcome of an inducement to supply goods or services.” Court also proceeded to take note of Schedule II of the CGST Act, which spells out activities which are liable to be treated as a supply of goods or services. It found, “Undisputedly, the regulatory function discharged by Commissions can neither be said to be akin to renting of immovable property, construction of...

Tariff, License Fee Received By Electricity Regulatory Commissions Not Exigible To Tax: Delhi High Court

Kapil Dhyani

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