Delhi High Court
Central Electricity Regulatory … vs The Additional Director Directorate … on 15 January, 2025
Author: Yashwant Varma
Bench: Yashwant Varma, Dharmesh Sharma
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 13 December 2024
Judgment pronounced on: 15 January, 2025
+ W.P.(C) 10680/2024 & CM APPL. 43919/2024 (Stay)
CENTRAL ELECTRICITY REGULATORY
COMMISSION .....Petitioner
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Vishal Kumar, Adv.
versus
THE ADDITIONAL DIRECTOR DIRECTORATE GENERAL
OF GST INTELLIGENCE (DGGI) & ANR. .....Respondents
Through: Mr. Harpreet Singh, SSC with
Ms. Suhani Mathur, Adv.
Mr. Piyush Gupta, CGSC with
Mr. Prateek Gupta & Mr.
Atishay Jain, Advs.
+ W.P.(C) 14723/2024 & CM APPL. 61848/2024 (Stay)
DELHI ELECTRICITY REGULATORY
COMMISSION .....Petitioner
Through: Mr. Sujit Ghosh, Sr. Adv. with
Ms. Mannat Waraich & Ms.
Ananya Goswami, Advs.
Mr. Anirudh Dusaj, ASC.
Mr. Prashant Mehta, SC with
Mr. Pranav Singh, Adv.
versus
ADDITIONAL COMMISSIONER OF CGST DELHI SOUTH
COMMISSIONERATE & ORS. .....Respondents
Through: Mr. Akshay Amritanshu, SSC
with Ms. Swati Mishra, Ms.
Dristi Saraf & Ms. Pragya
Upadhyay, Advs.
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 1 of 33
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:15.01.2025
18:06:24
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE DHARMESH SHARMA
JUDGMENT
YASHWANT VARMA, J.
CM APPL.73286/2024 (for delay of 15 days in filing Rejoinder) in
W.P.(C) 10680/2024
Bearing in mind the disclosures made in the application, the
delay of 15 days in filing a rejoinder is condoned.
The application stands disposed of.
CM APPL.73285/2024 (for delay of 07 days in filing of Counter
Affidavit) in W.P.(C) 14723/2024
Bearing in mind the disclosures made in the application, the
delay of 07 days in filing the counter affidavit is condoned.
The application stands disposed of.
W.P.(C) 10680/2024 & CM APPL. 43919/2024 (Stay)
W.P.(C) 14723/2024 & CM APPL. 61848/2024 (Stay)
1. The Central Electricity Regulatory Commission1 as well as the
Delhi Electricity Regulatory Commission2 have petitioned this Court
assailing the validity of Show Cause Notices3 dated 29 May 2024 and
23 July 2024 respectively pursuant to which the respondents have
sought to call upon them to discharge liabilities emanating from the
Central Goods and Services Tax Act, 20174 and the Integrated
1
CERC
2
DERC
3
SCNs
4
CGST Act
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 2 of 33
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:15.01.2025
18:06:24
Goods and Services Tax Act, 20175 in respect of the fee received by
them in the course of discharge of their regulatory functions under the
Electricity Act, 20036. The respondents have sought to draw a
dichotomy between the “adjudicatory” and “regulatory” functions
which these two statutory bodies discharge to essentially hold that the
revenue earned from the latter would be subject to tax under the CGST
and IGST Acts. In order to appreciate the stand which has been taken
by the respondents, it would be apposite to take note of the assertions
made in the SCNs’ which are impugned before us. However, and for
the sake of brevity and since both SCNs’ proceed on identical lines, we
propose to notice the allegations as levelled in the SCN issued to the
CERC.
2. The respondents assert that based on intelligence which was
gathered, it was found that CERC was not discharging its Goods and
Services Tax7 liabilities on amounts received by it as tariff and license
fee from various power utilities. It asserts that the aforesaid functions
discharged by CERC would fall under ―support services to electricity
transmission and distribution services under Service Accounting
Code8 998631‖ as per serial no. 466 of the Annexure to Notification
No. 11/2017-Central Tax (Rate) dated 28 June 2017 read along with the
Explanatory Notes to the Scheme of Classification of Services as
adopted by the Central Board of Indirect Taxes and Customs9. They
5
IGST Act
6
Electricity Act
7
GST
8 SAC
9
CBIC
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 3 of 33
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:15.01.2025
18:06:24
take the stand that the support services so rendered would be taxable as
per Serial No. 24(ii) of Notification No. 8/2017-Integrated Tax (Rate)
dated 28 June 2017 and thus falling within the ambit of ―Support
services to mining, electricity, gas and water distribution‖.
3. While it is conceded that no GST is leviable on services by way
of transmission or distribution of electricity by an electricity
transmission or distribution utility and the same not being subject to tax
by virtue of Serial No. 26 of Notification No. 9/2017-Integrated Tax
(Rate) dated 28 June 2017, however, support services rendered in the
context of electricity transmission and distribution services under SAC
998631 are taxable @18%. They thus take the view that while
concededly the functions performed by the CERC are distinct and
different from transmission or distribution of electricity by a utility,
however, it would fall under the category of ―support services‖ to
electricity transmission and distribution service providers. They further
hold that since the CERC is neither engaged in electricity transmission
nor functioning as a distribution utility, it cannot claim exemption from
payment of GST.
4. The SCNs’ impugned before us appear to have been preceded by
various notices which were issued by the respondents seeking to elicit
the stand of the two statutory bodies. From the disclosures which were
made by the CERC, the respondents had taken note of the following
amounts received by it under the heads of filing fee, tariff fee, license
fee, annual registration fee and miscellaneous fee. This is evident from
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 4 of 33
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:15.01.2025
18:06:24
a reading of Para 4 of the notice issued to CERC and which is
reproduced hereinbelow: –
―Whereas, it was observed from the Annual Reports uploaded by
CERC on its official website- ―::: Central Electricity Regulatory
Commission :::(cercind.gov.in)‖ that CERC is majorly having its
income from ‗Fees’ collected. The amount of Income from Fee has
been taken as declared under Schedule of ‗Income from Fee’ or
Schedule of ‗CERC Fund- Direct Income’ forming part of Balance
Sheet of each Financial Year and is as tabulated below (RUD- 6)-
Table-I
(Amount in Lakh)
Financial Filing Fee/ Licence Annual Miscellaneous Total Fee
year Tariff Fee Fee Registration Fee
Fee
2019-20 9,793.96 5,981.09 58 99.64 15,932.69
2020-21 8,708.44 5,240.57 58 82.55 14,089.56
2021-22 9,988.06 5,984.61 77.69 77.92 16128.28
2022-23 10,180.51 6241.86 94.31 17.32 16534.00
Total 38,670.97 23,448.13 288.00 277.43 62,684.53‖
5. The CERC appears to have taken the stand that it essentially
discharges statutory functions and is thus and fundamentally not
engaged in any trade or commerce. It further questioned the bifurcation
that the respondents sought to make between its adjudicatory and
regulatory roles. In view of the above, it took the position that absent
any commercial consideration or business objective, the discharge of
such statutory activities in public interest cannot be subjected to a levy
under either the CGST or the IGST.
6. The details of the amounts received by CERC under the
aforenoted heads is then again taken into consideration in Para 4.6
which is reproduced hereunder:-
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 5 of 33
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:15.01.2025
18:06:24
―4.6 In response to this office letter dated 14.02.2024, Mis CERC
vide their office letter dated 16.04.2024 (RUD-9) informed about the
legal advice received by them, stating that the regulatory functions
performed by CERC, such as tariff determination and licensing, are
akin to quasi-judicial activities under the Electricity Act.
Consequently, these activities do not constitute a ―supply‖ of
services and are not subject to Goods and Services Tax (GST).
Further, vide the said letter dated 16.04.2024 (RUD-9 Supra), M/s
CERC submitted the statement showing detail of fee received by
CERC and the same is as tabulated below-
‖
7. The respondents thereafter and while bearing in consideration the
words ―supply‖ and ―services‖ as defined have held as under: –
―6.1. The above contention by CERC does not appear tenable on the
facts that a taxable event in the GST regime is supply of goods or
services or both. The term, ―supply‖ has been inclusively defined in
the Act, Section 7 of CGST Act, 2017 (hereinafter referred as the
CGST Act) read with Section 2 (21) of IGST Act, 2017 (hereinafter
referred as the IGST Act) define the scope of supply which reads as
under:-
(1) For the purposes of this Act, the expression – “supply”
includes-
(a) all forms of supply of goods or services or both such as
sale, transfer, barter, exchange, licence, rental, lease or
disposal made or agreed to be made for a consideration by
person in the course or furtherance of business;
6.1.1. Further, ―services‖ is defined under sub-section 102 of Section
2 of CGST Act, 2017 ( as amended) read with Section 2 (24) of the
IGST Act, 2017 ( as amended) which states that ―services‖ means
anything other than goods, money and securities but includes
activities relating to the use of money or its conversion by cash or by
any other mode, from one form, currency or denomination, to
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 6 of 33
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:15.01.2025
18:06:24
another form, currency or denomination for which a separate
consideration is charged. Therefore, anything other than goods,
money and securities will also include the activities of “regulating
the tariff of generating companies owned or controlled by the
Central Government, regulating the inter-State transmission of
electricity, to issue licenses to persons to function as transmission
licensee and electricity trader with respect to their inter-State
operations; to levy fees for the purposes of this Act‖ falls under the
scope of “Supply of Services”.
6.2 Whereas, Section 2(31 )(a) of the CGST Act, 2017 (as amended)
read with Section 2 (24) of the IGST Act, 2017 (as amended) states
that ―consideration‖ in relation to the supply of goods or services
or both includes -any payment made or to be made, whether in
money or otherwise, in respect of, in response to, or for the
inducement of, the supply of goods or services or both, whether by
the recipient or by any other person but shall not include any
subsidy given by the Central Government or a State Government.‖
8. They have thus proceeded to hold that the 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 read along with Section
2(24) of the IGST Act.
9. Proceeding further and bearing in mind the definition of
―business‖ as it appears in Section 2(17) of the CGST and Section and
2(24) of IGST Act, the respondents have taken the following position: –
―6.3 Further, Business is defined under sub-section 17 of Section 2
of the CGST Act, 2017 (as amended) read with Section 2 (24) of the
IGST Act, 2017 (as amended) which reads as-
(17) “business” includes –
(a) any trade, commerce, manufacture, profession, vocation,
adventure, wager or any other similar activity, whether
or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or
incidental or ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a),
whether or not there is volume, frequency, continuity or
regularity of such transaction;
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 7 of 33
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:15.01.2025
18:06:24
(d) supply or acquisition of goods including capital goods
and services in connection with commencement or closure
of business;
(e) provision by a club, association, society, or any such
body (for a subscription or any other consideration) of the
facilities or benefits to its members;
(f) admission, for a consideration, of persons to any
premises;
(g) services supplied by a person as the holder of an office
which has been accepted by him in the course or furtherance
of his trade, profession or vocation;
(h) [activities of a race club including by way of totalisator
or a license to book maker or activities of a licensed book
maker in such club; and]
(i) any activity or transaction undertaken by the Central
Government, a State Government or any local authority in
which they are engaged as public authorities;
6.3.1. The contention of CERC in regard to non-applicability of GST
on the activities carried out by them being not a commercial
business activity, as fees collected by them are deposited with
Government in the Public Account of India and that CERC is funded
by Grants-in-Aid by the Ministry of Power, Central Government and
thus having no monetary benefit does not hold good. It is evident
from above that any activity performed irrespective of having a
pecuniary benefit is covered under the definition of ‗business ‗. The
intention of law is amply clear here as any activity or transaction
undertaken by the Central Government, a State Government or any
local authority in which they are engaged as public authorities are
also covered under the definition of “business”. Even, activities
undertaken Central Government, a State Government or any local
authority are covered under the said definition of business and are
not out of its ambit. Thus, the activities undertaken by CERC which
is a statutory body will be considered as ‗business’. ‖
10. They also appear to rest and found their opinion of the two
regulatory bodies being exigible to tax on a set of FAQs’ issued by the
CBIC to essentially hold that they cannot be viewed as being
―Government‖ or ―local authority‖ as contemplated in those statutes.
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 8 of 33
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:15.01.2025
18:06:24
This becomes apparent from a reading of Paras 6.4.1 and 6.4.2 and
which are reproduced hereinbelow: –
―6.4.1 CBIC has compiled and released a booklet containing 31
FAQs on GST in Government Services Sector, for assistance and
guidance of the stakeholders in getting acquainted with the GST
Law wherein it has been clarified that a statutory body or a
regulatory body created by the Parliament or a State Legislature is
neither covered under the definition of ‗Government’ nor of a ‗ local
authority ‗. The relevant FAQ are as reproduced below-
Question 6: Would a statutory body, corporation or an authority
constituted under an Act passed by the Parliament or any of the
State Legislatures be regarded as ‗Government’ or ―local
authority‖ for the purposes of the GST Acts?
Answer: A statutory body, corporation or an authority created by
the Parliament or a State Legislature is neither ‗Government’ nor
a ‗local authority’. Such statutory bodies, corporations or
authorities are normally created by the Parliament or a State
Legislature in exercise of the powers conferred under article
53{3}{b) and article 154{2}{b} of the Constitution respectively.
It is a settled position of law (Agarwal Vs. Hindustan Steel AIR
1970 Supreme Court 1150) that the manpower of such statutory
authorities or bodies do not become officers subordinate to the
President under article 53{1) of the Constitution and similarly to
the Governor under article 154(1). Such a statutory body,
corporation or an authority as a juridical entity is separate from
the State and cannot be regarded as the Central or a State
Government and also do not fall in the definition of ‗local
authority’. Thus, regulatory bodies and other autonomous entities
would not be regarded as the government or local authorities for
the purposes of the GST Acts.
Question 10: Are various regulatory bodies formed by the
Government covered under the definition of „Government‟?
Answer: No. A regulatory body, also called regulatory agency, is
a public authority or a governmental body which exercises
functions assigned to them in a regulatory or supervisory
capacity. These bodies do not fall under the definition of
Government.
Examples of regulatory bodies are – Competition Commission of
India, Press Council of India, Directorate General of Civil
Aviation, Forward Market Commission, Inland Water Supply
Authority of India, Central Pollution Control Board, Securities
and Exchange Board of India.
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 9 of 33
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:15.01.2025
18:06:24
6.4.2. Thus, in view of above, the financial consideration so received
by CERC is towards a function/service rendered by them and in
absence of any blanket exemption available to CERC the said
services appear to be taxable under the CGST/ IGST Act, 2017. ‖
11. They have thus come to conclude that the fee received by CERC
is in respect of business and the said regulatory authority itself being
liable to be construed as a business entity. Basis the aforesaid
conclusion, they have observed as under: –
―6.4.3. As the regulatory activities performed by CERC for which
fee is received by them falls under the definition of ―business‖,
therefore, CERC appears to be a business entity. Since, there is no
blanket exemption from CGST/SGST/IGST for statutory body or a
regulatory body in CGST Act, 2017 (as amended) or IGST Act,
2017 (as amended). Hence, CERC is liable to be registered under
Section 22 of CGST Act, 2017 (as amended) read with Section 20 of
IGST Act, 2017 as the money (Fee) received by CERC for
implementing the activities is Rs. 6,26,84,51,254/- (Rupees Six
Hundred Twenty Six Crore Eighty Four Lakh Fifty One Thousand
Two Hundred and Fifty Four Only) as discussed above under Para
4.3 (Table-2) which is well over and above the prescribed limit for
GST registration in Section 22 of CGST Act, 2017 ( as amended)
read with Section 20 of GST Act, 2017 ( as amended).‖
12. The perceived distinction on the basis of which the respondents
have proceeded and the bifurcation which according to them must be
acknowledged to exist between the adjudicatory and regulatory roles of
the two statutory authorities also stands highlighted in the following
paragraphs of the SCN:-
―6.5.2. From the functions performed by CERC, it appears that all
the functions are regulatory in nature except the adjudicatory
function provided in sub-clause (f) whereupon the Commission has
the option of adjudicating the disputes between the licensees and
generating companies and to refer such disputes for arbitration. The
adjudicatory functions have the trappings of a Court or Tribunal and
while performing adjudicatory functions, any fee levied or penalty
imposed are not leviable to OST as clarified by the Tax ResearchW.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 10 of 33
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:15.01.2025
18:06:24
Unit of Ministry of Finance, GOI in its Office Memorandum dated
30.05.2018.
6.5.3. However, it’s essential to note that while most functions
performed by CERC are regulatory in nature, the adjudicatory
function provided in sub-clause (f) differs. This clause grants CERC
the power to resolve disputes between licensees and generating
companies related to functions as specified under sub clause (a) to
(d) of Section 79 of the Electricity Act, 2003,but it doesn’t extend to
matters related to issuing licenses (as under sub clause (e) of Section
79 of the Electricity Act, 2003) or levying fees (as under sub clause
(g) of Section 79 of the Electricity Act, 2003). These regulatory
tasks fall outside the purview of quasi-judicial functions and remain
solely within the realm of regulatory activities. Therefore, it’s clear
that the adjudicatory power of CERC is circumscribed, avoiding the
trappings of a full-fledged Court, while functions like issuing
licenses and fee imposition remain distinctly regulatory.
xxxx xxxx xxxx
7.2. However, in para 3 of the said Office Memorandum, it is
clarified that CERC has other functions which are in the nature of a
regulator for which fees are levied. It is immaterial whether such
activities are undertaken as a statutory or mandatory requirement
under the law and irrespective of whether the amount charged for
such service is laid down in a statute or not, so long as the payment
is made for fee charged for getting a service in return (i.e., as a quid
pro quo for the service received). It is regarded as a consideration for
that service and taxable irrespective of by whatever name such
payment is called.‖
13. The issue of taxability also appears to have been examined by the
Fitment Committee as would be evident from a reading of Para 7.3 of
the impugned SCN and which is extracted hereinbelow:-
―Furthermore, Fitment Committee recommended quasi-judicial
functions of CERC being no-supply under Schedule-III of the
CGST Act, 2017 (as amended) and further recommended
taxability on the fees levied for their regulatory functions. The
same has also been agreed by GST Council in its 47th Meeting
dated 28th & 29th June, 2022. Thus, in view of Office
Memorandum dated 30.05.2018 issued by the Tax Research Unit,
Department of Revenue, Ministry of Finance to CERC and also GST
Council’s affirmation to the Fitment Committee recommendation asW.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 11 of 33
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:15.01.2025
18:06:24
already discussed above, it is amply clear that the fees collected by
CERC is in lieu of the regulatory functions performed by them such
as regulation & determination of tariff of generating companies for
inter-State transmission of electricity and also for issuing licenses to
persons to function as transmission licensee and electricity trader
with respect to their inter-State operations is taxable under
CGST/IGST.‖
14. While it appears to have been urged for the consideration of the
respondents that both CERC as well as DERC had all the trappings of a
court and thus liable to be viewed as a ―tribunal‖ and consequently
being exempt from taxation, those contentions have also come to be
negated as would be apparent from a reading of Paras 8.1, 8.2 and 8.3
which are extracted hereunder: –
―8.1 However, it appears that CERC has selectively picked up a
portion of the judgment of the Hon’ble Supreme Court which does
not reflect properly in the present case and thus, it appears that the
submission made by CERC is out of context inasmuch as the
Commission having the trapping of the Court is applicable only
in those cases which come under the functions envisaged in
Section 79(1)(f) of the Electricity Act, 2003 where the
Commission adjudicates upon the disputes between the
licensees, and generating companies and to refer any dispute for
arbitration. These functions are quasi-judicial functions and have
the trappings of the Court as observed by the Hon’ble Supreme
Court. It also appears that the Contention that CERC has the
trappings of a Court is misplaced with reference to applicability of
GST so far as it relates to tariff fees & license fees collected by
CERC as a regulator.
8.2. The observation of the Hon’ble Supreme Court in this matter as
made in para 81 of the above judgment is as under (RUD-10
Supra)-
“81. We may also look to the nature and functions
performed by the State Commission. Functions of the State
Commission are prescribed under Section 86 of the said
Act. The enumerated functions are determination of tariff,
regulation of electricity purchase and procurement process
of distribution licensees, facilitating intra-stateW.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 12 of 33
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:15.01.2025
18:06:24
transmission, issuing licences to persons, promoting
cogeneration and generation of electricity from renewable
sources, levy fee, specify or enforce standards, fix trading
margins. All these functions are regulatory in character
rather than adjudicatory. The real adjudicatory function is
only provided in sub-clause (f) whereupon the Commission
has the option of adjudicating the disputes between the
licensees and generating companies, or to refer such
disputes to arbitration.”
8.3. As per the above observation of the Hon’ble Supreme Court, the
functions of the State Commission such as determination of tariff,
regulation of electricity purchase and procurement process of
distribution licensees, facilitating intra-state transmission, issuing
licences to persons, promoting cogeneration and generation of
electricity from renewable sources, levy fee, specify or enforce
standards, fix trading margins are regulatory in character rather
than adjudicatory and the real adjudicatory function is only
provided in Section 86(1)(f). Similarly, the functions of the Central
Commission viz. CERC such as to regulate the tariff of generating
companies owned or controlled by the Central Government; to
regulate the tariff of generating companies other than those owned or
controlled by the Central Government, if such generating companies
enter into or otherwise have a composite scheme for generation and
sale of electricity in more than one State; to regulate the inter-State
transmission of electricity; to determine tariff for inter-State
transmission of electricity; to issue licenses to persons to function as
transmission licensee and electricity trader with respect to their
inter-State operations are regulatory in character rather than
adjudicatory and the real adjudicatory function is only provided in
Section 79(1)(f).‖
15. The respondents have ultimately come to hold: –
―8.6. From the above, it transpires that the amount received by
CERC towards fees collected is as a regulator in its ordinary course
of functions and not as a quasi-judicial body which adjudicates
upon disputes involving power generating companies and
transmission licensees in terms of Section 79(1)(f) of the Electricity
Act, 2003. As such, the functions performed by CERC as a regulator
does not appear to have the trappings of a Court and accordingly,
GST appears to be payable on the Fees collected by CERC as a
regulator.
xxxx xxxx xxxx
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 13 of 33
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:15.01.2025
18:06:24
10. Based on the above discussion under Para 9.1 to 9.4.3 and taking
into consideration of the Office Memorandum dated 30.05 .2018,
Fitment Committee recommendation and concurrence of GST
Council to the said recommendation referred in para 7.1 & 7.2 above
& the observation of the Hon’ble Supreme Court referred in para
8.2, 8.3 & 8.4 above , it appears that CERC is engaged in execution
of functions prescribed in the Electricity Act, 2003 and the same
appears to be a ‗Service’ in terms of Section 2(102) of the CGST
Act, 2017 read with Section 2 (24) of the IGST Act, 2017 (as
amended) and as such, a ‗taxable supply’ in terms of Section 2(108)
of the CGST, 2017 read with Section 2 (24) of the IGST Act, 2017
(as amended) which is leviable to tax under the Section 9 of the
CGST Act read with Section 5 of IGST Act, 2017.
xxxx xxxx xxxx
12.1. Accordingly, the service provided by CERC, so far as it relates
to Fees (Tariff Fee/ Licence Fee/ Annual Registration Fee,
Miscellaneous Fee) received by them, appears to be classifiable
under support services to electricity transmission & distribution
services with SAC 998631 and IGST chargeable thereon @18% as
per sl. no. 24(ii) of Notification No. 8/2017-lntegrated Tax (Rate)
dated 28.06.2017 (as amended).
13. On scrutiny of ‗income from fee ‗ ledger provided by CERC
vide its letter dated 22.09.2023 (RUD- 8 Supra), Statement showing
details of fee collected by CERC as provided vide its letter dated
16.04.2024 (RUD- 9 Supra) and further M/s CERC’s failure to
provide bifurcation of fee collected by them for providing inter-state
& intra-state supply of services, thus the entire supply of service
made by M/s CERC has been considered to be inter-state supply and
accordingly, the total amount of IGST payable under the IGST Act,
2017 has been calculated involving the period from April, 2019 to
March, 2023, the same is as tabulated below-
14. From the above findings, it appears that CERC failed to self-
assess its tax liability correctly and thus failed to discharge its IGST
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 14 of 33
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:15.01.2025
18:06:24
liability amounting to Rs. 112,83,21,226/( Rupees One Hundred
Twelve Crore Eighty Three Lakh Twenty One Thousand Two
Hundred and Twenty Six only) as ascertained in para 13 (refer
Table-5) above for the period from April, 2019 to March, 2023
leading to non-payment of IGST on the amount received from the
power generation, transmission & distribution utilities towards Tariff
Petition Fees & License Fees which constitute a taxable supply of
service under SAC 998631 with the description “support services to
electricity transmission & distribution services” as per SI. N o. 466
of Annexure to Notification No. 11/2017- Central Tax (Rate) dated
28.06.2017 amended) and further read with CBIC Explanatory Notes
to the Scheme of Classification of Services and as such, the same
appears to be taxable as per sl. no. 24(ii) of Notification No.8/2017-
Integrated Tax (Rate) dated 28.06.2017 (as amended) with the
description ―Support services to mining, electricity, gas and water
distribution‖.
xxxx xxxx xxxx
16.1 Therefore, in view of above paras, it appears that CERC has not
paid the amount of tax on the consideration received from various
power utilities/ licensees and therefore for these considerations,
IGST of Rs. 112,83,21,226/- (Rupees One Hundred Twelve Crore
Eighty Three Lakh Twenty One Thousand Two Hundred and
Twenty Six only), as calculated in para 13 & 14 above, appears
recoverable from CERC under Section 73(1) of the CGST Act, 20 I
7 (as amended).
xxxx xxxx xxxx
21. Now, therefore, M/s Central Electricity Regulatory Commission
(CERC), 3rd & 4th Floor, Chanderlok Building, 36, Janpath, New
Delhi – 110001 , are required to show cause to the Additional/Joint
Commissioner of CGST, Delhi South Commissionerate, 2nd & 3rd
Floor, EIL Annexe Building, Plot 2B, Bhikaji Cama Place, New
Delhi-110066, within 30 days of receipt of this notice as to why: –
(i) IGST of Rs. Rs. 112,83 ,21 ,226/- (Rupees One Hundred
Twelve Crore Eighty-Three Lakh Twenty-One Thousand
Two Hundred and Twenty-Six only) should not be
demanded and recovered from them under Section 73(1) of
the CGST Act, 2017 (as amended) read with the Section 20
of Integrated Goods & Services Tax Act, 2017 ( as
amended) and;
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 15 of 33
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(ii) Interest at the appropriate rates on the amount of GST
demanded at Sr. No. (i) above, should not be recovered
from them, under Section 50(1) of the CGST Act, 2017 (as
amended) read with Section 20 of Integrated Goods &
Services Tax Act, 2017 (as amended);
(iii) Penalty under Section 73 of the CGST Act, 2017 read with
Section 122 of the CGST Act, 2017 (as amended) read with
the Section 20 of the Integrated Goods & Services Tax Act,
2017 (as amended), should not be imposed upon them, for the
reasons mentioned in paras 17 to 20 above.‖
16. We had the benefit of the erudite submissions addressed by Mr.
Vohra and Mr. Ghosh, learned senior counsels who appeared for the
writ petitioners and Mr. Singh and Mr. Amritanshu, learned counsels
for the respondents. For reasons which we assign and set forth hereafter
we find ourselves unable to sustain the SCNs’ impugned.
17. It becomes pertinent to note that the CGST Act imposes a tax on
an inter-state supply of goods or services or both by virtue of Section 9
which reads as follows:-
―9. Levy and collection.–(1) Subject to the provisions of sub-
section (2), there shall be levied a tax called the central goods and
services tax on all intra-State supplies of goods or services or both,
except on the supply of alcoholic liquor for human consumption and
un-denatured extra neutral alcohol or rectified spirit used for
manufacture of alcoholic liquor, for human consumption, on the
value determined under Section 15 and at such rates, not exceeding
twenty per cent, as may be notified by the Government on the
recommendations of the Council and collected in such manner as
may be prescribed and shall be paid by the taxable person.
(2) The central tax on the supply of petroleum crude, high speed
diesel, motor spirit (commonly known as petrol), natural gas and
aviation turbine fuel shall be levied with effect from such date as
may be notified by the Government on the recommendations of the
Council.
(3) The Government may, on the recommendations of the Council,
by notification, specify categories of supply of goods or services orW.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 16 of 33
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both, the tax on which shall be paid on reverse charge basis by the
recipient of such goods or services or both and all the provisions of
this Act shall apply to such recipient as if he is the person liable for
paying the tax in relation to the supply of such goods or services or
both.
(4) The Government may, on the recommendations of the Council,
by notification, specify a class of registered persons who shall, in
respect of supply of specified categories of goods or services or both
received from an unregistered supplier, pay the tax on reverse charge
basis as the recipient of such supply of goods or services or both,
and all the provisions of this Act shall apply to such recipient as if he
is the person liable for paying the tax in relation to such supply of
goods or services or both.
(5) The Government may, on the recommendations of the Council,
by notification, specify categories of services the tax on intra-State
supplies of which shall be paid by the electronic commerce operator
if such services are supplied through it, and all the provisions of this
Act shall apply to such electronic commerce operator as if he is the
supplier liable for paying the tax in relation to the supply of such
services:
Provided that where an electronic commerce operator does not have
a physical presence in the taxable territory, any person representing
such electronic commerce operator for any purpose in the taxable
territory shall be liable to pay tax:
Provided further that where an electronic commerce operator does
not have a physical presence in the taxable territory and also he does
not have a representative in the said territory, such electronic
commerce operator shall appoint a person in the taxable territory for
the purpose of paying tax and such person shall be liable to pay tax.‖
18. In terms of the charging section referred to above, the tax
becomes leviable on a supply of goods, services or both. The scope of
the expression ―supply‖, which appears repeatedly in the CGST Act, is
defined by Section 7 and reads thus:-
―7. Scope of supply.– (1) For the purposes of this Act, the
expression ―supply‖ includes–
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(a) all forms of supply of goods or services or both such as
sale, transfer, barter, exchange, licence, rental, lease or
disposal made or agreed to be made for a consideration by a
person in the course or furtherance of business;
(aa) the activities or transactions, by a person, other than an
individual, to its members or constituents or vice-versa, for
cash, deferred payment or other valuable consideration.
Explanation.–For the purposes of this clause, it is hereby
clarified that, notwithstanding anything contained in any
other law for the time being in force or any judgment,
decree or order of any Court, tribunal or authority, the
person and its members or constituents shall be deemed to
be two separate persons and the supply of activities or
transactions inter se shall be deemed to take place from one
such person to another;
(b) import of services for a consideration whether or not in
the course or furtherance of business; and
(c) the activities specified in Schedule I, made or agreed to
be made without a consideration;[* * *]
[* * *]
(1-A) where certain activities or transactions constitute a supply in
accordance with the provisions of sub-section (1), they shall be
treated either as supply of goods or supply of services as referred to
in Schedule II.
(2) Notwithstanding anything contained in sub-section (1),–
(a) activities or transactions specified in Schedule III; or
(b) such activities or transactions undertaken by the Central
Government, a State Government or any local authority in
which they are engaged as public authorities, as may be
notified by the Government on the recommendations of the
Council,
shall be treated neither as a supply of goods nor a supply of
services.
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 18 of 33
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(3) Subject to the provisions of sub-sections (1), (1-A) and (2), the
Government may, on the recommendations of the Council, specify,
by notification, the transactions that are to be treated as–
(a) a supply of goods and not as a supply of services; or
(b) a supply of services and not as a supply of goods.‖
19. Insofar as supply of goods and services are concerned, Section
7(1)(a) stipulates that it would include within its ambit all forms of
supply of goods or services or both including such as sale, transfer,
barter, exchange, licence, rental, lease or disposal otherwise made or
agreed to be made for a consideration by a person in the course or
furtherance of business. Section 7 also brings within its fold activities
or transactions of a person, other than an individual, in relation with its
members or constituents. The third limb of services which are included
in the scope of supply is the import of services for a consideration
whether or not in the course or furtherance of business as well as
activities specified in Schedule I, even though the same may be made
without a consideration.
20. Insofar as the facts of the present matters are concerned, it was
not the case of the respondents that the regulatory function as
discharged by the writ petitioners would fall within Schedule I. We are
also not concerned with subjects which form part of clauses (aa) and (b)
of Section 7(1).
21. In order to evaluate the correctness of the stands struck by the
respondents it would thus be apposite at the outset to extract Schedules
II and III of the CGST Act and which spell out activities which are
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 19 of 33
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liable to be treated as a supply of goods or services. Schedules II and III
of the CGST Act read as under: –
―SCHEDULE II
[See Section 7]
Activities [or Transactions] to be treated as supply of goods or
supply of services
1. Transfer
(a) any transfer of the title in goods is a supply of goods;
(b) any transfer of right in goods or of undivided share in goods
without the transfer of title thereof, is a supply of services;
(c) any transfer of title in goods under an agreement which
stipulates that property in goods shall pass at a future date upon
payment of full consideration as agreed, is a supply of goods.
2. Land and Building
(a) any lease, tenancy, easement, licence to occupy land is a supply
of services;
(b) any lease or letting out of the building including a commercial,
industrial or residential complex for business or commerce, either
wholly or partly, is a supply of services.
3. Treatment or process
Any treatment or process which is applied to another person’s
goods is a supply of services.
4. Transfer of business assets
(a) where goods forming part of the assets of a business are
transferred or disposed of by or under the directions of the person
carrying on the business so as no longer to form part of those
assets, such transfer or disposal is a supply of goods by the person;
(b) where, by or under the direction of a person carrying on a
business, goods held or used for the purposes of the business are
put to any private use or are used, or made available to any person
for use, for any purpose other than a purpose of the business, the
usage or making available of such goods is a supply of services;
(c) where any person ceases to be a taxable person, any goods
forming part of the assets of any business carried on by him shall
be deemed to be supplied by him in the course or furtherance of his
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business immediately before he ceases to be a taxable person,
unless–
(i) the business is transferred as a going concern to another person;
or
(ii) the business is carried on by a personal representative who is
deemed to be a taxable person.
5. Supply of services The following shall be treated as supply of
services, namely:–
(a) renting of immovable property;
(b) construction of a complex, building, civil structure or a part
thereof, including a complex or building intended for sale to a
buyer, wholly or partly, except where the entire consideration has
been received after issuance of completion certificate, where
required, by the competent authority or after its first occupation,
whichever is earlier.
Explanation.–For the purposes of this clause–
(1) the expression ―competent authority‖ means the Government or
any authority authorised to issue completion certificate under any
law for the time being in force and in case of non-requirement of
such certificate from such authority, from any of the following,
namely:–
(i) an architect registered with the Council of Architecture
constituted under the Architects Act, 1972 (20 of 1972); or
(ii) a chartered engineer registered with the Institution of Engineers
(India); or
(iii) a licensed surveyor of the respective local body of the city or
town or village or development or planning authority;
(2) the expression ―construction‖ includes additions, alterations,
replacements or remodelling of any existing civil structure;
(c) temporary transfer or permitting the use or enjoyment of any
intellectual property right;
(d) development, design, programming, customisation, adaptation,
upgradation, enhancement, implementation of information
technology software;
(e) agreeing to the obligation to refrain from an act, or to tolerate an
act or a situation, or to do an act; andW.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 21 of 33
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(f) transfer of the right to use any goods for any purpose (whether
or not for a specified period) for cash, deferred payment or other
valuable consideration.
6. Composite supply
The following composite supplies shall be treated as a supply of
services, namely:–
(a) works contract as defined in clause (119) of Section 2; and
(b) supply, by way of or as part of any service or in any other
manner whatsoever, of goods, being food or any other article for
human consumption or any drink (other than alcoholic liquor for
human consumption), where such supply or service is for cash,
deferred payment or other valuable consideration.
7. [* * *]
SCHEDULE III
[See Section 7]
Activities or transactions which shall be treated neither as a supply
of goods nor a supply of services
1. Services by an employee to the employer in the course of or in
relation to his employment.
2. Services by any court or Tribunal established under any law for
the time being in force.
3. (a) the functions performed by the Members of Parliament,
Members of State Legislature, Members of Panchayats, Members
of Municipalities and Members of other local authorities;
(b) the duties performed by any person who holds any post in
pursuance of the provisions of the Constitution in that capacity; or
(c) the duties performed by any person as a Chairperson or a
Member or a Director in a body established by the Central
Government or a State Government or local authority and who is
not deemed as an employee before the commencement of this
clause.
4. Services of funeral, burial, crematorium or mortuary including
transportation of the deceased.
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule
II, sale of building.
6. Actionable claims, other than [specified actionable claims].
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 22 of 33
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[7. Supply of goods from a place in the non-taxable territory to
another place in the non-taxable territory without such goods
entering into India.
8. (a) Supply of warehoused goods to any person before clearance
for home consumption;
(b) Supply of goods by the consignee to any other person, by
endorsement of documents of title to the goods, after the goods
have been dispatched from the port of origin located outside India
but before clearance for home consumption.]
[9. Activity of apportionment of co-insurance premium by the lead
insurer to the co-insurer for the insurance services jointly supplied
by the lead insurer and the co-insurer to the insured in co-insurance
agreements, subject to the condition that the lead insurer pays the
central tax, the State tax, the Union territory tax and the integrated
tax on the entire amount of premium paid by the insured.
10. Services by insurer to the reinsurer for which ceding
commission or the reinsurance commission is deducted from
reinsurance premium paid by the insurer to the reinsurer, subject to
the condition that the central tax, the State tax, the Union territory
tax and the integrated tax is paid by the reinsurer on the gross
reinsurance premium payable by the insurer to the reinsurer,
inclusive of the said ceding commission or the reinsurance
commission.]
Explanation [1].–For the purposes of paragraph 2, the term
―court‖ includes District Court, High Court and Supreme Court.
[Explanation 2.–For the purposes of paragraph 8, the expression
―warehoused goods‖ shall have the same meaning as assigned to it
in the Customs Act, 1962.]‖
22. Whilst the supply of goods or services stands comprised in
Schedule II, Schedule III to the CGST Act lists out activities which are
neither liable to be treated as a supply of goods nor a supply of services.
Schedule III assumes significance since one such genre is prescribed to
be services rendered by a tribunal established under any law. The fact
that an electricity regulatory commission acts as a ―tribunal‖ cannot
perhaps be disputed bearing in mind the judgment rendered by the
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Supreme Court in PTC India Ltd. v. Central Electricity Regulatory
Commission10 and where the following observations appear: –
―49. On the above analysis of various sections of the 2003 Act, we
find that the decision-making and regulation-making functions are
both assigned to CERC. Law comes into existence not only through
legislation but also by regulation and litigation. Laws from all three
sources are binding. According to Professor Wade, ―between
legislative and administrative functions we have regulatory
functions‖. A statutory instrument, such as a rule or regulation,
emanates from the exercise of delegated legislative power which is a
part of administrative process resembling enactment of law by the
legislature whereas a quasi-judicial order comes from adjudication
which is also a part of administrative process resembling a judicial
decision by a court of law. (See Shri Sitaram Sugar Co.
Ltd. v. Union of India [(1990) 3 SCC 223] .)
50. Applying the above test, price fixation exercise is really
legislative in character, unless by the terms of a particular statute it
is made quasi-judicial as in the case of tariff fixation under Section
62 made appealable under Section 111 of the 2003 Act, though
Section 61 is an enabling provision for the framing of regulations by
CERC. If one takes ―tariff‖ as a subject-matter, one finds that under
Part VII of the 2003 Act actual determination/fixation of tariff is
done by the appropriate Commission under Section 62 whereas
Section 61 is the enabling provision for framing of regulations
containing generic propositions in accordance with which the
appropriate Commission has to fix the tariff. This basic scheme
equally applies to the subject-matter ―trading margin‖ in a different
statutory context as will be demonstrated by discussion hereinbelow.
51. In Narinder Chand Hem Raj v. Lt. Governor, H.P. [(1971) 2
SCC 747] this Court has held that power to tax is a legislative power
which can be exercised by the legislature directly or subject to
certain conditions. The legislature can delegate that power to some
other authority. But the exercise of that power, whether by the
legislature or by the delegate will be an exercise of legislative
power. The fact that the power can be delegated will not make it an
administrative power or adjudicatory power. In the said judgment, it
has been further held that no court can direct a subordinate
legislative body or the legislature to enact a law or to modify the
existing law and if courts cannot so direct, much less the tribunal,
unless power to annul or modify is expressly given to it.
10
(2010) 4 SCC 603
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52. In Indian Express Newspapers (Bombay) (P) Ltd. v. Union of
India [(1985) 1 SCC 641 : 1985 SCC (Tax) 121] this Court held that
subordinate legislation is outside the purview of administrative
action i.e. on the grounds of violation of rules of natural justice or
that it has not taken into account relevant circumstances or that it is
not reasonable. However, a distinction must be made between
delegation of legislative function and investment of discretion to
exercise a particular discretionary power by a statute. In the latter
case, the impugned exercise of discretion may be considered on all
grounds on which administrative action may be questioned such as
non-application of mind, taking irrelevant matters into consideration,
etc. The subordinate legislation is, however, beyond the reach of
administrative law. Thus, delegated legislation–otherwise known as
secondary, subordinate or administrative legislation–is enacted by
the administrative branch of the Government, usually under the
powers conferred upon it by the primary legislation. Delegated
legislation takes a number of forms and a number of terms–rules,
regulations, bye-laws, etc.; however, instead of the said labels what
is of significance is the provisions in the primary legislation which,
in the first place, confer the power to enact administrative
legislation. Such provisions are also called as ―enabling provisions‖.
They demarcate the extent of the administrator’s legislative power,
the decision-making power and the policy-making power. However,
any legislation enacted outside the terms of the enabling provision
will be vulnerable to judicial review and ultra vires.
53. Applying the abovementioned tests to the scheme of the 2003
Act, we find that under the Act, the Central Commission is a
decision-making as well as regulation-making authority,
simultaneously. Section 79 delineates the functions of the Central
Commission broadly into two categories –mandatory functions and
advisory functions. Tariff regulation, licensing (including inter-State
trading licensing), adjudication upon disputes involving generating
companies or transmission licensees fall under the head ―mandatory
functions‖ whereas advising the Central Government on formulation
of National Electricity Policy and tariff policy would fall under the
head ―advisory functions‖. In this sense, the Central Commission is
the decision-making authority. Such decision-making under Section
79(1) is not dependent upon making of regulations under Section
178 by the Central Commission. Therefore, functions of the Central
Commission enumerated in Section 79 are separate and distinct from
functions of the Central Commission under Section 178. The former
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are administrative/adjudicatory functions whereas the latter are
legislative.‖
23. The respondents, however, seek to discern a distinction between
the adjudicatory function performed by a regulatory commission as
distinguishable from what they assert to be the exercise of a power to
regulate. According to the respondents, any income or receipts derived
by those Commissions in the course of discharge of their regulatory
function would be exigible to tax under the CGST Act.
24. It becomes pertinent to note that the CGST Act not only deals
with the supply of goods or services per se, it also brings within its
ambit composite and mixed supplies in terms of Section 8. Composite
supplies are those which are spelt out and enumerated in serial 6 of
Schedule II. The supply of services generically is dealt with in serial 5.
Undisputedly, the regulatory function discharged by Commissions can
neither be said to be akin to renting of immovable property,
construction of a complex or building, temporary transfer or permissive
use or enjoyment of an intellectual property right, development, design
of software, transfer of the right to use goods and which are subjects
enumerated in serial 5 of Schedule II. The regulatory power which is
wielded by Commissions under the provisions of the Electricity Act
would also not fall within the ambit of clause (e) of serial 5 and which
speaks of an obligation to refrain from doing an act or toleration of an
act or situation.
25. Of equal significance is the definition of ―business‖ and
―consideration‖ as it appears in the statute. Section 2(17) defines
―business‖ as follows: –
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―2. Definitions. –In this Act, unless the context otherwise requires-
xxxx xxxx xxxx
(17) ―business‖ includes--
(a) any trade, commerce, manufacture, profession, vocation,
adventure, wager or any other similar activity, whether or
not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or
incidental or ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a),
whether or not there is volume, frequency, continuity or
regularity of such transaction;
(d) supply or acquisition of goods including capital goods
and services in connection with commencement or closure
of business;
(e) provision by a club, association, society, or any such
body (for a subscription or any other consideration) of the
facilities or benefits to its members;
(f) admission, for a consideration, of persons to any
premises;
(g) services supplied by a person as the holder of an office
which has been accepted by him in the course or furtherance
of his trade, profession or vocation;
(h) activities of a race club including by way of totalisator
or a license to book maker or activities of a licensed book
maker in such club; and;
(i) any activity or transaction undertaken by the Central
Government, a State Government or any local authority in
which they are engaged as public authorities;‖
26. The expression ―consideration‖ is found in Section 2(31) which
reads thus: –
―2. Definitions.–In this Act, unless the context otherwise
requires,–
xxxx xxxx xxxx
(31) ―consideration‖ in relation to the supply of goods or services or
both includes–
W.P.(C) 10680/2024 & W.P.(C) 14723/2024 Page 27 of 33
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(a) any payment made or to be made, whether in money or
otherwise, in respect of, in response to, or for the
inducement of, the supply of goods or services or both,
whether by the recipient or by any other person but shall not
include any subsidy given by the Central Government or a
State Government;
(b) the monetary value of any act or forbearance, in respect
of, in response to, or for the inducement of, the supply of
goods or services or both, whether by the recipient or by
any other person but shall not include any subsidy given by
the Central Government or a State Government:
Provided that a deposit given in respect of the supply of goods or
services or both shall not be considered as payment made for such
supply unless the supplier applies such deposit as consideration for
the said supply;‖
27. The definition clauses referred to above assume significance in
light of the language employed in Section 7 and which speaks of the
supply of goods, services or both provided by a person for
consideration being in the course or furtherance of business. When we
revert to Section 2(17), we find that the statute defines the said
expression to mean any trade, commerce, manufacture, profession,
vocation, adventure, wager or any other similar activity irrespective of
whether it be for a pecuniary benefit or not. Clauses (b) and (c) of
Section 2(17) are again coupled to clause (a). Clause (d) of Section
2(17) is concerned with the supply or acquisition of goods, while
clauses (e), (f), (g) and (h) would also have no application whatsoever
considering the nature of activities which are contemplated therein.
28. That thus leaves us to consider whether the power to regulate, as
exercised, could be said to be an activity akin to trade, commerce,
manufacture, profession, vocation, adventure, voyager and which are
activities enumerated in Section 2(17)(a). We find ourselves unable to
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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. It becomes pertinent to note that while Section 2(17)(i)
also encompasses activities or transactions undertaken by the Central or
State Governments or a local authority, 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. The expression ―local authority‖ is defined by Section
2(69) to include local bodies such as Panchayats, Municipalities,
Municipal Committees, Cantonment Boards or Regional Councils and
other authorities which may come to be constituted in terms of Articles
371, 371A, 371J or the Sixth Schedule to the Constitution. A
Commission which is constituted under the Electricity Act would
undisputedly not fall within the ken of such authorities.
29. 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.
30. More importantly we find that by virtue of Section 7, a supply
would necessarily have to be of goods or services not only for
consideration but more importantly in the course or furtherance of
business. We have in the preceding parts of this decision clearly found
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that the regulatory function discharged by Commissions would clearly
not fall within the scope of the word ―business‖ as defined by Section
2(17). Thus, even if the fee so received by such Commissions were to
be assumed as being consideration received, it was clearly not one
obtained in the course or furtherance of business. We are thus of the
considered opinion that the view as expressed by the respondents in the
SCNs’ impugned before us are rendered wholly arbitrary and
unsustainable.
31. As was noted hereinbefore, Schedule III in express and
unambiguous words excludes services rendered by a court or tribunal.
Once that exclusion had come to be expressly incorporated, 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. Mixed as well as composite supplies of services or
goods are aspects which are duly and independently defined and
explained. Even those provisions cannot possibly be interpreted or
stretched so as to hold that the fees received by Commissions could
have been subjected to tax. The assumption of jurisdiction in terms of
the notices impugned before us is thus found to be ex facie wholly
untenable.
32. Of significance is the respondent observing ―Therefore, anything
other than goods, money and securities will also include the activities
of “regulating the tariff of generating companies owned or controlled
by the Central Government, regulating the inter-State transmission of
electricity, to issue licenses to persons to function as transmission
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licensee and electricity trader with respect to their inter-State
operations; to levy fees for the purposes of this Act‖ falls under the
scope of “Supply of Services” in para 6.1 of the impugned SCN.
33. 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.
34. We are also of the firm opinion that 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.
35. The Electricity Act makes no distinction between the regulatory
and adjudicatory functions which it vests in and confers upon a
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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.
36. That only leaves us to examine the correctness of the stand of the
respondent based on the Notification dated 28 June 2017 and their
assertion that the functions discharged by these Commissions would be
liable to be classified under the heading “Support services to electricity,
gas and water distribution” which is placed under Group Heading
99863. Suffice it to note that the notification dated 28 June 2017
notifies the rates of integrated tax of various services as falling under
various chapters, sections or headings of the scheme of classification of
as specified in Column 2 thereof. The scheme of classification which is
alluded to would necessarily compel us to revert to the Schedules of the
CGST Act by virtue of their adoption for purposes of levy of integrated
tax in terms of Section 20 of the IGST Act. Since those Schedules are
to mutatis mutandi apply and the scope of supply as well as composite
and mixed supplies being construed accordingly, the exemption
incorporated in Schedule III of the CGST Act would continue to govern
and be applicable. The mere mention of support services in that
notification thus would not detract from the exemption which otherwise
operates and stands accorded with respect to “services by any court or
Tribunal…..”. What we seek to emphasise is that a notification would
neither expand the scope of the parent entry nor can it be construed as
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taking away an exemption which stands granted under the CGST Act.
There cannot possibly be even a cavil of doubt that a Schedule
constitutes an integral part and component of the principal legislation.
37. Accordingly, and for all the aforesaid reasons, we allow the
present writ petitions and quash the impugned SCNs dated 29 May
2024 [W.P.(C) 10680/2024] and 23 July 2024 [W.P.(C) 14723/2024].
38. We further observe that the Order-in-Original dated 30 August
2024 in W.P.(C) 10680/2024, was, in terms of our initial interim order
made subject to the outcome of the present petition. Since we have
come to hold that the SCN themselves are invalid, the said order dated
30 August 2024 also cannot sustain. It too, shall consequently, stand set
aside.
YASHWANT VARMA, J.
DHARMESH SHARMA, J.
JANUARY 15 2024/RW
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