Supreme Court Rules in Favor of Electricity Regulatory Commissions on GST Exemption

Supreme Court Rules in Favor of Electricity Regulatory Commissions on GST Exemption

Introduction

The Supreme Court has upheld the Delhi High Court's ruling 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).

Factual Background

The Directorate General of GST Intelligence had issued show cause notices (SCNs) to CERC and DERC, demanding an 18% tax on fees received by them for discharging their regulatory functions. The GST authorities alleged that the power regulators were not discharging their GST liabilities on amounts received as tariff and licence fees from various power utilities.

Findings of the Delhi High Court

The Delhi High Court had quashed the SCNs, holding that the demand notices were “arbitrary and unsustainable.” The HC emphasized the following:

• Regulatory Functions: The HC noted that the regulatory functions discharged by CERC and DERC are quasi-judicial in nature and have all the trappings of a tribunal.
• Not in Furtherance of Business: The HC held that the grant of a licence to transmit or distribute electricity is not in furtherance of business or trade but in extension of the statutory obligation placed upon a commission to regulate those subjects.
• Statutory Obligation: The Electricity Act, 2003, makes no distinction between the regulatory and adjudicatory functions vested in and conferred upon an electricity commission.

Supreme Court's Verdict

The Supreme Court endorsed the HC's view, noting that the GST department had clearly failed to grasp the “indubitable fact” that these regulatory functions were being discharged by a quasi-judicial body. The SC bench comprising Justices J.B. Pardiwala and R. Mahadevan said that there were no good grounds to entertain the special leave petitions filed by the GST authorities.

Implications

The decision has significant implications for regulatory bodies and power utilities:

● GST Exemption: The ruling confirms that fees collected by electricity regulatory commissions are exempt from GST.

● Quasi-Judicial Functions: The decision recognizes the quasi-judicial nature of regulatory functions discharged by CERC and DERC.

Conclusion

The Supreme Court's decision is a big relief to the regulatory bodies, upholding the Delhi High Court's ruling that fees collected by CERC and DERC are exempt from GST. The decision provides clarity on the tax treatment of regulatory functions and has significant implications for the power sector.