The Delhi High Court has ruled that fees collected by the Central Electricity Regulatory Commission (CERC) and the Delhi Electricity Regulatory Commission (DERC) are not subject to the Goods and Services Tax (GST).
This decision arose from show cause notices issued by tax authorities demanding GST on regulatory fees under the Central GST (CGST) Act, 2017, and the Integrated GST (IGST) Act, 2017.
Tax authorities had classified these fees under Service Accounting Code 998631, which covers “support services to electricity transmission and distribution,” attracting an 18% GST.
However, the court determined that the regulatory and adjudicatory functions performed by CERC and DERC under the Electricity Act, 2003, are statutory obligations rather than business activities.
The court highlighted that Schedule III of the CGST Act excludes services provided by courts and tribunals from GST, and as quasi-judicial bodies, the commissions fall under this exemption.
It emphasized that these functions are statutory in nature, carried out without profit motives, and do not meet the definition of ‘business’ under Section 2(17) of the CGST Act.
Rejecting the tax authorities’ argument that the commissions’ regulatory and adjudicatory roles could be separated, the court clarified that their functions are inseparable and fundamentally statutory.
It ruled that notifications under the CGST or IGST Acts cannot override statutory exemptions, deeming the show cause notices arbitrary and invalid.
Sandeep Sehgal, partner at AKM Global, explained that the commissions’ responsibilities, such as setting tariffs and issuing licenses, are statutory duties performed in the public interest, not for commercial purposes.
The judgment reinforces that fees collected for these activities, being non-commercial, are exempt from GST.
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