Delhi High Court exempts electricity commissions' fees from GST

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The Delhi High Court (HC) on Wednesday ruled that the fees collected by the Central Electricity Regulatory Commission (CERC) and the Delhi Electricity Regulatory Commission (DERC) cannot be subject to the goods and services tax (GST).

 

The judgment came in response to show cause notices (SCNs) issued by tax authorities demanding GST on regulatory fees under the Central GST (CGST) Act, 2017, and the Integrated GST (IGST) Act, 2017.

 

The tax authorities had classified the fees as taxable services under Service Accounting Code 998631, which pertains to “support services to electricity transmission and distribution”, subject to an 18 per cent GST. However, the court held that the regulatory and adjudicatory functions of CERC and DERC, carried out under the Electricity Act, 2003, were statutory obligations and not business activities.

 

The court emphasised that the commissions’ functions, being statutory in nature and performed without pecuniary gain, do not qualify as ‘business’ under Section 2(17) of the CGST Act. It was highlighted that Schedule III of the CGST Act excludes services rendered by courts and tribunals from GST. The court held that CERC and DERC, as quasi-judicial bodies, fall within this exemption.

 

The court rejected the tax authorities’ argument that the regulatory and adjudicatory roles of the commissions could be separated, stating that their functions are inseparable and inherently statutory. The court clarified that notifications under the CGST or IGST Acts cannot override the statutory exemptions provided under the CGST Act. The court reaffirmed the SCNs as arbitrary and unsustainable.

 

Sandeep Sehgal, partner-tax at AKM Global, a tax and consulting firm, said the HC 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 licenses, 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 licenses, 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," he added.