The High Court highlighted that the commissions’ statutory functions do not align with the definition of ‘business’ under Section 2(17) of the CGST Act.
In a landmark judgment, 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 Goods and Services Tax (GST). This decision overturns earlier demands by tax authorities to levy GST on regulatory fees under the Central GST (CGST) Act, 2017, and the Integrated GST (IGST) Act, 2017.
The 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 duties rather than business activities.
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Statutory Functions vs. Business Activities
The High Court highlighted that the commissions’ statutory functions do not align with the definition of ‘business’ under Section 2(17) of the CGST Act. It further noted that Schedule III of the CGST Act explicitly excludes services provided by courts and tribunals from GST. Since CERC and DERC operate as quasi-judicial bodies, their regulatory roles fall under this exemption.
The court dismissed the argument that regulatory and adjudicatory functions could be separated, stating that these roles are inherently intertwined and statutory. It underscored that no notifications under the CGST or IGST Acts can override the statutory exemptions already enshrined in the law. Consequently, the show cause notices (SCNs) issued by the tax authorities were deemed arbitrary and unsustainable.
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Expert Insights
Commenting on the verdict, Sandeep Sehgal, partner-tax at AKM Global, noted, “The High Court has clarified that the Central and Delhi Electricity Regulatory Commissions are quasi-judicial authorities, not businesses. Their primary role is to regulate the electricity sector in the public interest by setting tariffs, issuing licenses, and ensuring fair practices—all of which are statutory obligations rather than profit-driven services.”
Sehgal emphasized that fees or charges collected by these commissions, including processing fees for licenses, are exempt from GST. The judgment reinforces that such regulatory functions, carried out in adherence to statutory mandates, do not constitute ‘business’ under the CGST Act.
Conclusion
This significant ruling of Delhi High Court provides clarity on the non-taxability of fees collected by electricity regulatory commissions, reaffirming their status as statutory bodies performing public service roles. It also sets a precedent for the interpretation of business activities and statutory exemptions under GST law.
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