The Delhi High Court has quashed the GST levy on licence fees collected by Electricity Regulatory Commissions.

“We find ourselves unable to accept, affirm or even fathom the conclusion that regulation of tariffs, inter-State transmission of electricity or the issuance of licences would be liable to be construed as activities undertaken or functions discharged in the furtherance of business. The respondents (Tax Authority) 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,” a division bench of Justices Yashwant Verma and Harish Vaidyanathan Shankar said in a ruling dated January 15.

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Two separate petitions were filed by the Central Electricity Regulatory Commission (CERC) and the Delhi Electricity Regulatory Commission (DERC) challenging the validity of Show Cause Notices (SCN) issued by the Directorate General of GST Intelligence for GST on fees collected. Tax authorities sought to draw a dichotomy between the ‘adjudicatory’ and ‘regulatory’ functions discharged by these two statutory bodies to essentially hold that the revenue earned from the latter would be subject to tax under the CGST and IGST Acts.

“The grant of a licence to transmit or distribute is clearly not in furtherance of business or trade but an extension of the statutory obligation placed upon a Commission to regulate those subjects,” the bench said. Furthermore, the Electricity Act makes no distinction between the regulatory and adjudicatory functions it vests in and confers upon a 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 that vests in the State. “We thus have no hesitation in observing that the SCNs infringe the borders of the incredible and inconceivable,” the bench said.

The bench emphasised that a notification would neither expand the scope of the parent entry nor could it be construed as taking away an exemption 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. Accordingly, the bench quashed the SCNs issued to CERC and DERC.

Earlier, in a similar matter, a stay was granted by the Allahabad High Court on an SCN issued by GST authorities proposing to levy GST on the licence fee collected by the U.P. Electricity Regulatory Commission (UPERC) for the grant of licences for the transmission or distribution of electricity.