How a Simple Tax Notice Triggered a Constitutional Question
For years, Electricity Regulatory Commissions across the country functioned quietly within the specialised world of statutory regulation. Their offices were not commercial establishments competing in the marketplace. They did not advertise services, negotiate contracts, or pursue customers. Their responsibilities carried an entirely different constitutional character. They determined electricity tariffs, supervised transmission and distribution systems, granted licences, adjudicated disputes, and balanced the delicate relationship among industrial growth, the financial viability of utilities, and consumer interests. Every power exercised by them flowed not from commercial freedom but from statutory obligation under the Electricity Act, 2003. Their language was the language of regulation, public duty, and statutory supervision.
Then, gradually, another language entered those corridors - the language of taxation. The Directorate General of GST Intelligence began examining the regulatory fees collected by these commissions from electricity companies. From the department's perspective, the issue initially appeared straightforward. Money was being collected by one entity from another. Once payment existed, the department believed that a service relationship necessarily followed. And once such a relationship was presumed, the remaining conclusions appeared almost automatic - there was "consideration," there was "supply," and therefore GST became payable. What initially appeared to be a routine departmental exercise slowly transformed into one of the most intellectually significant constitutional disputes under modern GST jurisprudence. Notices were issued. Adjudication proceedings followed. Demands running into crores were raised. Institutions created to supervise and regulate the electricity sector suddenly found themselves being viewed as suppliers of taxable services."
Yet beneath this apparently simple controversy, a much deeper constitutional question quietly emerged. Can every statutory fee collected under the authority of law automatically become consideration under GST? Can quasi-judicial and regulatory functions performed under statute be treated as business activities merely because fees are prescribed by law? And perhaps most importantly, can statutory authority itself be transformed into taxable commerce through expansive interpretation?" These questions first reached the Delhi High Court in Delhi Electricity Regulatory Commission v. Additional Commissioner of CGST & Others and Central Electricity Regulatory Commission v. Additional Commissioner of CGST & Others - 2025-VIL-46-DEL dated 15.01.2025, later travelled through Karnataka Electricity Regulatory Commission v. Joint Commissioner, Central Tax, Bengaluru & Others - 2025-VIL-1264-KAR dated 28.11.2025, found acceptance before the Himachal Pradesh High Court in Himachal Pradesh Electricity Regulatory Commission v. Union of India & Others - 2026-VIL-30-HP dated 05.01.2026 and finally received further reinforcement from the Gauhati High Court in Assam Electricity Regulatory Commission v. Union of India & Others - 2026-VIL-466-GAU dated 29.04.2026. What ultimately emerged from this judicial journey was far larger than relief to electricity commissions. The courts gradually drew a constitutional boundary around GST itself and reminded that regulatory framework and commercial activity do not always occupy the same legal space.
When the Courts Asked a Simple Question - Is Regulation Really a Business?
The first major judicial resistance to the departmental approach emerged before the Delhi High Court in Delhi Electricity Regulatory Commission v. Additional Commissioner of CGST & Others and Central Electricity Regulatory Commission v. Additional Commissioner of CGST & Others - 2025-VIL-46-DEL dated 15.01.2025. The Court carefully examined the statutory structure of the CGST Act and questioned the very foundation of the levy itself. It recognised that Electricity Regulatory Commissions were not commercial entities rendering marketable services, but statutory bodies discharging regulatory and adjudicatory responsibilities entrusted to them under the Electricity Act, 2003. Consequently, the Court held that the essential ingredients of "business," "supply," and "consideration" were absent and therefore GST could not be levied merely because statutory fees were being collected.
The importance of the Delhi High Court judgment increased substantially thereafter, as the departmental challenge to the decision failed before the Supreme Court. The appeal filed by the department in Additional Commissioner of CGST v. Delhi Electricity Regulatory Commission - 2025-VIL-53-SC dated 21.07.2025 was dismissed, thereby affirming the reasoning adopted by the Delhi High Court. Even thereafter, the matter did not rest. The department subsequently pursued review proceedings before the Additional Director, Directorate General of GST Intelligence, in Additional Director, Directorate General of GST Intelligence v. Central Electricity Regulatory Commission - 2026-VIL-27-SC dated 10.03.2026. However, the Supreme Court dismissed the review petition as well, both on delay and on merits. What had initially begun as a departmental interpretation was therefore steadily rejected at every judicial stage.
The Delhi High Court also performed another extremely important interpretational exercise. Before examining the department's allegations, it returned to the architecture of GST itself. The Court carefully revisited Section 7 of the CGST Act and reminded that GST is not a tax on every receipt or every monetary transaction. The statute requires the existence of a supply made for consideration in the course or furtherance of business. These expressions were not inserted casually into the legislation. They formed the constitutional foundation of the levy itself. The Court therefore drew a crucial distinction between statutory fees and commercial consideration. Electricity companies did not approach regulatory commissions as customers seeking optional services in the marketplace. They were subject to statutory supervision under a legislative framework enacted by Parliament. Consequently, the fees collected by the Electricity Commissions could not automatically be equated with taxable consideration merely because money changed hands.
Where GST Interpretation Encountered Constitutional Limits
The Karnataka High Court judgment marked a particularly fascinating stage in this judicial evolution. While deciding Karnataka Electricity Regulatory Commission v. Joint Commissioner, Central Tax, Bengaluru & Others - 2025-VIL-1264-KAR dated 28.11.2025, the Court did something intellectually significant. Instead of treating the controversy as a narrow dispute confined to GST interpretation, the Court reconnected the issue with broader constitutional principles that predated GST. In doing so, the Court reminded that taxation statutes, however expansive, continue to operate within constitutional discipline. Modern GST jurisprudence could not be understood in isolation from the constitutional philosophy that has historically governed taxing powers in India.
One of the most remarkable aspects of the Karnataka High Court judgment was its reliance upon the classic Supreme Court decision in Narinder Chand Hem Raj & Others v. Lt. Governor, Himachal Pradesh & Others - 1971-VIL-10-SC dated 05.10.1971. At first glance, the case appeared entirely unrelated to GST. It arose decades earlier in the context of sales tax on liquor. Yet beneath the factual background lay an enduring constitutional principle concerning the very nature of delegated legislative power. The Supreme Court recognised that although the legislature may delegate certain taxation powers to another authority, the exercise of such powers remains legislative in character. The mere delegation of taxation power does not strip it of its legislative character or convert it into ordinary administrative discretion. The judgment further clarified that courts cannot compel either the legislature or a subordinate legislative authority to enact, modify, or reshape the law in a particular manner. In essence, taxation must always remain anchored within the constitutional limits established by legislation itself.
This principle carried profound relevance in the GST controversy involving the Electricity Regulatory Commissions. The departmental interpretation effectively attempted to enlarge the reach of GST merely because statutory fees were being collected . However, taxation cannot expand merely through administrative assumption or interpretational convenience. The scope of taxation must remain confined to the authority granted by Parliament through the statutory framework. By invoking Narinder Chand Hem Raj , the Karnataka High Court subtly reaffirmed that delegated powers under taxation statutes cannot be exercised in a manner that rewrites the constitutional architecture of the levy. The true legal character of the activity must always prevail over superficial appearances or administrative expansion.
When Old Constitutional Wisdom Quietly Returned to Guide Modern GST
The constitutional foundation became even deeper when the Karnataka High Court invoked the celebrated Supreme Court judgment in Indian Express Newspapers (Bombay) Pvt. Ltd. v. Union of India - 1984-VIL-04-SC-CU dated 06.12.1984. Though remembered primarily as the famous newsprint judgment on customs duty on imported newsprint, the decision also contains enduring observations on subordinate legislation, enabling provisions, and judicial control over delegated legislation. The Supreme Court clarified that subordinate legislation stands on a footing different from ordinary administrative action. While administrative discretion may be examined on grounds such as reasonableness or procedural fairness, subordinate legislation derives its authority from the parent statute and cannot exceed the limits imposed by that statute.
The Supreme Court further explained that enabling provisions in a statute define the outer boundary of delegated legislative power. Parliament may authorise the executive or another authority to exercise certain legislative functions, policy choices, or decision-making powers. However, such delegated authority remains confined within the policy and framework established by the parent legislation. If subordinate legislation or delegated exercise travels beyond those statutory boundaries, it becomes vulnerable to judicial review on the ground of ultra vires. In other words, delegated authority cannot enlarge itself beyond the constitutional and statutory limits consciously prescribed by Parliament.
The Karnataka High Court appears to have borrowed this constitutional discipline precisely while examining the GST demands raised against Electricity Regulatory Commissions. The Court effectively recognised that GST authorities cannot, through interpretational expansion, transform a supervisory mechanism into a taxable commercial activity when the essential statutory ingredients of "business," "consideration," and "supply" remain absent. Any such enlargement would effectively allow administrative interpretation to travel beyond the constitutional and statutory boundaries contemplated by the CGST Act itself. The judgment therefore quietly reaffirmed a constitutional truth that extends far beyond the electricity sector - taxation statutes may be broad, but even delegated taxation power remains confined within the architecture consciously enacted by Parliament.
Why cannot it be forced into the Language of Commerce
Before the controversy reached the Gauhati High Court, similar constitutional reasoning had already been accepted by the Himachal Pradesh High Court in Himachal Pradesh Electricity Regulatory Commission v. Union of India & Others - 2026-VIL-30-HP, dated 05.01.2026. The Court echoed the increasingly consistent judicial view that statutory regulatory commissions exercising quasi-judicial and supervisory functions under the Electricity Act, 2003, cannot be artificially treated as commercial service providers merely because statutory fees are collected in the course of regulation. The Himachal Pradesh High Court thus became another important link in the steadily expanding judicial consensus emerging across the country's High Courts.By the time the controversy reached the Gauhati High Court, the judicial current had already begun flowing in a remarkably consistent direction.
The Gauhati High Court, while deciding Assam Electricity Regulatory Commission v. Union of India & Others - 2026-VIL-466-GAU dated 29.04.2026, did not treat the controversy as an isolated dispute affecting only the electricity sector. By the time the matter reached Gauhati, the constitutional conversation had already matured through earlier judicial pronouncements delivered by the Delhi, Karnataka, and Himachal Pradesh High Courts. The Gauhati High Court recognised that multiple constitutional courts had consistently reached the same conclusion - statutory regulatory commissions performing sovereign and quasi-judicial functions cannot be treated as commercial service providers merely because they collect regulatory fees. Regulation, adjudication, and statutory supervision possess a constitutional character fundamentally different from trade or business.
What makes these judgments particularly significant is that the courts repeatedly refused to artificially separate regulatory functions from adjudicatory functions merely to sustain GST demands. Electricity Regulatory Commissions perform integrated statutory responsibilities under the Electricity Act, 2003. Their powers overlap between regulation, supervision, licensing, tariff fixation, dispute resolution, and public interest administration. The judiciary recognised that these functions collectively form part of a statutory regulatory mechanism. Once the commissions themselves were recognised as quasi-judicial and regulatory institutions, the attempt to selectively carve out certain fee collections as taxable commercial services became constitutionally unsustainable. The courts, therefore, protected not merely the commissions but also the conceptual integrity of the statutory framework itself.
The Constitutional Message Emerging from the Litigation
A careful reading of this entire judicial journey reveals something profoundly important. The courts were not attempting to weaken GST. Nor were they suggesting that statutory bodies can never fall within the scope of taxation statutes. In fact, the judiciary repeatedly acknowledged the broad architecture and expansive reach of GST. However, the courts simultaneously insisted that even the widest taxation regime must remain disciplined by constitutional structure. The requirement of "business," the existence of "consideration," and the concept of "supply" are not decorative statutory expressions inserted casually into the law. They are constitutional safeguards preventing the uncontrolled expansion of taxing powers into areas never intended by Parliament.
What makes this constitutional evolution especially fascinating is that older constitutional wisdom quietly reappeared to guide modern GST interpretation. The Supreme Court decisions in Narinder Chand Hem Raj & Others v. Lt. Governor, Himachal Pradesh & Others - 1971-VIL-10-SC dated 05.10.1971 and Indian Express Newspapers (Bombay) Pvt. Ltd. v. Union of India - 1984-VIL-04-SC-CU dated 06.12.1984 were separated from GST by several decades. Yet constitutional principles possess remarkable continuity. Laws change. Tax structures evolve. Economic systems transform. But constitutional discipline survives across generations. The modern GST courts were therefore not writing upon an empty slate. They were continuing a much older constitutional conversation concerning the limits of taxation, delegated legislative authority, and the distinction between statutory power and commercial activity.
Perhaps that is the most enduring lesson emerging from this entire litigation. GST is undoubtedly one of the broadest taxation systems India has ever witnessed. Yet even GST cannot transform every statutory collection into taxable consideration or every exercise of statutory authority into economic activity. In the end, the courts were not merely deciding the taxability of regulatory fees. They were quietly protecting the constitutional boundary between statutory authority and commercial enterprise. And in drawing that line, the judiciary delivered a reminder that may guide GST jurisprudence for years to come - taxation begins where business exists, but statutory authority stands upon an altogether different constitutional foundation.
By CA Raj Jaggi and Kirti Jaggi, Assistant Professor, Asian Law College, Noida
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