No GST on exempted services of transmission or distribution of electricity

The Rajasthan High Court has quashed a circular that sought to levy GST on various services provided by electricity distribution companies (DISCOMs). These services, including application fees for connections, meter rental charges, and testing fees, were previously clarified as taxable. The court found that these services are an integral part of the overall exempted supply and distribution of electricity, and a circular cannot override the original exemption notification.

The Hon'ble Rajasthan High Court in Jodhpur Vidyut Vitran Nigam Ltd. v. UOI &ors. [D.B. Civil Writ Petition No. 9397/2018, decided on February 5, 2021] quashed Para 4(1) of Circular No. 34/8/2018-GST dated March 1, 2018 ("Impugned Circular")whichclarifies that following activities provided by DISCOMS to consumers are taxable:

i. Application fee for releasing connection of electricity;
ii. Rental Charges against metering equipment;
iii. Testing fee for meters/ transformers, capacitors etc.;
iv. Labour charges from customers for shifting of meters or shifting of service lines;
v. Charges for duplicate bill.

Further, held that, a Circular cannot seek to clarify provisions of statutory notification, which is otherwise unequivocal.

Facts

Jodhpur Vidyut Vitran Nigam Ltd ("the Petitioner") is a Public Sector Undertaking engaged in distribution and supply of electricity in various Districts of Rajasthan. According to the Petitioner, the services of distribution and supply of electricity fall in negative list of the services as declared by the Central Government vide Notification No.12/2017 Central Tax (Rate), dated June 28, 2017 ("Services Exemption Notification") wherein services of transmission or distribution of electricity exempted under GST.

By filing this writ petition, the Petitioner has challenged Clause 4(1) of Impugned Circularwhich was issued by the Department of Revenue on the basis of recommendations of GST Council made in its meeting held on January 9, 10 and 13, 2018, by way of which, it was clarified that following activities provided by DISCOMS to consumers are taxable:

i. Application fee for releasing connection of electricity;

ii. Rental Charges against metering equipment;

iii. Testing fee for meters/ transformers, capacitors etc.;

iv. Labour charges from customers for shifting of meters or shifting of service lines;

v. Charges for duplicate bill.

The Petitioner contended that, once the parent exemption notification exempts the very supply and distribution of electricity, the Department of Revenue or even GST Council cannot exclude certain services by way of clarificatory circular and that all the services enumerated are nothing but a part of complete package/bundle of services, namely supply and distribution of electricity and the Impugned Circular carving out an exception and excluding some of the services, which are essential and integral part of the main function of supply and distribution of electricity is arbitrary.

Issue

Whether GST would be leviable on various allied services of distribution and supply of electricity that are exempted by the Central Government vide Services Exemption Notification?

Held

The Hon'ble Rajasthan High Court in D.B. Civil Writ Petition No. 9397/2018, decided onFebruary 5, 2021 held as under:

• Observed that, a simple reading of Services Exemption Notificationleaves no room for ambiguity that entire package of services namely transmission or distribution of electricity has been exempted. Whereas, a perusal of Impugned Circular, reveals that the GST Council has sought to bring in tax-net five services enumerated therein, regardless of the fact that complete bundle or package of services namely transmission and distribution of electricity by an electricity transmission or distribution utility have been exempted.

• Attempt of chipping out some of the services, out of the complete package and treating them to be taxable is not only arbitrary and unreasonable but such exercise is also violative of provisions of Section 8 of the Central Goods and Services Tax Act, 2017 ("CGST Act").

• Noted that, similar issue has been dealt with by the Hon'ble Gujarat High Court in Torrent Power Ltd. v. Union of India [R/Special Civil Application No. 5343 of 2018, decided on December 19, 2018] wherein the Court has struck down para 4(1) of the impugned Circular being contrary to the Services Exemption Notification and ultra vires the provisions of Section 8 of the CGST Act.

• Held that, a circular cannot seek to clarify provisions of statutory notification, which is otherwise unequivocal. There is no room for ambiguity or doubt, for which the GST Council was required to issue the circular.

• Relied and agreed with the view taken by the Hon'ble Gujarat High Court in case of Torrent Power Ltd. (supra) and quashed para 4(1) of the Impugned Circular.

• Issued injunction and restrained the Authorities from raising any demand and/or taking any coercive measures to recover any tax on the basis of Impugned Circular.

Relevant Provisions

Entry 25 of the Exempted Notification

Clause 4(1) ofthe Impugned Circular

Section 8 of the CGST Act

"Tax liability on composite and mixed supplies-

8. The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:-

(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and

(b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax."