Facts of the Case

The petitioners, namely the Central Electricity Regulatory Commission (CERC) and the Delhi Electricity Regulatory Commission (DERC), challenged Show Cause Notices dated 29.05.2024 and 23.07.2024 issued by GST authorities. These notices sought to levy GST on fees collected by the commissions (such as tariff fees, license fees, filing fees, etc.) while discharging their statutory functions under the Electricity Act, 2003.

The GST authorities alleged that such functions constituted “support services” to electricity transmission and distribution services and were therefore taxable under Service Accounting Code (SAC) 998631 at 18% GST.

The commissions contended that their functions are statutory, regulatory, and quasi-judicial in nature, and not in the course of business or trade, hence not liable to GST. 

Issues Involved

  1. Whether statutory regulatory functions performed by electricity regulatory commissions constitute “supply of services” under GST law.
  2. Whether fees collected by such commissions qualify as “consideration” in the course or furtherance of “business”.
  3. Whether a distinction between “regulatory” and “adjudicatory” functions is valid for GST applicability.
  4. Whether such commissions can be taxed under CGST/IGST Acts despite Schedule III exemptions. 

Petitioner’s Arguments

  • The commissions perform statutory and quasi-judicial functions, not commercial activities.
  • There is no element of trade, commerce, or business, hence Section 7 (scope of supply) is not attracted.
  • Fees collected are statutory levies, not “consideration” for services.
  • Their functions are akin to a tribunal, thus covered under Schedule III of CGST Act, which excludes services by courts/tribunals.
  • Artificial bifurcation between regulatory and adjudicatory functions is legally unsustainable. 

Respondent’s Arguments

  • Regulatory activities fall within “supply of services” under Section 7 of CGST Act.
  • Fees collected constitute “consideration”, even if statutory in nature.
  • Definition of “business” under Section 2(17) is broad and includes activities even without profit motive.
  • Regulatory bodies are not Government or local authorities, hence not exempt.
  • Only adjudicatory functions are non-taxable; regulatory functions are taxable as “support services”. 

Court’s Findings / Judgment

The Delhi High Court quashed the Show Cause Notices and ruled in favour of the petitioners.

Key Findings:

  1. No “Business” Activity
    Regulatory functions cannot be equated with trade, commerce, or business under Section 2(17).
  2. No “Supply” under GST
    For GST applicability, supply must be in the course or furtherance of business—this condition is not satisfied.
  3. Schedule III Exemption Applies
    Services rendered by a court or tribunal are excluded, and electricity commissions function as quasi-judicial bodies.
  4. No Artificial Bifurcation Allowed
    The Court rejected the distinction between regulatory and adjudicatory functions, holding both as integral statutory functions.
  5. Fees Not “Consideration” for Supply
    Fees are statutory and not paid for inducement of services.
  6. Notification Cannot Override Statute
    GST notifications cannot override Schedule III exemptions under the CGST Act.

Court Order

  • Show Cause Notices dated 29.05.2024 and 23.07.2024 were quashed.
  • GST demand raised against the commissions was declared unsustainable and arbitrary.

Important Clarifications by Court

  • Regulatory authorities exercising statutory powers are not engaged in business activities.
  • Even broad definitions of “services” cannot override Schedule III exclusions.
  • GST cannot be imposed merely because fees are collected.
  • A statutory function cannot be artificially classified as “support service”.
  • Notifications cannot expand tax liability beyond the parent statute.

Sections / Provisions Involved

  • Section 7 – Scope of Supply (CGST Act, 2017)
  • Section 2(17) – Definition of Business
  • Section 2(31) – Definition of Consideration
  • Section 2(102) – Definition of Services
  • Section 9 – Levy of GST
  • Schedule II & Schedule III – Classification of Supply and Exclusions
  • Section 20 – IGST Act (Application of CGST provisions)
  • Electricity Act, 2003 – Sections 79 & 86 (Functions of Commissions)

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/YVA15012025CW106802024_182128.pdf

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