2024 (9) TMI 1542 - HC - GST

Levy of GST - supply of free power - nothing but consideration towards licensing services rendered by the State Governments - whether supply of free power @ 12% as compensation to the respective states where distress is caused by setting up the hydro power projects, can be subjected to Service Tax or GST? - HELD THAT - There are force in the contentions of the petitioner that GST is levied on supply of goods and services in lieu of consideration ; that there a serious doubt as to whether the supply of free electricity is in the nature of consideration at all in order to subject it to GST or it is a compensation for distress caused by setting up of the Hydro electric Project ; and that the respondents cannot impose GST on free electricity provided by the petitioner by treating the same as consideration towards the alleged services provided by the State Government as a supplier. Taking into account the fact that the petitioner is a Government Company and huge liability is imposed on it by the respondents, though another department i.e., Central Excise Department of the Government, has taken a diametrical opposite view, pending further orders, there shall be interim stay of all further proceedings pursuant to Annexure P-1, dt. 14.06.2024. List on 18.11.2024.

Issues Involved:
1. Legality of the impugned order dated 14.06.2024 confirming the demand of CGST and SGST/UTGST.
2. Nature of the supply of free power (consideration vs. compensation).
3. Jurisdiction of the High Court to entertain the Writ Petition.
4. Interim relief pending final decision.

Issue-wise Detailed Analysis:

1. Legality of the Impugned Order Dated 14.06.2024 Confirming the Demand of CGST and SGST/UTGST:
The petitioner has challenged the impugned order dated 14.06.2024 (Annexure P-1) passed by the 2nd respondent, which confirmed the demand of CGST and SGST/UTGST under Section 74(9) of the CGST Act, 2017, read with the corresponding Section 74(9) of the SGST Acts, 2017, and Section 21 of the UTGST Act, 2017, along with a penalty equivalent to the tax imposed against the petitioner. The total liability imposed on the petitioner in respect of power stations run in Himachal Pradesh is more than Rs. 100 crores, and the total liability in other states, including Himachal Pradesh, exceeds Rs. 1000 crores.

2. Nature of the Supply of Free Power (Consideration vs. Compensation):
The petitioner is engaged in power generation and provides 12% of the power generated free of cost to the State Governments and 1% free power to the Local Area Development Fund as compensation for environmental and social distress caused by the power projects. The impugned order held that the supply of free power is "consideration" for licensing services rendered by the State Governments. This view is contested by the petitioner, who argues that the free power is "compensation" and not "consideration." The Additional Director General (Adjudication) in a previous order dated 19.06.2024 (Annexure P-9) had concluded that the 12% free power supplied is akin to compensation and cannot be treated as royalty. The petitioner relies heavily on this order and contends that the GST authorities cannot take a different stand from the Central Excise Department, which deals with service tax issues under the same Ministry of Finance.

3. Jurisdiction of the High Court to Entertain the Writ Petition:
The petitioner asserts that the High Court has jurisdiction to entertain the Writ Petition since the demand is against the 7 GSTINs of the petitioner, one of which is situated in Himachal Pradesh. The court noted that part of the cause of action arises within its territorial jurisdiction, as the petitioner has a registered office in Himachal Pradesh, and a liability of more than Rs. 100 crores is imposed concerning the power stations in the state. The principle of forum conveniens was discussed, but the court found prima facie jurisdiction to entertain the petition.

4. Interim Relief Pending Final Decision:
The court observed that there is a serious doubt as to whether the supply of free electricity is "consideration" subject to GST or "compensation" for distress caused by the hydroelectric project. Considering the petitioner's status as a Government Company and the significant liability imposed, the court granted an interim stay of all further proceedings pursuant to the impugned order dated 14.06.2024. The matter is listed for further hearing on 18.11.2024, and the respondents are directed to file their reply in the meantime.

Conclusion:
The High Court has provided interim relief by staying the proceedings related to the impugned order, recognizing the substantial issues regarding the nature of the free power supply and the jurisdictional aspects. The final decision will require a detailed examination of the pleadings and arguments from both sides.

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