2021 (2) TMI 557 - HC - GST

Exemption from GST - transmission or distribution of electricity - Through circular it was clarified that certain activities shall be taxable - Vires of para 4(1) of the impugned circular No.34/8/2018-GST dated 1.3.2018 contrary to the Notification No.12/2017-CT (R) - Section 8 of the CGST Act - HELD THAT - A simple reading of Sl.No.25 of exemption Notification dated 28.06.2017 and the corresponding notification leaves no room for ambiguity that entire package of services namely transmission or distribution of electricity has been exempted - Whereas a perusal of impugned Circular dated 01.03.2018, particularly para No.4(1) reveals that the CGST 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 CGST Act - A circular cannot seek to clarify provisions of statutory notification dated 28.06.2017, which is otherwise unequivocal. There is no room for ambiguity or doubt, for which the GST Counsil was required to issue the circular. Respondents have as a matter of fact, levied tax on some of the services by carving them out that too by way of a circular under the cloak of a clarification. The writ petition succeeds - para 4(1) of the impugned Circular dated 01.03.2018 is hereby quashed - Application disposed off.

Summary

Issues:
Challenge to Circular dated 01.03.2018 on taxability of certain services related to electricity distribution.

Analysis:
1. The petitioner, a Public Sector Undertaking distributing electricity, challenged a Circular dated 01.03.2018, specifically Clause 4(1), issued by the Department of Revenue based on GST Council recommendations.
2. The Circular declared certain services provided by DISCOMS as taxable, including application fees, rental charges for metering equipment, testing fees, labor charges, and duplicate bill charges.
3. The petitioner argued that the Circular was arbitrary as it excluded essential services integral to electricity supply and distribution, which were exempted under the Central Goods & Services Tax Act.
4. The petitioner cited a Gujarat High Court judgment that struck down a similar circular as contrary to the exemption notification and ultra vires the CGST Act.
5. The respondents contended that the services listed in the Circular were not directly related to electricity transmission or distribution, justifying their taxability.
6. The High Court noted the exemption notification clearly exempted the entire package of transmission and distribution services, making the Circular's attempt to tax specific services arbitrary and violative of the CGST Act.
7. The Court emphasized that a circular cannot clarify an unambiguous statutory notification and criticized the attempt to levy tax on specific services through a circular.
8. Citing the Gujarat High Court's detailed analysis, the High Court quashed Clause 4(1) of the Circular and restrained the respondents from recovering tax based on it.
9. The judgment affirmed that all services related to transmission and distribution of electricity should be treated as a single exempt service, in line with the exemption notification.

This comprehensive analysis of the High Court judgment highlights the legal arguments, precedents, and reasoning behind the decision to strike down the Circular's provision and uphold the exemption for electricity distribution services.