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TMI Blog2025 (1) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... e application, the delay of 15 days in filing a rejoinder is condoned. The application stands disposed of. CM APPL.73285/2024 (for delay of 07 days in filing of Counter Affidavit) in W.P.(C) 14723/2024 Bearing in mind the disclosures made in the application, the delay of 07 days in filing the counter affidavit is condoned. The application stands disposed of. W.P.(C) 10680/2024 & CM APPL. 43919/2024 (Stay) W.P.(C) 14723/2024 & CM APPL. 61848/2024 (Stay) 1. The Central Electricity Regulatory Commission [CERC] as well as the Delhi Electricity Regulatory Commission [DERC] have petitioned this Court assailing the validity of Show Cause Notices [SCN] dated 29 May 2024 and 23 July 2024 respectively pursuant to which the respondents have sought to call upon them to discharge liabilities emanating from the Central Goods and Services Tax Act, 2017 [CGST Act] and the Integrated Goods and Services Tax Act, 2017 [IGST Act] in respect of the fee received by them in the course of discharge of their regulatory functions under the Electricity Act, 2003 [Electricity Act]. The respondents have sought to draw a dichotomy between the "adjudicatory" and "regulatory" functions which these two sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear to have been preceded by various notices which were issued by the respondents seeking to elicit the stand of the two statutory bodies. From the disclosures which were made by the CERC, the respondents had taken note of the following amounts received by it under the heads of filing fee, tariff fee, license fee, annual registration fee and miscellaneous fee. This is evident from a reading of Para 4 of the notice issued to CERC and which is reproduced hereinbelow: - "Whereas, it was observed from the Annual Reports uploaded by CERC on its official website- "::: Central Electricity Regulatory Commission :::(cercind.gov.in)" that CERC is majorly having its income from 'Fees' collected. The amount of Income from Fee has been taken as declared under Schedule of 'Income from Fee' or Schedule of 'CERC Fund-Direct Income' forming part of Balance Sheet of each Financial Year and is as tabulated below (RUD-6)- Table-I (Amount in Lakh) Financial year Filing Fee/ Tariff Fee Licence Fee Annual Registration Fee Miscellaneous Fee Total Fee 2019-20 9,793.96 5,981.09 58 99.64 15,932.69 2020-21 8,708.44 5,240.57 58 82.55 14,089.56 2021-22 9,988.06 5,984.61 77.69 77.92 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of supply which reads as under:- (1) For the purposes of this Act, the expression - "supply" includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by person in the course or furtherance of business; 6.1.1. Further, "services" is defined under sub-section 102 of Section 2 of CGST Act, 2017 ( as amended) read with Section 2 (24) of the IGST Act, 2017 ( as amended) which states that "services" means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. Therefore, anything other than goods, money and securities will also include the activities of "regulating the tariff of generating companies owned or controlled by the Central Government, regulating the inter-State transmission of electricity, to issue licenses to persons to function as transmission licensee and electricity trader with respect to their inter-State operations; t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a State Government or any local authority in which they are engaged as public authorities; 6.3.1. The contention of CERC in regard to non-applicability of GST on the activities carried out by them being not a commercial business activity, as fees collected by them are deposited with Government in the Public Account of India and that CERC is funded by Grants-in-Aid by the Ministry of Power, Central Government and thus having no monetary benefit does not hold good. It is evident from above that any activity performed irrespective of having a pecuniary benefit is covered under the definition of 'business '. The intention of law is amply clear here as any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities are also covered under the definition of "business". Even, activities undertaken Central Government, a State Government or any local authority are covered under the said definition of business and are not out of its ambit. Thus, the activities undertaken by CERC which is a statutory body will be considered as 'business'." 10. They also appear to rest and found their opinion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Examples of regulatory bodies are - Competition Commission of India, Press Council of India, Directorate General of Civil Aviation, Forward Market Commission, Inland Water Supply Authority of India, Central Pollution Control Board, Securities and Exchange Board of India. 6.4.2. Thus, in view of above, the financial consideration so received by CERC is towards a function/service rendered by them and in absence of any blanket exemption available to CERC the said services appear to be taxable under the CGST/ IGST Act, 2017." 11. They have thus come to conclude that the fee received by CERC is in respect of business and the said regulatory authority itself being liable to be construed as a business entity. Basis the aforesaid conclusion, they have observed as under: - "6.4.3. As the regulatory activities performed by CERC for which fee is received by them falls under the definition of "business", therefore, CERC appears to be a business entity. Since, there is no blanket exemption from CGST/SGST/IGST for statutory body or a regulatory body in CGST Act, 2017 (as amended) or IGST Act, 2017 (as amended). Hence, CERC is liable to be registered under Section 22 of CGST Act, 2017 (as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that CERC has other functions which are in the nature of a regulator for which fees are levied. It is immaterial whether such activities are undertaken as a statutory or mandatory requirement under the law and irrespective of whether the amount charged for such service is laid down in a statute or not, so long as the payment is made for fee charged for getting a service in return (i.e., as a quid pro quo for the service received). It is regarded as a consideration for that service and taxable irrespective of by whatever name such payment is called." 13. The issue of taxability also appears to have been examined by the Fitment Committee as would be evident from a reading of Para 7.3 of the impugned SCN and which is extracted hereinbelow:- "Furthermore, Fitment Committee recommended quasi-judicial functions of CERC being no-supply under Schedule-III of the CGST Act, 2017 (as amended) and further recommended taxability on the fees levied for their regulatory functions. The same has also been agreed by GST Council in its 47th Meeting dated 28th & 29th June, 2022. Thus, in view of Office Memorandum dated 30.05.2018 issued by the Tax Research Unit, Department of Revenue, Ministry of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy or enforce standards, fix trading margins. All these functions are regulatory in character rather than adjudicatory. The real adjudicatory function is only provided in sub-clause (f) whereupon the Commission has the option of adjudicating the disputes between the licensees and generating companies, or to refer such disputes to arbitration." 8.3. As per the above observation of the Hon'ble Supreme Court, the functions of the State Commission such as determination of tariff, regulation of electricity purchase and procurement process of distribution licensees, facilitating intra-state transmission, issuing licences to persons, promoting cogeneration and generation of electricity from renewable sources, levy fee, specify or enforce standards, fix trading margins are regulatory in character rather than adjudicatory and the real adjudicatory function is only provided in Section 86(1)(f). Similarly, the functions of the Central Commission viz. CERC such as to regulate the tariff of generating companies owned or controlled by the Central Government; to regulate the tariff of generating companies other than those owned or controlled by the Central Government, if such generating compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee ' ledger provided by CERC vide its letter dated 22.09.2023 (RUD-8 Supra), Statement showing details of fee collected by CERC as provided vide its letter dated 16.04.2024 (RUD-9 Supra) and further M/s CERC's failure to provide bifurcation of fee collected by them for providing inter-state & intra-state supply of services, thus the entire supply of service made by M/s CERC has been considered to be inter-state supply and accordingly, the total amount of IGST payable under the IGST Act, 2017 has been calculated involving the period from April, 2019 to March, 2023, the same is as tabulated below- Period Income from Fee IGST (@18%) Apr' 19 to Mar'20 1,59,32,68,471/- 28,67,88,324.78 Apr' 20 to Mar'21 1,40,89,55,818/- 25,36,11,993.24 Apr'21 to Mar'22 1,61,28,27,492/- 29,03,08,948.56 Apr'22 to Mar'23 1,65,33,99,773/- 29,76,11,959.14 Total 626,84,51,254/- 112,83,21,226/- 14. From the above findings, it appears that CERC failed to self-assess its tax liability correctly and thus failed to discharge its IGST liability amounting to Rs. 112,83,21,226/( Rupees One Hundred Twelve Crore Eighty Three Lakh Twenty One Thousand Two Hundred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Section 122 of the CGST Act, 2017 (as amended) read with the Section 20 of the Integrated Goods & Services Tax Act, 2017 (as amended), should not be imposed upon them, for the reasons mentioned in paras 17 to 20 above." 16. We had the benefit of the erudite submissions addressed by Mr. Vohra and Mr. Ghosh, learned senior counsels who appeared for the writ petitioners and Mr. Singh and Mr. Amritanshu, learned counsels for the respondents. For reasons which we assign and set forth hereafter we find ourselves unable to sustain the SCNs' impugned. 17. It becomes pertinent to note that the CGST Act imposes a tax on an inter-state supply of goods or services or both by virtue of Section 9 which reads as follows:- "9. Levy and collection.-(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption and un-denatured extra neutral alcohol or rectified spirit used for manufacture of alcoholic liquor, for human consumption, on the value determined under Section 15 and at such rates, not exceeding twenty per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the charging section referred to above, the tax becomes leviable on a supply of goods, services or both. The scope of the expression "supply", which appears repeatedly in the CGST Act, is defined by Section 7 and reads thus:- "7. Scope of supply.- (1) For the purposes of this Act, the expression "supply" includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration. Explanation.-For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another; (b) import of services fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract Schedules II and III of the CGST Act and which spell out activities which are liable to be treated as a supply of goods or services. Schedules II and III of the CGST Act read as under: - "SCHEDULE II [See Section 7] Activities [or Transactions] to be treated as supply of goods or supply of services 1. Transfer (a) any transfer of the title in goods is a supply of goods; (b) any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services; (c) any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods. 2. Land and Building (a) any lease, tenancy, easement, licence to occupy land is a supply of services; (b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services. 3. Treatment or process Any treatment or process which is applied to another person's goods is a supply of services. 4. Transfer of business assets (a) where goods forming part of the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isation, adaptation, upgradation, enhancement, implementation of information technology software; (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and (f) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. 6. Composite supply The following composite supplies shall be treated as a supply of services, namely:- (a) works contract as defined in clause (119) of Section 2; and (b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration. 7. [* * *] SCHEDULE III [See Section 7] Activities or transactions which shall be treated neither as a supply of goods nor a supply of services 1. Services by an employee to the employer in the course of or in relation to his employment. 2. Services by any court or Tribunal established under any law for the time being in force. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signed to it in the Customs Act, 1962.]" 22. Whilst the supply of goods or services stands comprised in Schedule II, Schedule III to the CGST Act lists out activities which are neither liable to be treated as a supply of goods nor a supply of services. Schedule III assumes significance since one such genre is prescribed to be services rendered by a tribunal established under any law. The fact that an electricity regulatory commission acts as a "tribunal" cannot perhaps be disputed bearing in mind the judgment rendered by the Supreme Court in PTC India Ltd. v. Central Electricity Regulatory Commission (2010) 4 SCC 603 and where the following observations appear: - "49. On the above analysis of various sections of the 2003 Act, we find that the decision-making and regulation-making functions are both assigned to CERC. Law comes into existence not only through legislation but also by regulation and litigation. Laws from all three sources are binding. According to Professor Wade, "between legislative and administrative functions we have regulatory functions". A statutory instrument, such as a rule or regulation, emanates from the exercise of delegated legislative power which is a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of discretion to exercise a particular discretionary power by a statute. In the latter case, the impugned exercise of discretion may be considered on all grounds on which administrative action may be questioned such as non-application of mind, taking irrelevant matters into consideration, etc. The subordinate legislation is, however, beyond the reach of administrative law. Thus, delegated legislation-otherwise known as secondary, subordinate or administrative legislation-is enacted by the administrative branch of the Government, usually under the powers conferred upon it by the primary legislation. Delegated legislation takes a number of forms and a number of terms-rules, regulations, bye-laws, etc.; however, instead of the said labels what is of significance is the provisions in the primary legislation which, in the first place, confer the power to enact administrative legislation. Such provisions are also called as "enabling provisions". They demarcate the extent of the administrator's legislative power, the decision-making power and the policy-making power. However, any legislation enacted outside the terms of the enabling provision will be vulnerable to judicial revie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the ambit of clause (e) of serial 5 and which speaks of an obligation to refrain from doing an act or toleration of an act or situation. 25. Of equal significance is the definition of "business" and "consideration" as it appears in the statute. Section 2 (17) defines "business" as follows: - "2. Definitions. -In this Act, unless the context otherwise requires- xxxx xxxx xxxx (17) "business" includes- (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; (b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a); (c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction; (d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business; (e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members; (f) admission, for a consideration, of persons to any premises; (g) services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to regulate, as exercised, could be said to be an activity akin to trade, commerce, manufacture, profession, vocation, adventure, voyager and which are activities enumerated in Section 2 (17) (a). We find ourselves unable to fathom how a power of regulation which stands statutorily vested in a Commission could be countenanced to fall within the ambit of any of those activities. It becomes pertinent to note that while Section 2 (17) (i) also encompasses activities or transactions undertaken by the Central or State Governments or a local authority, the said clause too would have no application since a Commission which comes to be constituted under the Electricity Act cannot be equated with the Central or State Governments. The expression "local authority" is defined by Section 2 (69) to include local bodies such as Panchayats, Municipalities, Municipal Committees, Cantonment Boards or Regional Councils and other authorities which may come to be constituted in terms of Articles 371, 371A, 371J or the Sixth Schedule to the Constitution. A Commission which is constituted under the Electricity Act would undisputedly not fall within the ken of such authorities. 29. The word "consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of this Act" falls under the scope of "Supply of Services" in para 6.1 of the impugned SCN. 33. We find ourselves unable to accept, affirm or even fathom the conclusion that regulation of tariff, inter-State transmission of electricity or the issuance of license would be liable to be construed as activities undertaken or functions discharged in the furtherance of business. The respondents have clearly failed to bear in consideration the indubitable fact that even if these be functions which could be understood to be in the exercise of a regulatory function, those were being discharged by a quasi-judicial body which undoubtedly had all the trappings of a tribunal. The grant of a license to transmit or distribute is clearly not in furtherance of business or trade but in extension of the statutory obligation placed upon a Commission to regulate those subjects. 34. We are also of the firm opinion that even though Section 2 (102) of the CGST Act defines the expression "services" to mean "anything other than goods", the expansive reach of that definition would have to necessarily be read alongside Schedule III and which excludes services per se rendered by a court or tribunal esta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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