Facts of the Case

BSES Rajdhani Power Ltd. and another, electricity distribution utilities functioning as DISCOMs in Delhi, filed the present writ petition challenging paragraph 4(1) of Circular No.34/8/2018-GST dated 01.03.2018 issued by the Government of India. Under Notification No.12/2017-Central Tax (Rate) dated 28.06.2017, transmission or distribution of electricity by a distribution utility is exempt from GST, and the petitioners accordingly neither collected nor deposited GST on such services. The impugned circular clarified that ancillary charges such as application fee for new connections, meter rental, testing fee and charges for shifting meters or duplicate bills were separately taxable, being distinct from the exempt distribution service. The petitioners contended these charges were an integral, composite part of the exempt distribution service and sought to quash the clarification, or in the alternative, a declaration that the composite supply as a whole was exempt.

Issues Involved

  1. Whether ancillary charges collected by DISCOMs, such as application fee, meter rent and testing fee, form part of a composite supply with the exempt service of distribution of electricity, or are independently taxable under GST.
  2. Whether Paragraph 4(1) of Circular No.34/8/2018-GST, clarifying such charges as taxable, was ultra vires Section 8 of the Central Goods and Services Tax Act, 2017 and Notification No.12/2017-Central Tax (Rate).
  3. Whether, once the circular stood set aside, the petitioners could continue to collect and retain GST from consumers on such charges.

Petitioner's Arguments

  • Charges for metering equipment, testing fees, labour charges for shifting meters, application fee for release of connection, and duplicate bill charges are integral to the composite service of electricity distribution, which is wholly exempt.
  • Relied on the Gujarat High Court's decision in Torrent Power Ltd. v. Union of India, which had struck down the identical clarification in paragraph 4(1) of the impugned circular as ultra vires Section 8 of the CGST Act.

Respondent's Arguments

  • Conceded that the issue stood concluded in the petitioners' favour by the Torrent Power decision, and did not oppose disposal of the petition in similar terms.
  • Submitted that the Revenue had preferred an appeal against the Gujarat High Court's decision, pending before the Supreme Court, and the concession should not be construed as foreclosing the department's rights in that pending appeal.

Court Order/Findings

  • Respectfully concurred with the Gujarat High Court's ruling in Torrent Power Ltd. that the ancillary services listed in paragraph 4(1) of Circular No.34/8/2018-GST form part of a composite supply of which the exempt distribution of electricity is the principal supply, and are therefore not separately taxable.
  • Noted that despite the circular having been set aside by the Gujarat High Court in December 2018, the petitioners had continued to collect GST from consumers on these charges, burdening consumers with a levy not legally due.
  • Having earlier directed the petitioners to deposit GST collected after 08.11.2023 with the Registry pending final disposal, and finding this could complicate consumers' entitlement to input tax credit, instead directed the petitioners to refund such GST directly to the consumers from whom it was collected after 08.11.2023.
  • Finally disposed of the petition, clarifying that consumers remained free to seek refund of GST paid prior to 08.11.2023 through appropriate remedies.

Important Clarification

  • Ancillary charges collected by an electricity distribution utility that are inseparably linked to the distribution service, such as application fee, meter rent, testing fee and charges for shifting meters, form part of a composite supply and are exempt from GST along with the principal supply of electricity distribution under Notification No.12/2017-Central Tax (Rate).
  • A circular clarification cannot override the scope of an exemption notification and is liable to be struck down as ultra vires Section 8 of the CGST Act where it artificially disaggregates a composite supply.

Sections Involved

  • Section 8 of the Central Goods and Services Tax Act, 2017 – governs the tax liability of composite and mixed supplies, requiring a composite supply to be taxed as per its principal supply.
  • Section 11 of the Central Goods and Services Tax Act, 2017 – empowers the government to grant exemptions from GST, under which Notification No.12/2017-Central Tax (Rate) was issued.

Decision – In Favour of

Decided in favour of the Assessee — the impugned circular was set aside, and the petitioners were directed to refund GST collected on the ancillary charges after 08.11.2023 to their consumers.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Delhi at New Delhi
  • Case No.: W.P.(C) No.9455 of 2018
  • CNR: Not available
  • Coram: Justice Vibhu Bakhru and Justice Amit Mahajan
  • Decision Date: 13-12-2023
  • Disposal Nature: Allowed; impugned Circular set aside, refund directed

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