Facts of the Case

  • The petitioners, Central Electricity Regulatory Commission (CERC) and Delhi Electricity Regulatory Commission (DERC), are statutory bodies constituted under the Electricity Act, 2003.
  • Show Cause Notices dated 29.05.2024 and 23.07.2024 were issued alleging non-payment of GST on fees such as tariff fee, license fee, filing fee, and other charges collected by the Commissions.
  • The department classified such activities as “support services to electricity transmission and distribution” (SAC 998631) and sought to levy GST @18%.
  • A demand of over ₹112 crore IGST was proposed against CERC for the period 2019–2023.

Issues Involved

  1. Whether fees collected by Electricity Regulatory Commissions constitute “supply” under Section 7 of CGST Act, 2017.
  2. Whether regulatory functions of statutory bodies fall within “business” under Section 2(17).
  3. Whether such functions can be classified as taxable services under GST law.
  4. Whether distinction between regulatory and adjudicatory functions is valid for GST applicability.
  5. Applicability of Schedule III (services by court/tribunal) exemption. 

Petitioner’s Arguments

  • The Commissions perform statutory and quasi-judicial functions, not commercial activities.
  • Fees collected are not consideration for any service, but statutory levies.
  • Regulatory functions are carried out in public interest, not in the course of business.
  • Electricity Commissions possess trappings of a tribunal, hence covered under Schedule III exclusion.
  • No GST is leviable in absence of commercial intent or business activity.

Respondent’s Arguments

  • Activities of CERC/DERC fall under “supply of services” as per Section 7 of CGST Act.
  • Fees received qualify as “consideration” under Section 2(31).
  • Even non-profit or statutory activities are covered under “business” definition.
  • Regulatory bodies are not Government or local authorities, hence no exemption.
  • Only adjudicatory functions are exempt; regulatory functions remain taxable. 

Court’s Findings / Judgment

  • The Court held that regulatory functions cannot be equated with business activities under Section 2(17).
  • Essential elements of GST levy—supply, consideration, and business nexus—were absent.
  • Fees collected were not in furtherance of business, hence outside GST scope.
  • Electricity Regulatory Commissions function as quasi-judicial bodies with tribunal characteristics.
  • Schedule III exclusion (services by court/tribunal) applies.
  • The artificial distinction between regulatory and adjudicatory functions was rejected.
  • Notifications cannot override statutory exemption under the Act.

Court Order

  • The Delhi High Court quashed the Show Cause Notices dated 29.05.2024 and 23.07.2024.
  • Held that GST is not leviable on regulatory functions performed by electricity regulatory commissions.

Important Clarifications by Court

  • Regulatory functions under statute ≠ business activity.
  • Statutory fees ≠ consideration for supply.
  • Schedule III exemption has overriding effect.
  • Notifications cannot expand tax liability beyond the Act.
  • No bifurcation permissible between regulatory and adjudicatory roles.

Sections Involved

  • Section 7 – Scope of Supply (CGST Act, 2017)
  • Section 2(17) – Definition of Business
  • Section 2(31) – Consideration
  • Section 9 – Levy of GST
  • Schedule II & Schedule III – Classification of Supply
  • Section 73 – Demand of Tax
  • Section 50 – Interest
  • Section 122 – Penalty
  • IGST Act, 2017 (relevant provisions)
  • Electricity Act, 2003 (Sections 79 & 86)

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

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