Case Law Details
Union of India & Ors. Vs Torrent Power Ltd. (Supreme Court of India)
In the matter concerning levy of GST on reimbursement of road repairing and restoration charges paid to Ahmedabad Municipal Corporation (AMC), the Supreme Court of India issued notice in the Special Leave Petition filed by the Union of India and condoned the delay. The Court recorded that notice was returnable in six weeks and noted appearance on behalf of the respondent.
The Gujarat High Court judgment arose from a writ petition challenging a show-cause notice dated 30.11.2022 issued under Section 74 of the Central/Gujarat Goods and Services Tax Act, 2017 and a subsequent Order-in-Original dated 25.01.2025. The petitioner, engaged in transmission and distribution of electricity in Gujarat, Maharashtra and Uttar Pradesh, contended that reimbursement of road repairing and restoration charges paid to AMC for roads dug up during laying and maintenance of electricity distribution lines was not liable to GST under reverse charge mechanism.
The petitioner argued that under Sections 42 and 67 of the Electricity Act, 2003, it was statutorily authorized and obligated to dig roads for laying and maintaining distribution lines and was also required to compensate for damages caused. According to the petitioner, the payments made to AMC were compensation or reimbursement for road restoration and not consideration for any “supply of service” under Section 7 of the GST Act.
The GST authorities alleged that the petitioner was liable to pay GST on reverse charge basis because AMC had tolerated the act of digging roads and restored them for consideration. Reliance was placed on Section 7(1) of the GST Act, Schedule II Clause 5(e) dealing with “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act,” as well as CBIC circulars concerning taxable supplies and compensation-related transactions.
The High Court examined Sections 42 and 67 of the Electricity Act, which permit a distribution licensee to open and break roads for laying electric lines and require the licensee to compensate for damages caused. The Court observed that Section 67(3) specifically mandates payment of compensation for such damage.
The Court then considered Section 7(1) of the GST Act and Schedule II Clause 5(e). It held that AMC was not “agreeing to tolerate” the digging of roads by the petitioner. Instead, the petitioner was carrying out a statutory function under the Electricity Act, and the compensation paid to AMC was reimbursement for damage caused while discharging that statutory obligation.
The High Court rejected the Revenue’s argument that restoration of roads by AMC was outside the scope of municipal functions under Article 243W of the Constitution. The Court observed that repair and restoration of damaged roads forms part of municipal functions under the Twelfth Schedule to the Constitution, which specifically includes “roads and bridges.” Therefore, repairing damaged roads was held to be a constitutional and sovereign function of the municipality.
The Court further held that reimbursement of repairing and restoration charges could not be treated as “supply of service” under Section 7(1) read with Schedule II Clause 5(e) “by any stretch of imagination.” It found that the compensation paid by the petitioner was neither for breach of contract nor for any service availed from AMC.
The High Court also held that reliance placed by the Revenue on CBIC Circular No.178/10/2022-GST relating to liquidated damages, compensation and penalties was misplaced because the present case involved statutory compensation for road damage caused during electricity distribution work and not compensation arising from breach of contract or toleration of an act.
Similarly, the Court found that reliance on service tax circulars issued under the Finance Act, 1994 was not applicable because the scope of “supply” under GST differs from the earlier service tax regime.
The Court ultimately held that reimbursement of restoration and repairing costs paid to AMC for roads dug up while laying electricity distribution lines could not be subjected to GST under reverse charge mechanism. Accordingly, the show-cause notice dated 30.11.2022 and the Order-in-Original dated 25.01.2025 were quashed and set aside.
Read HC Judgment in this case: Reimbursement of repairing and restoration of roads to AMC not taxable as reverse charge under GST
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Delay condoned.
2. Issue notice, returnable in six weeks.
3. Ms. Charanya Laksmikumaran, learned Advocate on Record accepts and waives service of notice on behalf of the sole respondent.
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