High Court of Gujarat in the matter of Torrent Power Ltd. has given a verdict in favour of the assesee on validity of Circular No.34/8/2018-GST with regards to taxability of charges recovered for the activities directly connected with the distribution and transmission of electricity such as application fee, meter rent, testing fee, labour charges for shifting meters and shifting of service line, etc..
- Notification No. 12/2017 dated 28th June 2017 exempts vide Entry No. 25 “Transmission or distribution of electricity by an electricity transmission or distribution utility.”
- Ministry of Finance, Government of India vide its circular no. F. No. 354/17/2018-TRU dated 1st March, 2018, clarified that the services by way of transmission or distribution of electricity by an electricity transmission or distribution utility is only exempt from GST.
- It was also clarified in the circular that the other services such as meter rent, application fees, testing fees for meters etc. provided by these companies to their consumers are taxable.
- AAR Rajasthan in the matter of M/s Tp Ajmer Distribution Limited [TS-263-AAR-2018-NT] relying upon the Circular issued on 1st March 2018 also held that transmission / distribution of electricity alone shall be exempt in terms of Notification No. 12/2017-Central Tax (Rate) and non-tariff charges such as ‘refundable security deposit’ against electric consumption or electric meter would be taxable, if same is applied as consideration.
A writ petition was filed in Gujarat High Court in the matter of Torrent Power Ltd. v. Union of India [TS-858-HC-2018(GUJ)-NT-Torrent Power Ltd] challenging validity of circular dated 1st March 2018 and the following are the summary of the observations of the Court in this matter:
- Prior to the coming of the negative list regime of the service tax laws (i.e. before 01.07.12), the Central Government by virtue of Notification No. 11/2010 dated 27.02.2010 exempted transmission of electricity service from the whole of the service tax leviable thereon and by virtue of Notification No. 32/2010 dated 22.06.2010 distribution of electricity came to be exempted from the whole of the service tax leviable thereon. Thus what was exempted from service tax under those provisions was transmission and distribution of electricity. Despite this, the revenue authorities had considered services related to transmission and distribution of electricity as exempt from service tax by virtue of those notifications. In so far as electricity meters are concerned, vide circular No. 131/13/2010-ST dated 7.12.2010, it was clarified that supply of electricity meters for hire to consumers being an essential activity, having direct and close nexus with transmission and distribution of electricity, the same is covered by the exemption for transmission and distribution of electricity extended under the relevant notifications.
- The meaning of “transmission and distribution of electricity” does not change either for the negative list regime (i.e. after 01.07.2012) or the GST regime (i.e. after 01.07.2017). If that be so, the services which stood included within the ambit of transmission and distribution of electricity during the pre-negative list regime cannot now be sought or excluded by merely issuing a clarificatory circular, that too, with retrospective effect.
- From the very manner in which the Department has treated the services related to transmission and distribution of electricity during the pre-negative list regime, such services would stand covered by the exemption granted to transmission and distribution of electricity by virtue of inclusion of such services in the list of negative services under section 66D (k) of the Finance Act as well as by virtue of exemption notification issued under the CGST Act where the services are naturally bundled in the ordinary course of business and the single service which gives such bundle its essential character is exempt from tax, the entire bundle will have to be treated as provision of such single service.
- Charges such an application fee, meter rent, testing fee, etc collected by the Petitioners are part of composite supply of which principal supply is the actual supply of electricity and therefore the entire composite supply is exempt from tax under Entry 25 of Notification No.12/2017 dated 28.6.2017.
- The Paragraph 4(1) of the impugned Circular No.34/8/2018-GST dated 1.3.2018 is hereby struck down as being ultra vires the provisions of section 8 of the CGST Act, 2017 as well as Notification No.12/2017-CT(R) serial No.25. The respondents shall drop the proceedings under the Finance Act, 1994 as well as under the CGST/SGST Acts sought to be initiated by virtue of the impugned summons to the extent the same is based upon item No.4 (1) of the impugned circular dated 1st March, 2018 and the writ petition is allowed.
This is a landmark judgement and will be of great relief for the electricity distribution companies as well as to the consumers. It is to be seen the next course of action taken by revenue authorities in this regard.