No GST on Municipal Road Restoration & Digging Charges: Gujarat HC

Torrent Power Ltd. Vs Union of India & Ors. (Gujarat High Court)

Material Facts The petitioner, Torrent Power Ltd., is an electricity distribution licensee under the Electricity Act, 2003, operating in Gujarat, Maharashtra, and Uttar Pradesh (including Ahmedabad, Surat, Gandhinagar, Dahej SEZ, and Dholera). In the course of routine maintenance and network expansion to supply electricity, the petitioner digs trenches on public roads maintained by the Ahmedabad Municipal Corporation (AMC). Subsequently, the AMC repairs and restores the dug-out roads and recovers reimbursement/compensation charges from the petitioner on a per-meter/area basis depending on the road type.

Procedural History

• Inquiry Notices: Respondent No. 2 issued a notice on 27.08.2021 requesting details of Road Opening Permit charges paid to the AMC and GST paid under the Reverse Charge Mechanism (RCM). The petitioner replied on 05.10.2021, denying taxable service liability. Respondent No. 2 issued another notice on 13.12.2021, to which the petitioner replied on 14.03.2022.
• DRC-01A & Show Cause Notice: Respondent No. 2 issued Form GST DRC-01A. The petitioner submitted a detailed reply on 29.11.2022. On 30.11.2022, Respondent No. 2 issued a Show Cause Notice under Section 74 of the CGST/GGST Act, 2017 proposing tax, interest, and penalties on payments made to the AMC on an RCM basis.
• Writ Proceedings: The petitioner challenged the Show Cause Notice under Article 226 before the Gujarat High Court. Notice was issued on 13.01.2023, and interim relief was denied on 16.02.2023.
• Order-in-Original: During the pendency of the writ, Respondent No. 3 passed an Order-in-Original on 25.01.2025 confirming the demand under Section 74 read with Entry No. 5 of Notification No. 13/2017-Central Tax (Rate). The petitioner amended its writ petition to challenge the Order-in-Original.

Legal Issues

1. Whether reimbursement of road repairing/restoration charges paid by an electricity licensee to a municipal corporation pursuant to Section 67(3) of the Electricity Act, 2003 constitutes a “supply of service” under Section 7(1) read with Clause 5(e) of Schedule II of the GST Act liable to GST under RCM.
2. Whether road restoration by a municipal corporation falls under constitutional functions under Article 243W (12th Schedule) exempt under Notification No. 12/2017-Central Tax (Rate) or non-taxable under Notification No. 14/2017-Central Tax (Rate).
3. Whether invoking Section 74 of the GST Act was valid without proof of fraud, willful misstatement, or suppression of facts.

Statutory Provisions

• Section 7(1), Section 9, Section 74, and Schedule II (Clause 5(e)) of the Central / Gujarat Goods & Services Tax Act, 2017
• Sections 42(1) and 67 of the Electricity Act, 2003
• Article 243W and Twelfth Schedule (Item 4: “roads and bridges”), Constitution of India
• Article 366(12A), Constitution of India
• Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (Entry Nos. 4 and 6)
• Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017 (Entry No. 5)
• Notification No. 14/2017-Central Tax (Rate) dated 28.06.2017 (amended 27.07.2018)
• CBIC Circular No. 178/10/2022-GST dated 03.08.2022

Parties’ Submissions

• Petitioner:
  • Digging streets and paying compensation to local authorities for damages is a statutory duty under Sections 42 and 67(3) of the Electricity Act, 2003. Reimbursing repair charges is not consideration for any supply of service under Section 7(1).
  • Road maintenance is a public/sovereign municipal function under Article 243W and Item 4 of the Twelfth Schedule. It carries a “Nil” rate of tax under Entry No. 4 of Exemption Notification No. 12/2017 and is declared a non-supply under Notification No. 14/2017.
  • Section 74 was wrongly invoked as all transactions were recorded in the books of accounts with no element of fraud, suppression, or willful misstatement.
  • The Order-in-Original dated 25.01.2025 failed to independently address the petitioner’s statutory arguments.
• Respondents (Revenue):
  • The writ is non-maintainable due to alternate statutory appellate remedies against the Order-in-Original.
  • Road restoration and permitting street digging constitutes “tolerating an act” for consideration under Clause 5(e) of Schedule II, taxable at 18% under Heading 9997 (CBIC Circular No. 178/10/2022-GST).
  • Services by local authorities to business entities with turnover over Rs. 20 lakhs are subject to RCM under Entry No. 5 of Notification No. 13/2017, and Entry No. 4/6 exemptions do not apply to commercial activities.

Court Observations & Findings

• Maintainability: The Court held that the petition was already admitted after due hearing, and the preliminary objection regarding alternate remedy was not sustained.
• Lack of Service/Supply Element: Payment made by the petitioner to the AMC under Section 67(3) of the Electricity Act, 2003 is statutory compensation for damage caused while laying distribution lines. It does not represent consideration for any service supplied by the AMC to the petitioner.
• Exemption & Non-Supply: Road restoration is a municipal function under Article 243W (Twelfth Schedule) of the Constitution. Therefore, it is covered by the Nil rate under Entry No. 4 of Notification No. 12/2017-Central Tax (Rate) and excluded from the scope of supply under Notification No. 14/2017-Central Tax (Rate).
• Section 74 Inapplicability: The Revenue failed to establish any fraud, willful misstatement, or suppression of facts to invoke Section 74.
• Order-in-Original Defects: The adjudicating authority failed to deal with the substantive legal submissions raised by the petitioner.

Final Decision The High Court allowed the writ petition and quashed the Show Cause Notice dated 30.11.2022 and the Order-in-Original dated 25.01.2025.