The applicability of GST on services related to the transmission and distribution of electricity has long been a contentious issue, dating back to the service tax regime. This article delves into the complexities surrounding this topic, analyzing relevant legal provisions, exemptions, and recent judicial pronouncements.
To deicide its taxability need to through a light on provisions of Section 8.
Section 8:- Tax Liability on composite and mixed supplies-
The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:-
(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and
(b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.
Definitions:-
Section 2(30)-Composite Supply
“composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.
Section 2(90)- Principal Supply
“Principal supply” means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary.
Section 2(74)- Mixed Supply
“mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.
Illustration.- A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.
So it is ample clear from the above definitions, that Services like, Application fee, Meter Rent, Testing charges are nothing but a naturally bundled services along with the main service which is distribution of electricity and hence these supplies constitute as a “Composite Supply” as per section 2(30) of CGST Act, 2017 definition.
GST applicability will depend on the taxability of Principal supply i.e., distribution of electricity and if the Principal supply is exempt then related services supplies along with it are also exempt.
Notification12/2017 dated 28.6.2017 Entry No.25 exempts “Transmission and Distribution of electricity “from taxability of GST , certainly GST will also not applicable on related services of it as it is a composite supply.
But the controversy still continue in GST as well as which was earlier in service Tax in pre- negative list regime or In Negative List Regime.
1. Pre- Negative List Regime – Notification dated 22.06.2010 issued wherein Service Tax exempted on Transmission and distribution of electricity .
Similarly clarified through an Circular dated 07.12.2010 that supply of electricity meters for hire to the consumers was an essential activity having direct and close nexus with the transmission and distribution of electricity and was, therefore, covered by the exemption for transmission and distribution of electricity.
2. Negative List Regime- The said exemption for transmission and Distribution of Electricity continues, U/s 66D of Finance Act dated 01.07.2022 , but related services was not specifically mentioned in the list.
3. GST Regime- Similarly the said service is exempted through Notification No. 12/2017- Central Tax (Rate) dated 28.6.2017 dated 28.6.2017 in Entry No.25.
But under GST Regime Complete Contradictory Circular than circular issued in pre GST as well as Pre- Negative List regime has been issued Circular No-34/8/2018 GST dated 01.03.2018 which sates that
Service by way of transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST under Notification No. 12/2017- Central Tax (Rate) dated 28.6.2017 (R ), Sl. No.25. The other services such as,-
i. Application fee for releasing connection of electricity;
ii. Rental Charges against metering equipment;
iii. Testing fee for meters/transformers, capacitors etc.;
iv. Labour charges from customers for shifting meters or shifting of service lines.
Now the confusion Started about the taxability of related services to supply of electricity but one can take the argument points as:-
1. Supreme Court in the case of Suchitra Components Limited v. Commissioner of Central Excise, (2009) 20 VST 726 (SC), for the proposition that a beneficial circular has to be applied retrospectively, while an oppressive circular is to be applied prospectively.
2. when the circular is against the Assessee, they have a right to claim enforcement of the same prospectively. Reliance was placed on the decision of the Supreme Court in the case of Commissioner of Central Excise, Bangalore v. Mysore Electricals Industries Ltd., (2006) 204 ELT 517, for a similar proposition of law.
3. The 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 Notification12/2017 dated 28.6.2017
Similar view has been taken by the Gujrat High Court in the case of Torrent Power Ltd. Vs. Union of India 19.12.2018 & 06.04.2022.
Gujrat High Court Struck down the Circular No 34/8/2018 GST dated 01.03.2018 1.3.2018(annexed at Annexure A) by the Government of India as ultra vires the provisions of the GST Acts as well as the notifications issued thereunder.
Also Department has filed an SLP to Supreme court in respect of this subject matter and leave has granted but still no Stay has been grnated on the High Court Order.
Secondly Delhi High Court has also given the same decision in the case of BSES Rajdhani Power Ltd Vs. UOI. 13.12.2023.
Till the finality of the Supreme Court Judgment, one need to take the shelter of above arguments.
Conclusion: The controversies surrounding the applicability of GST on services related to electricity transmission and distribution are gradually being addressed through judicial interventions. While exemptions exist, conflicting circulars have added complexity. Recent judicial decisions, notably from the Gujarat and Delhi High Courts, provide clarity by upholding the exemption for related services. Until the Supreme Court provides a definitive ruling, stakeholders can navigate this issue by considering legal arguments and precedents established by these judgments.
Author Bio
