Supreme Court exempts power sector regulators’ fees from GST

The Supreme Court has upheld a Delhi High Court ruling that exempts key regulatory fees charged by electricity commissions from Goods and Services Tax (GST). These include fees for granting distribution licences, regulating electricity supply, and other annual charges collected by the Central Electricity Regulatory Commission (CERC) and the Delhi Electricity Regulatory Commission (DERC).

This brings clarity to how GST applies to statutory regulatory functions in the power sector. It also offers relief to electricity regulators who had been facing hefty tax demands from GST authorities.

In January, the Delhi High Court quashed show cause notices issued by the Directorate General of GST Intelligence. These notices demanded 18 percent GST on fees collected by CERC and DERC. The court said the demand was arbitrary and unsustainable. It ruled that regulatory activities carried out by these commissions are not business services but statutory functions.

The Supreme Court bench, comprising Justices J.B. Pardiwala and R. Mahadevan, agreed with this view. The bench said there were no strong legal grounds to entertain the GST department’s appeal. It dismissed the special leave petitions filed by the department.

The GST department had argued that the regulators were not paying tax on licence and tariff fees collected through power utilities. It claimed that these fell under “support services” provided to transmission and distribution companies.

In its earlier ruling, the High Court rejected this claim. It said that functions like setting tariffs and issuing licences were part of the regulators’ quasi-judicial responsibilities. These cannot be classified as business services. The court said that these powers are conferred by the Electricity Act, 2003, and have nothing to do with commercial transactions.

The show cause notice alleged that CERC failed to correctly assess and pay Rs 113 crore in GST between April 2019 and March 2023. A similar notice was issued to DERC. The High Court had dismissed both.

It concluded that regulatory duties carried out by electricity commissions are not performed “in furtherance of business or trade” but in fulfilment of legal obligations under the Electricity Act.