South Bihar Power Distribution Company LTD. vs. Union Of INDIA
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The petitioners, South Bihar Power Distribution Company Ltd. and North Bihar Power Distribution Co. Ltd., challenged the levy of GST on ancillary services provided to electricity consumers. The petitioners contended that a complete exemption granted to electricity transmission and distribution utilities should encompass these ancillary services. The revenue authorities, through a clarification issued by the Principal Chief Commissioner based on the Fitment Committee's approval to the GST Council, identified specific services like application fees for electricity connection, rental charges for metering equipment, testing fees, labour charges for shifting meters or service lines, and charges for duplicate bills as subject to GST. The petitioners argued that these services are integral to the composite supply of electricity and that the clarification improperly diluted the exemption notification. The matter is complicated by a pending appeal before the Supreme Court, arising from a Gujarat High Court judgment that struck down similar clarifications.
Held
The Patna High Court disposed of the writ petitions by directing the parties to abide by the decision of the Hon'ble Supreme Court in the pending appeal (C.A. No. 006278 of 2019). The Court noted that the petitioners had paid the entire liability for the period in question under protest and would continue to do so, subject to the Supreme Court's final judgment. Crucially, the Court ordered that penalty proceedings initiated against the petitioners be stayed until the Supreme Court passes its final judgment. If the Supreme Court rules against the assessee, penalty proceedings will be considered independently. The Court explicitly stated that the writ petitions stand closed with these observations and reservations, maintaining the status quo regarding payments and penalty proceedings until the Supreme Court's decision.
Key Issues
1. Whether the exemption granted to transmission or distribution of electricity under the CGST Act, 2017, extends to ancillary services offered by electricity distribution utility companies to their consumers, specifically concerning the interpretation of Section 7 and Section 8 of the CGST Act, 2017? Petitioner's contention: The petitioners argued that the exemption notification is comprehensive and covers all services provided by electricity distribution companies, including ancillary services, as these form part of a composite supply. They relied on the Gujarat High Court's decision in Torrent Power Ltd. v. Union of India, which struck down similar clarifications. They also argued that a clarification cannot dilute a notification granting a complete exemption. Revenue's contention: The revenue authorities, through the Directorate General of Goods and Service Tax Intelligence, identified specific ancillary services as taxable. Their contention, as reflected in the clarification, was that these services were distinct from the core service of electricity transmission and distribution and were therefore not covered by the exemption.
Sections Cited
Section 7, Section 8
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Cause title — parties, addresses and appearances
ORAL JUDGMENT (Per: HONOURABLE THE CHIEF JUSTICE) Date : 01-08-2024 The question arises in the above cases, as to whether the exemption granted to transmission or distribution of electricity by an electricity transmission or distribution utility company would take in the ancillary services offered to its consumers.
A complete exemption granted as seen from Annexure-5 would take within its ambit, those services which have been culled out ‘for levy of tax’ by Annexure-1 issued by the Principal Chief Commissioner on the approval of the Fitment Committee to the GST Council dated 01.03.2018, is the contention of the petitioners.
The activities/services which are culled out for the purpose of levy of tax under the CGST Act by a 3/5 classification are the following:- 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 of meters or shifting of service lines; v. Charges for duplicate bill;
The two electricity distribution companies who are before us rely on Sections 7 and 8 of the CGST Act, 2017 and contend that it is a composite service offered to the consumers, and there cannot be any clarification by which the exemption granted by a notification is diluted.
The High Court of Gujarat, by Annexure-6 judgment dated 19.12.2018 in Torrent Power Ltd. v. Union of India in R/Special Civil Application No. 5343 of 2018, has struck down the clarifications in serial no. 4 of Annexure-1, which have been extracted herein above.
It is the common case that a Special Leave Petition was filed, which has been converted into C.A. No. 006278 of 2019 registered on 13.08.2019, which is pending before the Hon'ble Supreme Court.
The learned Counsel appearing for the Distribution Companies submits, and the learned ASG agrees, 4/5 that the petitioner has paid up the entire liability of the years, which are the subject matter of the two instant cases. It is submitted by learned Counsel for the petitioners that they are continuing to pay the liability under protest, subject to the final decision in the writ petition. Now that the matter is pending before the Hon'ble Supreme Court, we deem it fit to dispose off the writ petition but leaving the parties to abide by the decision of the Hon'ble Supreme Court.
The petitioner-Companies would go on paying the levy which shall be treated as payments made under protest, subject to the final judgment of the Hon'ble Supreme Court in C.A. No. 006278 of 2019. 9. The learned Counsel for the petitioners also submits that penalty proceedings were issued, which were stayed only on the ground of the pendency of the writ petitions. The order in the penalty proceedings specified that there shall be a stay till the disposal of the writ petition. In the context of our disposing of the writ petitions, we make it clear that the penalty proceedings shall not be continued and proceeded with till the Hon'ble Supreme Court passes final judgment in the matter.
The writ petitions stand closed with the above observations and reservations, leaving the parties to abide by the 5/5 Hon'ble Supreme Court judgment and status quo be maintained with respect to the payments and also the penalty proceedings till judgment is delivered by the Hon'ble Supreme Court in C.A. No. C.A. No. 006278 of 2019. 11. The penalty proceedings will stand stayed till the final decision of the Hon'ble Supreme Court in the matter of exemption regarding ancillary services, and if the issue is held against the assessee, then necessarily penalty will have to be independently considered, on the basis of principles governing imposition of penalties.
Writ petitions are disposed of with the above observations and reservations.
aditya/- (K. Vinod Chandran, CJ) ( Partha Sarthy, J) AFR/NAFR CAV DATE Uploading Date 06.08.2024. Transmission Date
Reproduced from the public record of the Patna High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.