North Bihar Power Distribution Co. LTD. vs. Union Of INDIA
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The petitioners, South Bihar Power Distribution Company Ltd. and North Bihar Power Distribution Co. Ltd., are challenging the levy of GST on ancillary services provided to their electricity consumers. The revenue authorities had issued clarifications identifying certain services, such as application fees for electricity connection, rental charges for metering equipment, testing fees, labor charges for shifting meters or service lines, and charges for duplicate bills, as taxable. The petitioners contend that these services are integral to the composite supply of electricity, which is exempted from GST, and that the clarifications dilute the exemption granted by a notification. The matter involves a dispute over the taxability of these ancillary services.
Held
The Patna High Court disposed of the writ petitions, noting that the issue of taxability of ancillary services provided by electricity distribution companies is pending before the Hon'ble Supreme Court in C.A. No. 006278 of 2019. The Court directed that the petitioners would continue to pay the levy under protest, and these payments would be subject to the final decision of the Supreme Court. Furthermore, the Court made it clear that penalty proceedings initiated against the petitioners would not be continued until the Supreme Court passes its final judgment. The penalty proceedings are stayed until the Supreme Court's decision. If the Supreme Court holds against the assessee, penalty proceedings will be considered independently based on governing principles. The writ petitions were closed with these observations and reservations, maintaining the status quo regarding payments and penalty proceedings.
Key Issues
1. Whether the exemption granted to the transmission or distribution of electricity extends to ancillary services offered by electricity utility companies to their consumers under the CGST Act, 2017? Petitioner's contention: The petitioners argue that the services culled out for levy of tax are part of a composite supply of electricity, which enjoys a complete exemption. They rely on Sections 7 and 8 of the CGST Act, 2017, and contend that a clarification cannot dilute a pre-existing exemption. They also refer to the Gujarat High Court's judgment in Torrent Power Ltd. v. Union of India, which struck down similar clarifications. Revenue's contention: The judgment records that the learned ASG agreed with the petitioners' submission regarding the pending Supreme Court matter. No specific argument was recorded for the revenue on the interpretation of the exemption notification or the CGST Act provisions.
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.