The Madras High Court on Friday directed the GST department to defer the inquiry proceedings on the four show-cause notices on tax liability of Rs 1,100 crore issued to the Tamil Nadu Transmission Corporation (TANTRANSCO) for four financial years from 2017 to 2021.
Justice Krishnan Ramasamy issued the directions while hearing the petitions filed by TANTRANSCO challenging the notices and the inquiry proceedings.
Senior counsel who is appearing for the petitioner-firm, submitted that the power transmission system operator is engaged in transmitting generated electricity across Tamil Nadu as per The Electricity Act, 2003. These activities, prior to the GST regime, were exempted from the payment of service tax.
After the introduction of the GST regime in 2017, the GST department held an audit assessment and issued four show-cause notices for the four financial years subsequent to the introduction of GST, claiming a tax liability of Rs 1,100 crore, he said.
These notices were in complete violation of Section 65 of the CGST Act, 2017, r/w Rule 101 of the CGST Rules, 2017, and the notices were based only on the observations made by the audit team that had cited inward supply of goods as capital assets of the power transmission system operator.
The department demanded tax on these values, treating them as though they represented consideration for the supply, which formed the basis for the tax claims, he said. Wilson also contended that the TANTRANSCO is challenging the applicability of the GST Act in four separate writ petitions, and therefore, the GST inquiry proceedings should be deferred.
He said electricity is a unique commodity; it is invisible, intangible, and highly dangerous to handle. It needs to be transmitted and consumed instantaneously, which makes the consumption and sale of electricity primarily a concern for the states, as outlined in Entry 53 of List II. Electric generation, transmission, and distribution activities are not subject to indirect taxes, he further submitted.
