The Hon’ble Supreme Court in Additional Director Directorate General of GST Intelligence & Anr v. Central Electricity Regulatory Commission [Special Leave Petition (Civil) Diary No. 32626/2025, order dated July 21, 2025] held that no interference was warranted against the Delhi High Court’s decision quashing GST demand on license fees collected by Central and Delhi Electricity Regulatory Commissions.
Facts:
The Central Electricity Regulatory Commission (“the Petitioner”) and the Delhi Electricity Regulatory Commission were subjected to service tax/ GST demand on license fees collected for grant of licenses to various electricity operators. The GST authorities (“the Respondents”), contended that such license fee constituted taxable supply of services, distinct from adjudicatory functions, and argued that the regulatory activities fall under Group Heading 99863 (support services to electricity, gas and water distribution) of the GST Service Rates Notification dated June 28, 2017.
The Petitioner challenged the demand by filing a writ petition before the Delhi High Court. The Delhi High court allowed the writ petition and held that the grant of a license to transmit or distribute is clearly not in furtherance of business or trade, but in extension of the statutory obligation placed upon a Commission to regulate those subjects.
Aggrieved by this, the Revenue had sought a special leave petition before the Supreme Court.
Issue:
Whether the collection of license fees by Electricity Regulatory Commissions constitutes taxable supply under the CGST Act, 2017 or is excluded under Schedule-III as services rendered by a court or tribunal?
Held:
The Hon’ble Supreme Court in Special Leave Petition (Civil) Diary No. 32626/2025 held as under:
- Noted that, the Delhi High Court had quashed the GST demand and observed that Electricity Regulatory Commissions perform quasi-judicial functions with trappings of a tribunal.
- Observed that, the grant of license was in furtherance of a statutory obligation and not an activity in the course or furtherance of business.
- Noted that, the Delhi High Court had refused to draw a distinction between regulatory and adjudicatory functions in light of Schedule-III of the CGST Act, which expressly excludes services rendered by courts or tribunals from the scope of “supply.”
- Further noted that, the Delhi High Court rejected Revenue’s reliance on Section 2(24) (definition of “service”) and Section 2(17) (definition of “business”) of the CGST Act, 2017, holding that statutory regulatory functions do not fall within the ambit of “business” or constitute “supply.”
- Further noted that, the High Court had emphasized the absence of any inducement element in the license fee collected, thereby excluding it from the definition of “consideration” under Section 2(31).
- Noted that, the High Court had held that GST Service Rates Notification dated June 28, 2017 cannot override Schedule-III and, therefore, reliance on Group Heading 99863 (support services) was misplaced.
- The Supreme Court, agreeing with the High Court’s reasoning, held that there is no good ground to entertain these Special Leave Petitions and accordingly dismissed the same.
Our Comments:
The Supreme Court’s affirmation of the Delhi High Court’s judgment settles the legal position that regulatory and quasi-judicial functions performed by statutory Commissions are excluded from the scope of GST under Schedule-III of the CGST Act. The dismissal relies on the judicial interpretation that such statutory bodies are not engaged in “business” or providing “services” for consideration.
The Allahabad High Court in U.P. Electricity Regulatory Commission v. Addl. Commissioner of GST & Central Excise [WRIT TAX No. 239 of 2024, order dated November 19, 2024] had also granted stay on a similar SCN proposing GST levy on license fees, reinforcing the legal principle emerging from these decisions.
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