The Delhi High Court recently passed an important judgment on the collection of fees by the Central Electricity Regulatory Commission (CERC) and the Delhi Electricity Regulatory Commission (DERC). According to this judgment, these fees cannot be taxed under the Goods and Services Tax (GST).

Court ruling on fee regulatory fees

The court responded on Wednesday to the notices from the tax authorities demanding GST on the fees that CERC and DERC are charging. The authorities claim that these fees form part of taxable services under electricity transmission and distribution and will attract 18% GST. However, the court decided otherwise, reasoning that the functions of CERC and DERC are not business activities but statutory duties given under the Electricity Act of 2003. The act provides for regulating electricity tariffs, which the jurisdiction also accords, and ensuring fair practices, which is especially important to fulfill the public interest.

Importance of statutory functions

The court clarified that as CERC and DERC are without a profit motive in the discharge of their functions, their activities would not come within the purview of the definition of 'business' under the GST laws. This is because fees collected for processing licenses or other regulatory tasks are not levied with GST. The court said that services provided by courts or such other bodies fall outside the purview of GST and hence CERC and DERC fall within this category on account of being quasi-judicial bodies.

Rejection of tax authorities' arguments

The court had rejected the arguments of the tax authorities that the regulatory duties were distinct from adjudicatory functions. It had held these to be integral and essentially statutory. The court also noted that notifications issued under GST laws cannot supersede the existing exemptions granted under the statute. Thus, demands for GST on these charges were held arbitrary and unsustainable.

Expert opinions on the ruling

Tax experts have lauded this verdict as it brings to light the position of regulatory commissions. AKM Global's Sandeep Sehgal mentioned that with this order, CERC and DERC are not business entities but are regulatory commissions that are meant to regulate the power sector for everybody's advantage. This involves levying tariffs and issuance of licenses all of which are included in their remit to regulate practices in a just manner in the industry.

This ruling is, therefore, critical in that it protects regulatory bodies from unnecessary taxation, which is likely to impose financial burdens and distract them from their core duties.