(2024) taxcode.in 242 HC
IN THE HIGH COURT OF CALCUTTA
West Bengal State Electricity Distribution Company Ltd.
v.
Additional Director and Ors.
W.P.A. 12613 of 2024
Decided on 11-Jun-24
Justice Raja Basu Chowdhury
Add. Info:
For Appellant(s): Mr. Abhratosh Majumder, Mr. Avra Mazumder, Mr. Suman Bhowmik, Mr. K. Roy, Ms. Alisha Das, Mr. Samrat Das, Ms. Elina Dey, Mr. S.N.Banerjee.
For Respondent(s): Mr. Bhaskar Prosad Banerjee, Mr. Abhradip Maity, Mr. Anirban Ray, Mr. Md. T.M.Siddiqui, Mr. Tanoy Chakraborty, Mr. Saptak Sanyal.
Judgment/Order:
1. The present writ petition has been filed, inter alia, challenging the show cause dated 28th March 2024 issued under Section 74 of the CGST Act, 2017 (hereinafter referred to as the “said Act”).
2. The petitioner is engaged with the business of generation, transmission and distribution of electricity in the State of West Bengal and claims to be exempted from payment of Central Tax in respect of intra state supply of services of description as specified in serial no.25 of column 3 of the table in respect of the notification no. 12/2017-Central Tax (Rate) dated 28th June, 2017 issued by the Central Government, by power conferred under Section 11(1) of the said Act, leviable under Section 9(1) of the said Act.
3. Mr. Majumder, learned senior advocate appearing for the petitioner, submits that the notification granting exemption has been issued by the Central Government in exercise of powers conferred under Section 11(1) of the said Act. In order to clarify the scope or applicability of the notification, the Central Government can issue necessary clarification in the manner provided for in Section 11(3) of the said Act. By placing reliance on the clarification dated 1st March, 2018 issued by the Government of India, Ministry of Finance, Department of Revenue, he submits that the same has not been issued in consonance with the provisions of Section 11(3) of the said Act which confers authority on the Central Government to clarify the scope or applicability of any notification issued under sub-Section (1) or order issued under sub-Section (2) of Section 11 of the said Act.
4. Since, the said clarification is not in consonance with the provisions of Section 11(3) of the said Act, the same could not have formed the basis for the respondents to issue the showcause that too by invoking the extended period of limitation under Section 74 of the said Act. By drawing attention of this Court to Serial no. 25 of the notification dated 28th June, 2017, and Section 2(30) of the said Act, it is submitted that in terms of such notification since, transmission or distribution of electricity by an electricity transmission or distribution utility has been exempted and since, the services rendered by the petitioner is a composite one comprising of two or more supplies, the distribution of electricity being the principal service/supply since the ancillary service cannot be rendered in isolation or independent of the principal service, the respondents could not have treated any of the services offered by the petitioner as a mixed supply, for the purpose of levy of tax on the ancillary services.
5. By placing reliance on a judgment delivered by the Hon’ble High Court of Gujarat in the case of Torrent Power Ltd. v. Union of India1, it is submitted that the aforesaid circular has already been struck down by the Hon’ble Gujarat High Court. The same view has been followed by the Hon’ble Rajasthan High Court in the case of Jodhpur Vidyut Vitran Nigam Ltd. v. Union of India2 as also by the Hon’ble High Court of Delhi in the case of BSES Rajdhani Power Ltd. v. Union of India3. He submits that notwithstanding the fact that the aforesaid judgments, delivered in the cases of Torrent Power Ltd (supra) and Jodhpur Vidyut Vitran Nigam Ltd. (supra) were brought to the notice of the authorities, the authorities by glossing over the same had issued the aforesaid show cause notice.
6. In the facts as noted above, Mr. Majumder, learned senior advocate submits that the instant writ petition should be heard and pending hearing of the writ petition, the aforesaid show cause notice should be stayed.
7. Mr. Banerjee, learned advocate enters appearance on behalf of respondent nos. 1, 7 and 8. According to him, the stand of the respondents is reflected in paragraph 5.3 of the aforesaid show cause notice and the same has only clarified the existing statutory process. The same does not form the basis of the respondents in issuing the said show cause notice.
8. Mr. Ray, learned Government Pleader enters appearance on behalf of the State and opposes the petition.
9. Heard the learned advocates appearing for the respective parties and considered the materials on record.
10. Admittedly, in this case it is noticed that the respondent no.1 has proceeded to invoke the provisions of Section 74 of the said Act by placing reliance on a circular dated 1st March, 2018. It is, however, an admitted position that the petitioner is a distribution licensee within the meaning of the Indian Electricity Act, 2003 and it is otherwise entitled to the benefit of the notification dated 28th June, 2017. It would appear from the said notification that the same had been issued in terms of Section 11(1) of the said Act whereunder the Central Government has exempted the intra-State supply of service of description specified in column (3) of the Table to the said circular and under serial number 25, column 3, transmission or distribution of electricity by an electricity transmission or distribution utility had been notified. From the aforesaid show cause it would appear that the respondents had proceeded to invoke the extended period of limitation by placing reliance on the clarification dated 1st March, 2018. The relevant portion of the said clarificatory circular is extracted hereinbelow:
| Sl no. |
Issue | Clarification |
| 4. |
(1) Whether the activities carried by DISCOMS against recovery of charges from consumers under State Electricity Act are exempt from GST ? (2) Whether the guarantee provided by the State Government to State owned companies against guarantee commission, is taxable under GST ? |
(1) Service by way of transmission of distribution of electricity by an electricity transmission or distribution utility is exempt from GST under notification No. 12/2017-CT (R), Sl. No. 25. The other services such as, – i. Application releasing fee connection electricity; ii. Rental Charges against metering equipment; etc.; for of iii. Testing fee for meters / transformers, capacitors iv. Labour charges from customers for shifting of meters or shifting of service lines; v. Charges for duplicate bill; provided by DISCOMS to consumer are taxable. (2) The service provided by the Central Government / State Government to any business entity including PSUs by way of guaranteeing the loans taken by them from financial institutions against consideration in any form including Guarantee Commission is taxable. |
11. From the above, it would appear that the exemption granted in favour of the transmission or distribution licensee, though had been recognised, other services attached there to have been clarified as taxable. Prima facie the aforesaid clarification cannot be treated to be a clarification of the notification issued under Section 11(1) of the said Act, since the circular is an independent document and has not been introduced by way of an explanation to exemption notification issued under Section 11(1) of the said Act. Apart from the fact that the aforesaid clarification has not been issued in conformity with Section 11(3) of the said Act, it would also appear from Section 8 of the said Act that tax liability on composite or mixed supply shall be determined in the manner provided in the said Act. As per the petitioner’s contention the supply of service of distribution of electricity is covered by clause (a) of Section 8 of the said Act, in as much the ancillary works/supplies are subordinate to the principal supply of distribution of electricity and cannot be independently executed, all works/services/supplies have to be done in combination with one another, thus, making the same a composite service. Admittedly, the above circular dated 1st March, 2018 to the extent provided in paragraph 4.1 thereof, has been declared ultra vires to the provisions of Section 8 of the said Act as well as the notification no. 12/2017 CT (R), Serial No. 25, by the Hon’ble High Court of Gujarat, the Hon’ble High Court of Delhi and by the Hon’ble High Court of Rajasthan.
12. Having regard to the aforesaid, I am of the view that the petitioner having made a prima facie case and having raised a jurisdictional issue, is entitled to interim protection. However, taking into account the fact that the show cause notice has already been issued, and the final decision is yet to be taken, at this stage, it would be prudent to direct the petitioner to participate in the said proceeding. However, no final order shall be passed on the basis of the aforesaid show cause notice without leave of this Court. The above interim order shall continue till the end of August 2024 or until further order whichever is earlier.
13. Let affidavit-in-opposition be filed within a period of 4 weeks from date. Reply, if any, be filed within 2 weeks thereafter.
14. Liberty to mention after expiry of the period for exchange of affidavits.
15. All parties to act on the basis of the server copy of this order duly downloaded from this Court’s official website.
(Raja Basu Chowdhury, J.)
References:
1 (2019) 101 Taxmann.com 303 (Gujarat)
2 (2022) 136 Taxmann.com 396 (Rajasthan)
3 (2023) 157 taxmann.com481 (Delhi)
Original judgment copy is available here.