Gujarat HC Quashes Circular Levying GST On DISCOMS For Bundled Services [Read Judgment]

The bench comprising Justice Harsha Devani and Justice AP Thaker opined that since the principal supply of transmission and distribution of electricity is exempt from levy of service tax, the tax liability of the related services shall also be exempt.

"The services provided by the petitioner are in the nature of composite supply and therefore, in view of the provisions of clause (a) of section 8 of the CGST Act, the tax li- ability thereof has to be determined by treating such composite same as a supply of the principal supply of transmission and distribution of electricity. Consequently, if the principal supply of transmission and distribution of electricity is exempt from levy of service tax, the tax liability of the related services shall be determined accordingly," it observed.

The court was hearing a petition filed by Torrent Power Ltd, a public company engaged in the business of generation, transmission and distribution of electricity in the State of Gujarat.

The impugned clarification had specified that services through transmission or distribution by an electricity transmission or distribution utility is exempt from GST. Other services such as (i) application fee for releasing connection of electricity, (ii) rental charges against metering equipment; (iii) testing fees for meters/transformers, capacitors, etc.; (iv) labour charges from customers for shifting of meters or shifting of service lines; and (v) charges for duplicate bill; provided by the DISCOMS to consumers were clarified as being taxable.

The clarification had, therefore, sought to distinguish between the charges collected for consumption of electricity and other charges collected towards activities connected with the transmission and distribution of electricity.

Pursuant to this clarification, the Directorate General of Goods and Service Tax Intelligence had issued summons to the petitioner requiring it to submit details relating to charges as mentioned in the impugned circular right from the year 2012-13. Tax was proposed to be levied under the Finance Act as well as under the GST Acts on such charges.

The court, however, opined that the services which stood included within the ambit of transmission and distribution of electricity during the pre-negative list regime cannot now be sought be excluded by merely issuing a clarificatory circular, that too, with retrospective effect.

It further took objection to the distinction sought to be carved by the clarification, observing, "If the services are naturally bundled in the ordinary course of business, the bundle of services shall be treated as provision of the single service which gives the bundle its essential character and where the services are not naturally bundled in the ordinary course of business, the same is required to be treated as provision of the single service which results in highest liability of service tax.

The relevant part of the circular was therefore quashed. The operation of the judgment was, however, stayed for a period of eight weeks to allow the State to file an appeal.