Himachal Pradesh HC To Decide If 12% Free Power Supply To States By Hydro Power Projects Can Be Subjected To GST, Stays 1000+ Cr. Demand Against NHPC

The Himachal Pradesh High Court is set to decide whether free power supply of 12% to the States where distress is caused by hydro power projects, can be subjected to Service Tax or GST.

Meanwhile, Division bench of Chief Justice M.S. Ramachandra Rao and Justice Satyen Vaidya has stayed the demand made by the Additional Commissioner of CGST Department on the National Hydroelectric Power Corporation Private Limited.

Total liability is more than Rs. 1000 crores in respect of power stations run by NHPC in Himachal Pradesh and in other States is imposed.

The High Court prima facie agreed with NHPC that when its predecessor Central Excise Department had dropped the demand of service tax proposed against NHPC on the ground that the supply of 12% free power is in form of “compensation”, the CGST Department cannot take a “diametrical opposite view”.

“Prima facie, we find force in the contentions of the petitioner that GST is levied on supply of goods and services in lieu of “consideration”; that there a serious doubt as to whether the supply of free electricity is in the nature of “ consideration” at all in order to subject it to GST or it is a “compensation” for distress caused by setting up of the Hydro electric Project ; and that the respondents cannot impose GST on free electricity provided by the petitioner by treating the same as “consideration” towards the alleged services provided by the State Government as a supplier,” it said.

The Department had argued that supply of free power is nothing but “consideration” towards licensing services rendered by the State Governments.

NHPC on the other hand contended that free supply is akin to “compensation” because distress is caused by setting up the hydroelectric project and the same cannot be treated as royalty.

Department had also questioned the maintainability of the petition since demand in relation to other States is also involved in the matter.

However, Court held that since part cause of action has arisen in Himachal Pradesh, in as much as NHPC has a registered office there and impugned demand includes more than Rs.100 crores alleged liability to Himachal Pradesh government, it has territorial jurisdiction.

The matter is next listed on November 18.

“Taking into account the fact that the petitioner is a Government Company and huge liability is imposed on it by the respondents, though another department i.e., Central Excise Department of the Government, has taken a diametrical opposite view as mentioned above, pending further orders, there shall be interim stay of all further proceedings pursuant to Annexure P-1, dt. 14.06.2024,” Court ordered.

Appearance: Advocates BL Narasimhan, Shreya Khunteta, Amrinder Singh, Shradha Karol and Vaibhav Chauhan for NHPC; Advocates Sunish Bindlish, Ridhi Bansal, Sidhi Bansal, Vishal Singh Thakur and Lalita Sharma for CGST Commissionerate

Case title: NHPC Ltd. Vs. Principal Commissioner, CGST and Ors.

Case no.: CWP No. 10471 of 2024

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