Gujarat High Court Eliminates GST on ancillary Services of Discoms such as Meter Rent, Connection Charge, Shifting Charge etc. Squashed the Circular issued by CBIC.

Gujarat Highcourt Squashes the Ultra vires circular issued by GST for Tax on ancillary services of Discoms such as
Meter Rent, Application fees for New connection, Connection Shifting Charges.

Facts of the case:

CBIC had issued Circular 34/2018 dated 1st March 2018 clarifying GST in respect of ancillary services of Discoms. The circular in Para 4 clarified following:

(1) Service by way of transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST under notification No. 12/2017- CT (R), Sl. No. 25. 

However, The other services such as, - 
i. The application fee for releasing the connection of electricity; 

ii. Rental Charges against metering equipment; 

iii. Testing fee for meters/ transformers, capacitors etc.; 

iv. Labour charges from customers for shifting of meters or shifting of service lines;

v. charges for a duplicate bill; provided by DISCOMS to a consumer are taxable

Subsequently, the Directorate General of Goods and Service Tax Intelligence (DGGI), issued summons to the petitioner requiring them to submit details relating to charges as mentioned in the impugned circular for all years commencing 2012-13. Service tax and GST was proposed to be levied on such charges. 

Aggrieved, Torrent Power ltd. filed a Writ Petition before the Gujarat High Court (HC).

Held:

• Referring to the Circular dated 7 December 2010 issued under Service tax, the HC observed that the reason for saying that supply of electricity meters for hire to consumers was covered by the exemption notification was that such service was an essential activity having direct and close nexus with transmission and distribution of electricity.

• The meaning of ‘transmission and distribution of electricity’ does not change either for the negative list regime or the GST regime.

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

• All these services are essential activities which have a direct and close nexus with transmission and distribution of electricity

• Where the services are naturally bundled in the ordinary course of business and the single service which gives such bundle its essential character is exempt from tax, the entire bundle will have to be treated as provision of such single service (and thus will be exempt).

• In the given case, the related supplies cannot be supplied separately. They are dependent on the principal supply of transmission and distribution of electricity and vice versa. Transmission and distribution of electricity cannot be done without the help of electric line, electric plant, and electric meter, nor can the related services be used for any purpose other than for transmission and distribution of electricity. The principal supply and the related/ ancillary services go hand in hand and one cannot be provided independent of the other.

• The HC, thus, struck down paragraph 4(1) of the impugned Circular No.34/8/2018-GST dated 1 March 2018 as being ultra vires the provisions of section 8 of the CGST Act, 2017 as well as serial No.25 of Notification No.12/2017- CT (Rate). This has resulted in the following:

GST on the following services shall not be applicable as of now:

1. Application fees for Connection
2. Meter Rent
3. Testing fees for meter/transformer etc.
4. Labor charges for shifting Meter or service line
5. Duplicate bill charges
6. And any other ancillary service which is closely related to the provision of Electricity Service. 

• HC declined Revenue’s request to stay the operation of the judgment for eight weeks so as to enable them to approach the higher forum.

Copy of Judgement