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HC Strikes down Circular, extends exemption to services related to electricity transmission/distribution
HC strikes down Circular No.34/8/2018-GST dated March 1, 2018 to the extent the same provides that activities related with transmission and distribution of electricity, such as application fee, testing fee, labour charges for shifting meters, etc. are taxable and not covered by Exemption Notification No. 12/2017-CT(R), Sl. No. 25; States that, from very manner in which Revenue treated said related services during pre-negative list regime, such services would stand covered by exemption granted to transmission and distribution of electricity by virtue of inclusion of such services in list of negative services u/s 66D (k) of the Finance Act as well as exemption notification issued under CGST Act; Refers to Circular No.131/13-2010-ST dated December 7, 2010 vide which Govt. clarified that an activity, which is an essential activity having direct and close nexus with transmission and distribution of electricity would be covered by exemption for transmission and distribution of electricity extended under relevant notifications; Explains that circular only provides an interpretation of when a service would stand included in another service which would not change merely because such exemption is now granted under some other provision; Consequently, services which stood included within ambit of transmission and distribution of electricity during pre-negative list regime cannot now be excluded by merely issuing a clarificatory circular, that too, with retrospective effect, stated HC while elucidating that “all these services are essential activities which have a direct and close nexus with transmission and distribution of electricity”; Referring to relevant provisions of Electricity Act, states that, providing electric line and electric plant are elements of service which are naturally bundled in ordinary course of business, with single service of transmission and distribution of electricity which gives bundle its essential character; Moreover, a perusal of Gujarat Electricity Regulatory Commission Regulations, 2005 (GERC Regulations) indicates that services sought to be taxed now are services, which assessee is required to mandatorily provide at rate prescribed by GERC, a statutory authority constituted under provisions of Electricity Act, further asserts that Revenue having themselves considered said services as exempt, cannot now take a U-turn without pointing out any specific change in exemption nature (except that they are provided under different statutory provisions); Further, accepts assessee’s alternative argument that, such services would fall within ambit of ‘bundled services’ contemplated u/s 66F (3) of Finance Act and “composite service” defined u/s 2 (30) of CGST/SGST Act, and, therefore, liable to be taxed at rate of principal supply while observing that, “term taxability would take within its sweep not being taxable also inasmuch as liability to taxation would also mean not being liable to any tax” : Gujarat HC
The judgement was delivered by Justice Harsha Devani and Justice A.P. Thaker
Mr. SN Soparkar along with Mr. Uchit N Sheth appeared on behalf of assessee, while Revenue was represented by Mr. Jaimin A. Gandhi and Mr. Ankit Shah.