Statutory Electricity Regulatory Commission Functions Are Quasi-Judicial and Outside the Scope of Taxable Supply

Statutory Electricity Regulatory Commission Functions Are Quasi-Judicial and Outside the Scope of Taxable Supply

Issue

Whether the statutory and regulatory functions performed by a State Electricity Regulatory Commission constitute a taxable “supply” liable to Service Tax and GST, or if they fall under the tax-exempt category of services provided by a court or tribunal under Schedule III.

Facts

• The petitioner is a State Electricity Regulatory Commission, established as a statutory body to discharge quasi-judicial and regulatory functions within the power sector.

• The Revenue department initiated tax proceedings to levy Service Tax and GST on the commission’s statutory operations and the regulatory fees it collects.

• For the pre-GST periods of 2016-17 and 2017-18, the department issued Demand-cum-Show Cause Notices (SCNs) under the Finance Act, 1994, which culminated in adverse adjudication orders.

• For the GST regime covering July 2017 to 2022-23, parallel adjudication proceedings were initiated, confirming GST liabilities on the petitioner’s activities.

• The Commissioner (Appeals) upheld these tax levies, prompting the Regulatory Commission to challenge the appellate orders by filing writ petitions before the High Court.

Decision

• Held, yes: The statutory functions performed by the electricity regulator are essentially quasi-judicial in nature, meaning they are not conducted in the course or furtherance of a commercial business.

• Held, yes: The regulatory fees collected by the commission lack the character of commercial “consideration” required to establish a taxable supply under the tax statutes.

• Held, yes: The activities of the commission fall squarely within the exclusions listed under Schedule III of the Central Goods and Services Tax (CGST) Act, which immunizes services rendered by courts and tribunals from tax liability.

• Held, yes: The Revenue department’s attempt to create an artificial bifurcation between the commission’s adjudicatory roles and its regulatory roles to enforce tax collection is legally impermissible.

• In favour of assessee: The High Court quashed the department’s assumption of jurisdiction, completely setting aside the impugned Show Cause Notices, initial adjudication orders, final orders, and the appellate orders.

Key Takeaways

• Statutory Regulatory Fees Are Non-Taxable: Sovereign or statutory fees collected by an independent regulatory body while enforcing compliance are not commercial payments for services, removing them from the definition of a business supply.

• Schedule III Protection Extends to Quasi-Judicial Bodies: The statutory exclusion provided to “courts and tribunals” under GST law extends to functional regulatory commissions that possess judicial powers to settle sector disputes.

• No Artificial Splitting of Public Duties: Tax authorities cannot dissect a statutory body’s interconnected public functions to claim that its regulatory work is commercial while its dispute resolution work is judicial.