Composite supply principle protects ancillary electricity charges from separate tax treatment under the exemption scheme.

A writ petition was maintainable because the summons was issued on the basis of the challenged circular and effective relief had to be tested against that circular itself. On taxability, charges such as application fee, meter rent, testing fee and similar ancillary amounts linked to transmission and distribution of electricity were held to be naturally bundled with the exempt principal supply. The court applied the principle that naturally bundled services take the character of the main service under the earlier regime, and that a composite supply is taxed according to the principal supply under GST. The circular could not sever those ancillary services from the exempt supply and treat them as taxable.

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Issues: (i) Whether a writ petition was maintainable when the impugned summons was issued on the basis of the challenged circular; (ii) whether charges such as application fee, meter rent, testing fee and similar ancillary charges connected with transmission and distribution of electricity were exempt in the negative list regime and under GST, and whether the impugned circular could validly treat them as taxable.

Issue (i): Whether a writ petition was maintainable when the impugned summons was issued on the basis of the challenged circular.

Analysis: The summons was founded on the impugned circular and sought details only in relation to the services treated as taxable by that circular. The challenge was therefore directed primarily to the circular, with the summons constituting an ancillary consequence. A statutory authority bound by the circular could not grant effective relief against it, and the availability of summons-related objections did not bar writ jurisdiction.

Conclusion: The petition was maintainable.

Issue (ii): Whether charges such as application fee, meter rent, testing fee and similar ancillary charges connected with transmission and distribution of electricity were exempt in the negative list regime and under GST, and whether the impugned circular could validly treat them as taxable.

Analysis: The Court held that the statutory duty under the Electricity Act required the distributor to provide electric line, electric plant and related facilities as part of the supply arrangement, and that these activities were naturally bundled with transmission and distribution of electricity. The earlier departmental clarification treated meter-related services as covered by the exemption because they had a direct and close nexus with the exempt main supply. That character did not change merely because the tax regime shifted from pre-negative list to negative list and then to GST. Under section 66F(3) of the Finance Act, 1994, naturally bundled services take the character of the single service giving the bundle its essential character. Under section 8 of the Central Goods and Services Tax Act, 2017, a composite supply is taxed as the principal supply. The Court further held that the impugned circular could not convert such bundled or composite services into taxable supplies by severing them from the exempt principal supply.

Conclusion: The ancillary charges were held to be covered by the exempt principal supply of transmission and distribution of electricity, and the circular, to the extent it treated them as taxable, was unsustainable.

Final Conclusion: The petition succeeded in part, the impugned clarification was struck down to the extent inconsistent with the exemption for transmission and distribution of electricity, and consequential proceedings based on that clarification were set aside to the extent indicated.

Ratio Decidendi: Where ancillary services are statutorily required, naturally bundled, and have a direct and close nexus with an exempt principal supply, they must be treated as part of that principal supply for tax purposes and cannot be isolated and taxed by a circular contrary to the governing exemption scheme.

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