Delhi HC strikes down GST circular on electricity distribution, rules metering and billing charges exempt from GST

The Delhi HC set aside Circular No. 34/8/2018-GST dated 01.03.2018 regarding GST exemption on electricity distribution activities. The court held that charges for metering equipment, testing fees, labor charges for meter shifting, and billing charges constitute bundled supplies forming an integral part of electricity distribution under the Electricity Act, 2003, and are therefore not chargeable to GST. The court directed petitioners to refund any GST collected from customers after 08.11.2023, recognizing that requiring court deposits would complicate Input Tax Credit entitlements for industrial consumers.

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Issues Involved:
1. Validity of the clarification issued in para 4(1) of Circular No. 34/8/2018-GST dated 01.03.2018.
2. Exemption of charges such as application fee, meter rent, testing fee, etc., under GST.
3. Applicability of the impugned circular prospectively.

Summary:

Issue 1: Validity of the Clarification in Para 4(1) of Circular No. 34/8/2018-GST
The petitioners challenged the clarification that certain charges collected by electricity distribution utilities are taxable under GST as per Circular No. 34/8/2018-GST dated 01.03.2018. The Court noted the Gujarat High Court's decision in Torrent Power Ltd. v. Union of India, which struck down the impugned circular as ultra-vires to Section 8 of the CGST Act and Notification No. 12/2017-CT (R). The Delhi High Court concurred with this decision, thereby invalidating para 4(1) of the circular.

Issue 2: Exemption of Charges Under GST
The petitioners contended that charges such as application fee, meter rent, testing fee, etc., are integral to the distribution of electricity and should be exempt from GST. The Court referenced the Gujarat High Court's ruling, which classified these as composite supplies related to the principal supply of electricity distribution, thus exempt from GST. The Court directed that any GST collected post-08.11.2023 be refunded to customers.

Issue 3: Applicability of the Impugned Circular Prospectively
The petitioners argued that the impugned circular should apply prospectively. However, since the circular was set aside, the Court directed that the petitioners are not entitled to collect GST on the specified charges, and any collected GST must be refunded to the customers.

Final Directions:
The Court directed the petitioners to refund any GST collected from customers post-08.11.2023 and clarified that customers retain the right to seek refunds for GST paid prior to this date. The petition was disposed of with these directions, and the scheduled hearing on 08.01.2024 was cancelled.

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