Distribution licensee gets interim protection against Section 74 CGST notice for electricity services exemption dispute

The HC granted interim protection to a distribution licensee challenging a SCN issued under Section 74 of CGST Act, 2017. The petitioner claimed exemption for electricity services under notification dated 28th June, 2017. The court found that respondent relied on a circular dated 1st March, 2018, which was declared ultra vires to Section 8 and notification no. 12/2017-CT(R). The HC held that the circular cannot clarify the exemption notification issued under Section 11(1) as it is an independent document. The petitioner established a prima facie case and jurisdictional issue, warranting interim protection. The court directed participation in proceedings but prohibited final orders without court leave.

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Issues:
Challenge to show cause under Section 74 of CGST Act, 2017 regarding exemption of Central Tax for electricity services; Validity of clarification issued by Central Government; Invocation of extended period of limitation under Section 74; Treatment of services as mixed supply for tax levy; Relevance of judgments from High Courts of Gujarat, Rajasthan, and Delhi; Prima facie case for interim protection; Jurisdictional issue raised by petitioner.

Analysis:
The petitioner, engaged in electricity services in West Bengal, challenged a show cause notice invoking Section 74 of the CGST Act, 2017, seeking exemption from Central Tax for intra-state services under a specific notification. The petitioner argued that a clarification issued by the Central Government did not align with the Act's provisions, affecting the show cause validity. The petitioner contended that their services should not be considered a mixed supply for tax purposes, citing relevant sections and judicial precedents from Gujarat, Rajasthan, and Delhi High Courts that invalidated similar clarifications.

The Court noted that the petitioner, a distribution licensee entitled to exemption under a specific notification, faced a show cause invoking an extended limitation period based on a controversial clarification. The Court analyzed the clarification's content, which deemed certain services taxable despite the exemption for electricity transmission or distribution. It observed that the clarification did not conform to the Act's requirements and was declared ultra vires by several High Courts, highlighting a jurisdictional issue.

Considering the petitioner's prima facie case and jurisdictional concerns, the Court granted interim protection but required the petitioner to participate in the ongoing proceedings. It restrained any final decision based on the show cause notice without the Court's permission, ensuring the petitioner's rights were safeguarded until the case's conclusion or further orders. The Court directed the filing of affidavits within specified timelines and instructed all parties to adhere to the official order copy from the Court's website for further actions.

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