2024 (8) TMI 634 - HC - GST

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 ... Challenge to SCN issued u/s 74 of the CGST Act, 2017 - exemption of Central Tax for electricity services - Serial no. 25 of the notification dated 28th June, 2017 - HELD THAT:- Admittedly, in this case it is noticed that the respondent no.1 has proceeded to invoke the provisions of Section 74 of the said Act by placing reliance on a circular dated 1st March, 2018. It is, however, an admitted position that the petitioner is a distribution licensee within the meaning of the Indian Electricity Act, 2003 and it is otherwise entitled to the benefit of the notification dated 28th June, 2017. It would appear from the said notification that the same had been issued in terms of Section 11 (1) of the said Act whereunder the Central Government has exempted the intra-State supply of service of description specified in column (3) of the Table to the said circular and under serial number 25, column 3, transmission or distribution of electricity by an electricity transmission or distribution utility had been notified. The exemption granted in favour of the transmission or distribution licensee, though had been recognised, other services attached thereto have been clarified as taxable. Prima facie the aforesaid clarification cannot be treated to be a clarification of the notification issued under Section 11 (1) of the said Act, since the circular is an independent document and has not been introduced by way of an explanation to exemption notification issued under Section 11 (1) of the said Act - Admittedly, the circular dated 1st March, 2018 has been declared ultra vires to the provisions of Section 8 of the said Act as well as the notification no. 12/2017-CT (R). The petitioner having made a prima facie case and having raised a jurisdictional issue, is entitled to interim protection. However, taking into account the fact that the show cause notice has already been issued, and the final decision is yet to be taken, at this stage, it would be prudent to direct the petitioner to participate in the said proceeding. However, no final order shall be passed on the basis of the aforesaid show cause notice without leave of this Court Liberty to mention after expiry of the period for exchange of affidavits. 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.