GST demand on electricity regulator's sovereign regulatory fees quashed, functions held outside scope of Section 7 supply

The HC quashed the impugned order and show cause notice issued to the State Electricity Regulatory Commission regarding levy of GST on its activities and regulatory fees. Relying on the reasoning adopted in an analogous matter concerning other electricity regulatory commissions, the HC held that the Commission's regulatory and adjudicatory functions under the Electricity Act are integral sovereign and quasi-judicial functions concerning regulation of a natural resource. Such functions do not constitute a "supply" under GST law, rendering the demand and proceedings unsustainable. The writ petition was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the activities of a State Electricity Regulatory Commission, including levy and collection of regulatory fees, constitute "supply" in the course or furtherance of "business" so as to attract liability to tax under the CGST/SGST enactments.

1.2 Whether a State Electricity Regulatory Commission is a "tribunal" whose services are excluded from the ambit of "supply" by virtue of Schedule III to the CGST Act.

1.3 Whether the show cause notice and demand/order of assessment demanding GST from a State Electricity Regulatory Commission are sustainable in law in light of the binding precedent of another High Court, affirmed by the Supreme Court, on an identical issue concerning Electricity Regulatory Commissions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Taxability of functions/fees of an Electricity Regulatory Commission under CGST/SGST and applicability of Schedule III exclusion

Legal framework (as noticed and applied by the Court through the Delhi High Court judgment):

2.1 The charging provision (Section 9 of the CGST Act) levies central goods and services tax on all intra-State "supplies" of goods or services or both, to be paid by the taxable person.

2.2 Section 7 of the CGST Act defines "scope of supply", including: (a) all forms of supply of goods or services or both for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration; and (c) certain specified activities in Schedule I even without consideration. Sub-section (2) excludes from "supply" activities specified in Schedule III and notified public-authority activities of Government and local authorities.

2.3 Schedule II specifies activities treated as supply of goods or services (e.g., transfer of title in goods, renting of immovable property, certain construction, IPR licensing, IT software services, specified composite supplies).

2.4 Schedule III lists activities treated neither as supply of goods nor as supply of services. It expressly includes "services by any court or Tribunal established under any law for the time being in force".

2.5 The decision in PTC India Ltd. v. Central Electricity Regulatory Commission, as quoted and relied upon in the Delhi High Court judgment, characterises Electricity Regulatory Commissions as quasi-judicial bodies performing decision-making, adjudicatory, and regulation-making functions, having the trappings of a tribunal.

2.6 Section 2(17) of the CGST Act defines "business" expansively to include trade, commerce, manufacture, profession, vocation, adventure, wager or similar activity, ancillary or connected activities, and specified club, admission, and Government public-authority activities, but not activities of bodies such as Electricity Regulatory Commissions.

2.7 Section 2(31) defines "consideration" to mean payments or monetary value of acts/forbearances in respect of, in response to, or for the inducement of, a supply of goods or services or both, excluding Government subsidies.

2.8 Section 2(102) defines "services" as anything other than goods, money, and securities, which definition is to be read with Schedule III exclusions.

2.9 A GST rate notification dated 28 June 2017 classifies certain services, including "Support services to electricity, gas and water distribution" under Group Heading 99863, but such notification operates within, and cannot expand or curtail, the statutory scheme and exemptions in the CGST Act and its Schedules.

Interpretation and reasoning (as adopted by the Court):

2.10 The Court, relying on and following the detailed analysis of the Division Bench of the Delhi High Court in respect of Central and Delhi Electricity Regulatory Commissions, treats State Electricity Regulatory Commissions as analogous quasi-judicial regulatory bodies with all the trappings of a tribunal.

2.11 On the concept of "supply": the regulatory and adjudicatory functions discharged by an Electricity Regulatory Commission (tariff regulation, licensing, regulation of transmission, etc.) are not any of the activities listed in Schedule II, nor shown to fall under the specific categories of supply identified by Section 7(1)(a), (aa), (b), or under Schedule I.

2.12 The attempt by the tax authorities to bifurcate the Commission's functions into "adjudicatory" (claimed to be excluded) and "regulatory" (claimed to be taxable) is rejected. Schedule III excludes "services by any court or Tribunal" in broad and unqualified terms, and the Electricity Regulatory Commission, being a quasi-judicial tribunal as recognised in binding precedent, falls within this exclusion for all its functions.

2.13 On "business": the statutory power to regulate under the Electricity Act, exercised by such Commissions, cannot be characterised as "trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity" as enumerated in Section 2(17)(a). Nor do the other clauses of Section 2(17) apply, as they address different kinds of entities and activities (e.g., clubs, admission to premises, race clubs, or Government/local authority public-authority activities).

2.14 A Commission constituted under the Electricity Act is not the Central Government, State Government, or a "local authority" within Section 2(69), and therefore does not fall under Section 2(17)(i). Accordingly, its regulatory functions are not "business" within the meaning of the Act.

2.15 On "consideration": even if the fees received by the Commission are assumed to be "payments", they are not shown to be in respect of, in response to, or for the inducement of any commercial "supply" of goods or services in the course or furtherance of business. They are statutory fees linked to the discharge of quasi-judicial/regulatory functions, not to an underlying taxable "supply" as contemplated by Section 7 read with Sections 2(17) and 2(31).

2.16 The broad statutory definition of "services" as "anything other than goods" (Section 2(102)) must be read subject to Schedule III, which is an integral part of the principal legislation. Hence, services rendered by a court or tribunal, including Electricity Regulatory Commissions, remain outside the scope of taxable "supply" notwithstanding the wide wording of "services".

2.17 Notifications under the GST regime, including the 28 June 2017 classification of "Support services to electricity, gas and water distribution" under Heading 99863, cannot expand the scope of the parent Act or nullify the express exclusion of "services by any court or Tribunal" in Schedule III. Such notifications operate within, not beyond, the statutory boundaries.

Conclusions on Issues 1 & 2:

2.18 The regulatory and adjudicatory functions of a State Electricity Regulatory Commission, including receipt of statutory fees in connection therewith, do not constitute "supply" in the course or furtherance of "business" under Section 7 read with Section 2(17) and 2(31) of the CGST Act.

2.19 A State Electricity Regulatory Commission, having the trappings of a tribunal, falls within the exclusion for "services by any court or Tribunal" under Schedule III to the CGST Act; its functions, including regulatory activities and licensing, are therefore outside the ambit of GST.

2.20 The assumption of jurisdiction by the tax authorities to subject such regulatory fees to GST is ex facie unsustainable, arbitrary, and contrary to the statutory scheme and Schedule III exclusion.

Issue 3: Sustainability of the show cause notice and demand/order in light of binding precedent

Legal framework and context:

3.1 The Delhi High Court, in writ petitions concerning Central and Delhi Electricity Regulatory Commissions, had quashed comparable show cause notices and an Order-in-Original seeking to levy GST on their regulatory activities and fees, on the above reasoning under the CGST Act and the Electricity Act.

3.2 The Supreme Court, in Special Leave Petition (Civil) Diary No. 32626/2025 filed by the Revenue against the Delhi High Court's decision, condoned delay but dismissed the Special Leave Petitions, thereby leaving the Delhi High Court's judgment undisturbed.

Interpretation and reasoning:

3.3 The Court notes that the factual and legal matrix governing the Karnataka Electricity Regulatory Commission is "similar and identical" to that of the Commissions considered by the Delhi High Court: same statutory framework under the GST laws; similar nature of regulatory and adjudicatory functions; similar basis of demand of GST on regulatory fees.

3.4 In view of the Delhi High Court's detailed exposition of the CGST Act, Schedule II, Schedule III, definitions of "supply", "business", "consideration", and the status of Electricity Regulatory Commissions as tribunals, and the Supreme Court's refusal to interfere, the Court treats that reasoning as directly applicable and binding in substance to the present controversy.

3.5 On parity of reasoning and in order to maintain consistency in the interpretation and application of the CGST/SGST enactments, the impugned show cause notice and post-decisional order demanding GST from the State Commission cannot be sustained.

Conclusions on Issue 3:

3.6 In light of the Delhi High Court's judgment, affirmed by the Supreme Court, on an identical issue concerning Electricity Regulatory Commissions, the impugned show cause notice and consequential demand/order against the State Electricity Regulatory Commission are illegal and without jurisdiction.

3.7 The writ petition is allowed; the impugned show cause notice and the impugned order demanding GST from the Commission are quashed.

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