Madras High Court Directs GST Department to Defer Inquiry into TANTRANSCO Tax Liability
The Madras High Court recently issued a directive to the Goods and Services Tax (GST) department, instructing them to postpone inquiry proceedings regarding four show-cause notices alleging a tax liability of Rs 1,100 crore against the Tamil Nadu Transmission Corporation (TANTRANSCO) for the financial years spanning from 2017 to 2021.
Justice Krishnan Ramasamy presided over the case while considering the petitions filed by TANTRANSCO that contested both the validity of the notices and the ongoing inquiry processes.
Senior counsel representing TANTRANSCO argued that the power transmission system operator plays a crucial role in transmitting generated electricity throughout Tamil Nadu, as governed by The Electricity Act, 2003. Notably, these activities were exempt from service tax prior to the implementation of the GST regime.
Following the introduction of GST in 2017, the GST department conducted an audit assessment, resulting in the issuance of four show-cause notices for the financial years post-GST implementation, claiming a substantial tax liability of Rs 1,100 crore. The counsel pointed out that these notices are allegedly in violation of Section 65 of the CGST Act, 2017, along with Rule 101 of the CGST Rules, 2017. The basis of these notices stemmed solely from observations made by the audit team, which cited the inward supply of goods as capital assets belonging to the power transmission system operator.
The GST department’s demands for tax were founded on the premise that these goods represented consideration for the supply, which the counsel contended formed the cornerstone of the tax claims. Additionally, he noted that TANTRANSCO is actively contesting the applicability of the GST Act through four separate writ petitions, warranting a deferral of the GST inquiry proceedings.
Further highlighting the complexities surrounding the electricity sector, the counsel emphasized that electricity is a unique commodity. Its invisible and intangible nature, coupled with the inherent dangers of its handling, necessitates instantaneous transmission and consumption. Consequently, he argued that the sale and consumption of electricity fundamentally falls under the jurisdiction of state authorities, as outlined in Entry 53 of List II. He concluded that activities related to electric generation, transmission, and distribution should not be liable to indirect taxes.