The Gujarat High Court (Ahmedabad Bench) clarified that the payment of road restoration charges to the municipal corporation, being in fulfilment of a statutory obligation under Section 67(3) of the Electricity Act, 2003, of maintaining public roads, cannot be treated as ‘deemed consideration’ for any service sought or availed.
The Division Bench comprising Justice Bhargav D Karia and Justice Pranav Trivedi observed that the petitioner’s (licensed electricity distributor) act of paying road restoration charges to the Ahmedabad Municipal Corporation (AMC) was in fulfilment of a statutory obligation and not in consideration for any services sought or availed.
Speaking for the Bench, Justice Karia pointed out that the AMC was not ‘tolerating’ any act for consideration but merely performing its sovereign function of maintaining public roads, a duty clearly falling under Article 243W and Entry 4 of the 12th Schedule of the Constitution. Accordingly, the Bench rejected the applicability of Clause 5(e) of Schedule II and held that no “supply” occurred under Section 7(1) of the GST Act.
Discarding the reliance placed by the Department on circulars related to liquidated damages, breach of contract, or service tax regime, the Bench concluded that the restoration of roads by a municipal body in its constitutional capacity cannot be taxed merely because the cost was reimbursed by a business entity. Thus, the Bench quashed the show-cause notice as well as the order passed by the Adjudicating Authority.
Briefly, the dispute arose from the petitioner’s (a licensed electricity distribution company) act of digging public roads maintained by the Ahmedabad Municipal Corporation (AMC) for maintenance and installation of electric distribution infrastructure. Since AMC recovered restoration charges from the petitioner for repairing the roads, the GST department sought to levy GST on these payments under the reverse charge mechanism.
The petitioner contended that such reimbursements were not for any taxable supply of service but made in discharge of its statutory obligation under Sections 42 and 67 of the Electricity Act, 2003. It was argued that the AMC was discharging a sovereign function as per Article 243W of the Constitution, and such activities were exempt from GST or were not a “supply” within the meaning of Section 7 of the GST Act. The respondent Department contested that the activity constituted a taxable supply under Section 7(1) read with Schedule II, Clause 5(e) of the GST Act, to support the chargeability of tax.
Case Distinguished:
Balmer Lawrie & Co. Ltd vs. Partha Sarathi Sen Roy – (2013) 8 SCC 345
Appearances:
Senior Advocate S N Soparkar and Advocate Uchit N Sheth, for the Appellant/ Taxpayer
Advocate Hetvi H Sancheti, for the Respondent/ Revenue
