The Himachal Pradesh High Court was of the prima facie view that the department cannot impose GST on free electricity provided by NHPC.
The bench of Chief Justice M.S. Ramachandra Rao and Justice Satyen Vaidya has observed that GST is levied on supply of goods and services in lieu of “consideration”. There a serious doubt as to whether the supply of free electricity is in the nature of “consideration” at all in order to subject it to GST or it is a “compensation” for distress caused by setting up of the Hydro electric Project ; and that the respondents cannot impose GST on free electricity provided by the petitioner by treating the same as “consideration” towards the alleged services provided by the State Government as a supplier.
Background
The petitioner/assessee, NHPC is in the business of power generation and is registered with various States GST Authorities including the State of Himachal Pradesh, vide different GSTINs. It had entered into agreements with various State Governments including the State of Himachal Pradesh, for establishing and running power generation projects in the State. Under the agreements, as compensation towards causing distress to the environment and people involved due to the setting up of the power projects, the petitioner provides 12% of the power generated, free of cost to the State Governments and 1% free power to the Local Area Development Fund.
Just as host State Governments have been turned into stake-holders by stipulating that 12% of the power is given to them free of cost as a royalty, there is a need to turn the project affected areas and persons also into stake holders with a continuing stake not only in the completion but also in the continued operation of the projects.
As per Hydropower Policy, 2008, the National Policy of Rehabilitation and Resettlement, 2007 would be applicable to all kinds of projects and lays down the minimum R and R package, but there is a need to go beyond this in case of hydro projects.
In view of the use of word ‘royalty’ in the clause, the issue has arisen both under the Finance Tax Act, 1994 providing for levy of service tax as also under the GST Act as to whether supply of 12% free power as compensation to the respective states where distress is caused by setting up the hydro power projects , can be subjected to Service Tax or GST.
A show cause notice was issued to 13 GSTINs of the NHPC across the country demanding service tax amounting to more than Rs. 72 crores alongwith interest and penalty after invoking the extended period of limitation under Section 73(1) of Finance Act, 1994.
The Additional Director Genera l(Adjudication) adjudicated the show cause notice and dropped the demand of service tax proposed against the petitioner on the ground that the supply of 12% free power is in form of “compensation” in view of the power sharing letter and the arrangement between the State Governments and the petitioner for sharing of benefits.
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it was concluded by the Department that the 12% free power supplied by the petitioner to the respective States is akin to compensation because distress is caused by setting up the hydroelectric project and the same cannot be treated as royalty.
The petitioner contended that since the respondents dealing in GST are also under the same Ministry of Finance like the erstwhile Central Excise Department, which deals with service tax issues , it is not open to the respondents to take a different stand when it comes to levy of GST.
The petitioner argued that the order was passed without jurisdiction and there is colorable exercise of power by seeking to tax an otherwise exempt supply by treating it as a “consideration”, when in fact it is in the nature of “compensation” to the damage caused to the environment.
Conclusion – Grants Interim Stay To NHPC
The court noted that the NHPC is a Government Company and huge liability is imposed on it by the respondents, though another department i.e., Central Excise Department of the Government, has taken a diametrical opposite view, pending further orders, there shall be interim stay of all further proceedings.
The court listed the matter on 18.11.2024.
Case Title: NHPC Ltd. Vs. Principal Commissioner, CGST and Ors.
Case No.: CWP No. 10471 of 2024
Date: 20/09/2024
Counsel For Petitioner: B.L. Narasimhan, Shreya Khunteta, Amrinder Singh, Shradha Karol and Vaibhav Chauhan
Counsel For Respondent: Sunish Bindlish, Advocate with Ridhi Bansal, Sidhi Bansal, Vishal Singh Thakur and Lalita Sharma
