Tamil Nadu Generation And Distribution Corporation Ltd. – 2021 (53) G.S.T.L. 137 (App. A.A.R. – GST – Tamil Nadu)

All the supplies made in relation to distribution of electricity are not exempt under GST

Facts: The Appellant and M/s Tamil Nadu Transmission Corporation Limited (“TANTRANSCO”) are two subsidiary companies of M/S Tamil Nadu Electricity Board Limited (“holding Company” or “TNEB”), 100% owned by Government of Tamil Nadu. The Appellant is in the service of generation and distribution (sale of) electricity in the state of Tamil Nadu and TANTRANSCO is in the business of transmission of electricity.

The Appellant and TANTRANSCO entered into transactions between them in the course of generation, transmission and distribution of electricity in State of Tamil Nadu. The Appellant contends that the various services extended to TANTRANSCO constitute distribution services. The Appellant also contends that all items/activities forming the value chain in relation to transmission and distribution of electricity are beyond purview of GST.

The Appellant aggrieved by the ruling passed by the AAR, Tamil Nadu filed the present appeal. The AAR, Tamil Nadu held that, the Appellant is liable to pay GST on the ‘supply of goods’ operation and maintenance materials used in the regular day to day functioning, transfer of capital assets to TANTRANSCO and on the deployment of employees to TANTRANSCO. Further, the exemption under Sl. No. 25 of Notification No. 12/ 2017-Central Tax (Rate) dated June 28, 2017  is not applicable to such transactions between the Appellant and TANTRANSCO.

Issue: Whether the entire value chain of electricity and transmission distribution are beyond the purview of GST under the Constitution of India?

Held: The AAAR, Tamil Nadu held as under: 

  • Noted that, electricity duty is a tax on consumption or sale of electricity and is levied under entry 53 of Part-II State list of Schedule 7 of the Constitution of India. Therefore, the Constitution leaves out only tax on consumption for sale of electricity from the purview of GST.
  • Observed that, as per Section 2(17) of the Electricity Act, 2003 which defines distribution licensee (which is the Appellant in our case), distribution can only be received by customers of electricity in the area of supply and not to another entity. Operation and maintenance of a distribution system is only a process for delivery of the supply of electricity.
  • Held that, the Appellant is indisputably a generation company and a distribution utility, TANTRANSCO on the other hand is a transmission utility. However, distribution service can be supplied only to consumers in the area of supply of the licensee, and therefore, the services extended by the Appellant to TANTRANSCO cannot constitute distribution service. Thus, the Appellant is not exempt under Sl. No. 25 of Services Exemption Notification.


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