Author: Ashwarya Sharma, Advocate & Co-Founder, RB LawCorp
Date: 13/02/2026
Introduction: When Regulation Is Mistaken for Revenue
Few debates under GST have generated as much conceptual confusion as the attempt to tax statutory or regulatory fees collected by bodies discharging sovereign functions.
At the heart of this controversy lies a foundational constitutional question:
Can the State, while exercising public regulatory power, be treated as carrying on “business” merely because a fee is prescribed by statute?
Recent decisions of the Delhi High Court and the Punjab & Haryana High Court — now attaining finality after dismissal of the department’s challenge by the Supreme Court — have answered this with clarity and constitutional discipline.
The answer is an emphatic No.
The Controversy Before the Courts
The GST department issued show cause notices to electricity regulatory commissions seeking to levy GST on:
- Tariff filing fees
- Licence fees
- ARR processing charges
The department argued that while adjudicatory functions may be excluded from GST, regulatory functions amount to “support services” rendered to utilities and are therefore taxable.
This reasoning effectively treated statutory regulation as a commercial service.
The courts rejected this construction.
The Fallacy: Stretching “Business” Beyond Recognition
The department relied on the expansive definition of “business” under Section 2(17) of the CGST Act and the definition of “consideration” under Section 2(31).
However, the mere existence of a statutory fee does not convert a sovereign duty into commercial activity.
Regulatory commissions:
- Do not choose their customers
- Do not negotiate consideration
- Do not operate in a competitive marketplace
- Do not function for profit
Fees are prescribed by law and collected in discharge of statutory obligations — not as revenue-generating activity.
Business vs Regulatory and Quasi-Judicial Functions
The courts drew a principled distinction between business activity and public regulatory power.
Business, even in its widest statutory meaning, presupposes activity analogous to trade, commerce, profession, or vocation.
Regulation is an exercise of delegated legislative and adjudicatory authority in public interest.
The attempt to artificially bifurcate adjudicatory and regulatory functions was rejected. Once an authority is recognised as a tribunal, its statutory functions cannot be selectively carved out to impose tax liability.
The Role of “Supply” and “Consideration”
Section 7 of the CGST Act requires that a taxable supply must be:
- For consideration; and
- In the course or furtherance of business
Even if regulatory fees were treated as consideration, the absence of “business” is fatal to the department’s case.
Further, Schedule III of the CGST Act excludes services rendered by a court or tribunal from the scope of supply. Subordinate legislation cannot override statutory exclusions.
Broader Implications
The significance of these rulings extends beyond electricity regulatory commissions.
The reasoning applies equally to:
- Statutory commissions
- Professional councils
- Environmental authorities
- Sectoral regulators
- Licensing and accreditation bodies
To tax such bodies merely because they collect fees would collapse the constitutional distinction between sovereign function and commercial enterprise.
It would result in the absurdity of the State taxing itself for performing duties mandated by law.
Notifications Cannot Override the Statute
The courts reaffirmed an enduring principle of statutory interpretation:
Delegated legislation cannot expand the charging provision or dilute statutory exclusions.
Rate notifications referring to “support services” cannot override Schedule III of the CGST Act.
This clarification is of lasting importance for GST jurisprudence.
Conclusion: Drawing the Line Between Power and Profit
These judgments mark a vital course correction.
They reaffirm that:
- Not every receipt is revenue
- Not every fee is consideration
- Not every statutory function is business
Regulators exist to govern markets — not to participate in them.
By drawing a firm line between sovereign power and commercial supply, the courts have protected not only statutory authorities but the structural integrity of the GST framework itself.
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(The author is a practicing advocate, Co-Founder and Legal Head of RB LawCorp.
He specializes in GST law. Suggestions or queries can be directed to
ashsharma@rblawcorp.in. The views expressed in this article are strictly
personal.)
