The Himachal Pradesh High Court has granted interim relief to the assessee in a case where the Revenue department had alleged that the supply of free electricity/power @12% to the States was nothing but ‘consideration’ towards licensing services rendered by the State governments. The assessee was represented by Lakshmikumaran & Sridharan here.
The assessee had submitted that free power was provided as compensation to the respective States where distress was caused by setting up of the hydro power projects and was in accordance with the power sharing letter by the Department of Power, Ministry of Energy and also as per the Hydropower Policy, 1988.
The High Court in its decision dated 20 September 2024 found prima facie considerable force in the submission of the assessee that the Department had dropped its earlier demand in respect of service tax on the same issue [though decision on challenge pending with Committee of Commissioners], wherein it was held that the free power was akin to compensation because of distress and cannot be treated as royalty.
The assessee had contended that since the GST department is also under the Ministry of Finance like the erstwhile central excise department which dealt with service tax, a different stand cannot be taken when it comes to GST. The High Court compared the situation to the case where a decision by a coordinate Bench is binding on all other Benches of the Court.
Granting interim stay of all further proceedings, the Court in NHPC Ltd. v. Principal Commissioner also noted that there was serious doubt as to whether the supply of free electricity was in the nature of ‘consideration’ or was a ‘compensation’ for the distress caused