Supreme Court Examines GST Applicability on Road Restoration Reimbursed to Municipalities by Power Distributors

The intersection of municipal duties, statutory obligations, and indirect taxation has frequently led to complex legal battles. In a recent development, the Supreme Court of India has taken up a critical matter regarding the levy of Goods and Services Tax (GST) under the Reverse Charge Mechanism (RCM) on expenses reimbursed to local civic bodies for road repairs. The apex court has issued a notice in the Special Leave Petition (SLP) titled Union of India & Ors. Vs Torrent Power Ltd., officially condoning the initial filing delay by the Revenue Department.

This judicial scrutiny stems from a landmark ruling by the Gujarat High Court, which had previously quashed the tax department's demands. The core of the dispute revolves around whether compensating a municipal corporation for damages caused during statutory infrastructure work qualifies as a taxable "supply of service" under the GST framework.

Genesis of the Tax Dispute

The assessee in this matter, engaged extensively in the distribution and transmission of electricity across multiple states including Gujarat, Uttar Pradesh, and Maharashtra, routinely undertakes infrastructure projects. Laying underground electrical cables and maintaining distribution lines inherently requires the excavation of public roads.

To execute these essential public utility works, the assessee dug up roads falling under the jurisdiction of the Ahmedabad Municipal Corporation (AMC). Subsequently, the assessee reimbursed the AMC for the costs associated with repairing and restoring the damaged infrastructure.

The indirect tax authorities scrutinized these financial transactions and concluded that the assessee was liable to discharge tax under the RCM. This culminated in the issuance of a show-cause notice dated 30.11.2022 under Section 74 of the Central/Gujarat Goods and Services Tax Act, 2017. The adjudication process subsequently led to an Order-in-Original dated 25.01.2025, confirming the tax demands against the assessee.

The Tax Department's Standpoint

The Revenue authorities built their case on the premise that the municipal corporation was providing a distinct service to the assessee.