NTPC had thermal power stations in the State of Andhra Pradesh(AP) and was generating and distributing electricity to the State of Goa and electricity Boards of Karnataka, Kerala and Tamilnadu. The State of AP sought to levy duty under the AP Electricity Duty Act, 1939. The charging section of the Act showed that NTPC was “licensee’ as per the definition thereof and duty was leviable on all sales of energy subject to some exclusions and certain conditions as regards rate charged to consumers. The said levy was contested in AP High Court on the ground as to whether entry 53 under List II of Seventh Schedule to the Constitution of India authorizes the State of AP to levy such duty.
Similarly, State of Madhya Pradesh(MP) also sought to levy duty under MP Electricity Duty Act, 1949 on NTPC. The charging section therein provided for levy on electrical energy sold or supplied to consumers or consumed by oneself. Further, there was MP Upkar Adhinium, 1981 under which energy development cess was levied on the units of energy sold or supplied to consumers or consumed by itself. In MP too, the NOTPC was supplying electricity to Electricity Boards in nearby States.
Both the states argued that sale of electricity to Boards of other states is complete in the generating states i. e. AP and MP itself. The bulk power supply agreements with them showed that metering was done within the state. The delivery was complete at that point. The wheeling loss, wheeling charges, transmission loss and transmission charges while delivering the electricity to home state of buyers is on their account. NTPC loses control over the electricity supplied to the buyer once delivery is made. Payment made by beneficiaries is based on the delivery at the metering point. All these clauses show that the sale is complete within the
state and it is not an inter-State sale as averred by NTPC. The state has power to levy duty on such sales.
The High Court of AP held that the State is incompetent to levy such duty. The State of AP filed an appeal before Supreme Court against this order. Similar issue had arisen in the State of MP and NTPC made an application under Article 139A to move the matter from M P High Court to Supreme Court along with above matter. Both cases heard by the Supreme Court having similar facts.
The Court examined the amendments brought in by the Sixth Amendment to Constitution on 11-09-1956 in Articles 269, 286, Entry 54, insertion of entry 92A in List I etc. The Central Sales Tax Act, 1956 was enacted to formulate principles for determining as to when a sale can be said to have taken place in the course of inter-State trade (section 3) and levy, collection and distribution of such taxes. The Court referred to Bengal Immunity Co. Ltd. v. State of Bihar. The Larger Bench ruled by majority that an inter-State sale or purchase continues to be so irrespective of the State where the sale can be held to be located under the general law or by the fiction created by the Explanation below clause (1) of the Article 286. The situs of the sale is wholly immaterial so far as its inter-State character is concerned. It further ruled that until Parliament by law made in accordance with clause (2) below Article 286 provides otherwise, no State can impose or authorize the imposition of any tax on sale or purchase of goods taking place in the course of inter-State sale or commerce. In short, it was held that Explanation below clause (1) of Article 286 as it existed before Sixth Amendment to Constitution could not be applied for the purpose of interpreting Article 286(2).
The Court also noted that amendment in section 6 (charging section) of the CST Act w. e. f. 01-04-1973 which exempted specifically inter-State sale of electricity. The Statement of Objects and Reasons (SOR) thereof mentioned that exemption of inter-state sales of electricity was dependent upon rate of tax within the state. Therefore, Parliament specifically exempted it by amending section 6. This asserts the point that inter-State sales of electricity were liable to central sales tax prior to this amendment.
The Court also noted that electricity was “goods” in terms of its definition under Article 366(12) of the Constitution as held in CST v. MP Electricity Board, Jabalpur. It can be abstracted, transmitted, sold and has all attributes of “goods” though it cannot be stored or preserved. Its special phenomenon is it is instantly sold and consumed after it is produced/generated. It also referred to the ratio of the judgment in Indian Alluminium Co. v. State of Kerala where it is observed that all the three steps namely, sale, supply and consumption of electricity take place simultaneously without any hiatus. This is a distinguishing property of electricity. In Burmah Shell Oil Storage & Distributing Co. v. Belgaum Borough Municipalities, it was held in the context of entry 52 that actof sale is merely
the means for putting the goods in the way of use of consumption. Entry 52 dealt with “Taxes on the entry of goods for consumption, use or sale therein. The ultimate destination of goods is use or consumption.
The Court sought to allot the same meaning to word “sale” in entry 53 of List II of 7th Schedule, which deals with “Taxes on sale or consumption of electricity”. It held that entry 53 should be read in the light of above decisions as “Taxes on consumption or sale for consumption of electricity”. By reading entry 53 this way, the conflict between entry 53 and 54 ceases to exist and two can be harmonized and read together. Electricity as goods is also covered by entry 54 which is subject to entry 92A of List I. Thus, sale of electricity for consumption within the state alone is taxable as per entry 53. The interstate sales of electricity would be governed by entry 92A and consequently by CST Act. The observations in C. P. Motor Spirits Act were important in this respect which stated that two entries in the list may overlap and sometimes may appear to be in direct conflict with each other. The Court should strive to search for reasonable and practical construction to seek reconciliation and try to give effect to all of them. Thus, two entries 53 and 54 were interpreted as above to reconcile the overlapping or conflict between them.
The contention of the Revenue to the effect that there is no specific mention of entry 92A of List I in entry 53 of List II and therefore, even interstate sales of electricity can be taxed thereunder, was negated by the Court since the bans imposed under Articles 269 and 286 would apply irrespective of the language used in the entries in the Seventh Schedule. The said entries are heads or fields of legislative empowerment but the competence to legislate has to be traced from the Constitution. Refer, Calcutta Gas Co. v. State of WB. The prohibition on taxing of inter-State sales of electricity would squarely apply to entry 53 of List II as well.
The inter State movement of the electricity is in pursuance of sale contracts with bulk buyers like Electricity Boards and hence, interstate sales. The Court also observed that situs of sale can be determined by competent legislation or by Judgement law but none of them or a contractual obligation can fix the situs as opposed to section 3 of the CST Act read with restrictions in Articles 269 and 286. Under the MP Electricity Duty Act, 1949, “Consumer” is given an extended meaning to include a person who receives electricity without having regard to its consumption and a person who receives electricity in bulk and forwards it onwards for distribution without having regard to the fact whether it is transmitted outside state or consumed within state. Such definition will have to be read down to mean only persons who receive electricity for consumption within the state. Otherwise, it will result in multiple taxation of electricity both in the generating state and consuming state considering territorial nexus which is certainly not the legislative intention.
Thus, it is held that electricity is goods and interstate sale thereof is taxable under the CST Act. The State cannot levy electricityduty on interstate sales of electricity under Entry 53. (CA No. 3112 of 1990)/(TC (C) 3 of 1998)
Editorial: Under GST law, rate of tax on Electricity is nil. But nevertheless, electricity is goods. Supply includes sale and supplyis subjected to tax under Article 246A. The same conflict can arise in case entry 53 and GST law since IGST Act covers interstate supplies. But it is now clear that no electricity duty can be levied on inter-State supplies which is the domain of IGST Act.
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