BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED: 12/08/2011
CORAM
THE HONOURABLE MR. JUSTICE VINOD K.SHARMA
W.P(MD)No.8961 of 2007
and
MP(MD)No.1 of 2007
Sri Visakaa Fabrics Private Limited,
represented by its Managing Director
Thiru.T.R.N.Sankaralingam.
No.120, Madurai Road,
Virudhunagar. ..Petitioner
Vs
1. State of Tamil Nadu,
represented by its Secretary to Government,
Energy Department,
Fort St.George,
Chennai.
2. The Chairman,
TamilNadu Electricity Board,
K.R.R.Maligai,
Chennai - 600 001.
3. The Superintending Engineer,
Tamil Nadu Electricity Board,
Ramamoorthy Road,
Virudhunagar. ..Respondents.
Prayer
Writ Petition filed under Article 226 of the Constitution of India,
praying this Court to issue a Writ of Mandamus directing the third respondent
not to charge E.Tax at 5% on Maximum Demand Charges from the Bills from the
month of October 2007 onwards.
!For Petitioner ... M/s.M.Md.Ibrahim Ali
^For Respondents ... Mr.D.Muruganandam
Addl.Govt.Pleader
:ORDER
The petitioner prays for issuance of a writ, in the nature of Mandamus or
any other appropriate writ directing to prohibiting the respondents from
charging electricity tax at 5% on Maximum Demand Charges from the month of
October 2007 onwards, and thus render justice.
2. The petitioner is a company registered under the Companies Act, and
is consumer of electricity. The petitioner obtained High Tension Power
connection under tariff 1 as per the schedule to the Tamil Nadu Revision of
Tariff on Supply of Electrical Energy Act, 1978.
3. The High Tension Service number allotted to the petitioner is 244.
The Government of Tamil Nadu enacted Act 4 of 1962, to levy tax on consumption
of electricity energy on certain categories of consumption in the state of
Madras. Under Section 3(b) of the said ‘Act’ electricity tariff was calculated
at the rate mentioned therein in respect of High Tension supply. The tax was
subsequently enhanced to 35%. This act continued to be in force till
30.04.1979.
4. After appeal to the Government, the tax was regulated by different
Government orders. The validity of any of the order is not in question in this
Writ Petition.
5. The Tamil nadu Electricity (Taxation and consumption) Amendment Act,
1991 was introduced to levy additional tax on consumption of energy. Finally,
the State Legislature enacted Act 12 of 2003 called the Tamil Nadu Tax on
Consumption Or Sale of Electricity Act, 2003, and imposed electricity tax on
various categories of consumers, including the consumer having their own captive
generating plant, as well as generators etc.
6. The case of the petitioner is that in pursuance of the powers
conferred under Electricity Act, 2003, the State has imposed tax at the rate of
5% of the electricity consumed in the case of licensees.
7. The petitioner is aggrieved by the levy of tax at the rate of 5%, which
has been imposed in exercise of powers conferred by clause(A) of sub-section
10, and Section 3 of the Tamil Nadu Tax on Consumption or Sale of Electricity
Act,2003, w.e.f. 16.06.2003
8. The petitioner has challenged the constitutional validity of the Act,
under which the power had been given to the State to impose tax even with
respect to the generation of electricity by the consumers themselves.
9. The constitutional validity of Tamil Nadu Tax on Consumption or Sale
of Electricity Act, 2003 has been upheld by the Honourable Supreme Court in the
case of Southern petrochemical Industries company Limited .vs. Electricity
Inspector and E.T.I.O and others reported in 2007(3) CTC 273.
10. The learned counsel for the petitioner only challenges the electricity
tax at 5% on the Maximum Demand Charges, on the ground that the tax could only
be claimed on the actual consumption, and not on Maximum Demand Charges.
11. There is force in this contention of the learned counsel for the
petitioner. The bill raised on the petitioner for the month of September shows
electricity tax at the rate of Rs.19,537/-(Rupees Nineteen thousand five hundred
and thirty seven only) against the actual consumption of Rs.3,32,736/-(Rupees
three lakhs thirty two thousand seven hundred and thirty six only) which shows
that the electricity tax has been demanded on the Maximum Demand Charges, and
not to actual consumption.
12. The Honourable Supreme Court in the case of Southern petrochemical
Industries company Limited .vs. Electricity Inspector and E.T.I.O and others
(Supra) has been please to lay down as under:
153. We have noticed hereinbefore that the legislative field carved out
by reason of Entry 53 of List II and Entry 38 of List III of the Seventh
schedule of the Constitution of India operate in different fields. The 1948 Act
was enacted to provide for the rationalization of the production and supply of
electricity, and generally for taking measures conducive to clerical
development.
154. Tariff is framed by the State Electricity Boards under Sections 46
and 49 of the 1948 Act. They may have different considerations for imposition
of tariffs. We have noticed hereinbefore, the definition of ‘tariff in BSES
Ltd(Supra) whereupon Mr.Andhyarujina himself relied upon. A tax on tariff and a
tax on consumption or sale of electrical energy, thus, operate in different
fields, if it is to be held that the power of the Electricity Regulatory
Commission to fix tariff does not include a power to impose tax, automatically
the same principle would apply also when a tax is sought to be levied on
consumption or sale of electrical energy and not on tariff. Power of taxation,
as noticed hereinbefore, operates differently from power to impose tariff. A
tariff validly framed by the licensee, in exercise of its statutory power, may
lay down a higher rate on the sale of power to various types of consumers having
regard to the necessity to maintain infrastructure. A maximum demand charg, when
levied, does not contemplate a sale or consumption of electrical energy. Maximum
tariff is provided for various reasons. It has been noticed by this Court in
IPI Steel Limited (supra) in the following terms:
” From this circumstance, however, one cannot jump to the conclusion that
it is an arbitrary way of levying consumption charges. Normally speaking, a
factory utilises energy at a broadly constant level. Maybe on certain
occasions,whether on account of breakdowns, strikes or shutdowns or for other
reasons, the factory may not utilise energy at the requisite level over certain
periods,but these are exceptions. Every factory expects to work normally. So
does the Electricity Board expect and accordingly produces energy required by
the factory and keeps it in readiness for that factory keeping it ready on tap,
so to speak. As already emphasised, electricity once generated cannot be
stored for future use. This is the reason and the justification for the demand
charges and the manner of charging for it. There is yet another justification
for this type of levy and it is this demand charges and consumption charges are
intended to defray different items. Broadly speaking, while demand charges are
meant to defray the capital costs, consumption charges are supposed to meet the
running charges. Every Electricity Board requires machinery, plant, equipment,
sub-stations, transmission lines and so on, all of which require a huge capital
outlay. The Board like any other corporations has to raise funds for the
purpose which means it has to obtain loans. The loans have to be repaid, and
with interest. Provision has to be made for depreciation of machinery equipment
and buildings, plants, machines, stations and transmission lines have to be
maintained, all of which require a huge staff. it is to meet the capital outlay
that demand charges are levied and collected whereas the consumption charges are
levied and collected to meet the running charges.
11. Pausing here for a moment, we may explain the importance and significance of
maximum demand. The maximum demand of a given plant factory determines the type
of lines to be laid and the power of transformers and other equipment to be
installed for the purpose. A factory having a maximum demand say 1000 KVA and a
factory having a maximum demand of 10,000 KVA require different type of lines
and other equipment for providing supply to them. In the case of latter, lines
have to be of a more load-bearing variety.
Transformers have to be installed and of more capacity. Sometimes in the case of
bulk consumers even a sub-station may have to be established exclusively for
such factory/plaint. Very often these industries are situated away from power
stations and main transmission lines which means laying special power lines
over considerable distances to give the supply connection. As a matter of fact,
the significance of the maximum demand would be evident from the fact that the
agreement between the Board and consumer(like the respondent)specifies only the
maximum demand and not the total units allowed to be consumed. The agreement
concerned herein prescribes the maximum demand at 7778 KVA but does not
prescribe the total number of units of energy allowed to be consumed,. This is
for the reasons, explains Shri Hegde, that the total number of units of energy
consumed is determined by the load/level at which power is drawn. The formula,
taking the case of the respondent is stated to be 100% KVA x power factor x
load factor x total number of hours in a year. In concrete terms, it means 7778
KVAx0-90×0.611×8760=37,467,590 KWH(Units)-37,467.59 MU(Million Units) This
formula, as it states expressly, is premised on unrestricted supply. Problems
arise only when restrictions are placed on consumption on account of fall in
production of electricity by the Board, as would be explained hereinafter.”
161. The reason for insertion of such an explanation is to get over the
decision of this Court in State of Madras .vs. Gannon Dunkerley and
Company(Madras) Limited, 1959 SCR 379, wherein it has been held that tax cannot
be imposed on sale of materials transferred in execution of a works contract
stating
” In our opinion, that is not the inference to be drawn from the absence
of words linking up the meaning of the word”sale” with what it might that the
expression “sale of goods” in Entry 48 should bear the precise and definite
meaning it has in law, and that that meaning should not be left to fluctuate
with the definition of “sale” in laws relating to sale of goods which might be
in force for the time being. It was then said that in some of the Entries, for
example, Entries 31 and 49, List II, the word “sale” was used in a wider sense
than in the Sale of Goods Act, 1930. Entry 31 intoxicating liquors and narcotic
drugs that is to say, the production, manufacture, possession, transport,
purchase and sale of intoxicating liquors, opium and other narcotic drugs…”.
The argument is that “sale” in the Entry must be interpreted as including
barter, as the policy of law cannot be to prohibit transfers of liquor only when
there is money consideration therefor. But this argument proceeds on a
misapprehension of the principles on which the Entries are drafted. The scheme
of the drafting is that there is in the beginning of the Entry words of general
import and they are followed by words having reference to particular aspects
thereof. The operation of the general words, however, is not cut down by reason
of the fact that there are sub-heads dealing with specific aspects.
169. Our attention has been drawn to a simple bill, from a perusal
whereof it appears that although permitted MD was 350 KVA, the recorded demand
being 144 KVA,electricity tax was charged only on the basis of 144 KVA and not
on the basis of 350 KVA. Keeping in view the faft that the maximum demand
postulates something other than actual delivery of electricity, the question of
imposition of any tax thereupon does not arise. The decision of this Court in
M/s.Northern India Iron and Steel Co(supra) did not assign any reason. The said
decision did not take into consideration the provisions of Article 366(12) of
the Constitution of India or the effect of Entry 53 of List II of the Seventh
Schedule of the Constitution of India. It has also not been taken into
consideration that the state cannot impose tax only because the State
Electricity Board would be entitled to levy tax on certain services. It would
bear repetition to state that the concept of tariff and tax is different.
Whereas, tariff would include a list of charges, the tax must be on actual
basis. it is also not the case nor can it be that imposition of tax on actual
sale or consumption of electrical energy was impossible keeping in view of the
particular fact situation. As noticed hereinbefore, two different meters are
installed;one, for the purpose of actual consumption of electrical energy and
another being a trivector, the same merely records the maximum demand.”
12. In view of the authoritative pronouncement of the Honourable Supreme
Court, the demand of electricity tax on Maximum Demand Charges, cannot be
sustained.
13. Consequently, the Writ Petition is allowed. The Demand of electricity
Tax on Maximum Demand Charges is set aside. The respondents are directed to
recalculate the electricity on the actual consumption of electricity w.e.f.
September 2007 and the amount if any deposited by the petitioner be adjusted
against the tax which may ultimately be due.
14. In case, it is found that the petitioner has paid in excess, than tax
due, the amount be either refunded to the petitioner, or adjusted against the
furture bills.
15. Consequently, connected Miscellaneous Petition is closed.
10. No costs.
vsn
To
1. State of Tamil Nadu,
represented by its Secretary to Government,
Energy Department,
Fort St.George,
Chennai.
2. The Chairman,
TamilNadu Electricity Board,
K.R.R.Maligai,
Chennai – 600 001.
3. The Superintending Engineer,
Tamil Nadu Electricity Board,
Ramamoorthy Road,
Virudhunagar.