Full Judgment Text
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CASE NO.:
Appeal (civil) 1998 of 2002
PETITIONER:
M.P. Cement Manufacturers’ Association
RESPONDENT:
State of Madhya Pradesh & Ors.
DATE OF JUDGMENT: 09/12/2003
BENCH:
RUMA PAL & P.VENKATARAMA REDDI
JUDGMENT:
J U D G M E N T
WITH
CIVIL APPEAL Nos.1999-2006, 2253-2254, 2538 OF 2002,
CIVIL APPEAL No.9658 OF 2003 @ SLP (C) No.13153
OF 2002, CIVIL APPEAL No.9659 OF 2003 @ SLP (C)
No.1609 OF 2003, CIVIL APPEAL No.9660 OF 2003 @
SLP (C) No.11939 OF 2003, WRIT PETITION (C) No.356 OF
2002 AND WRIT PETITION (C) No.236 OF 2003.
RUMA PAL, J.
Delay condoned.
Leave granted in special leave petitions.
The constitutional validity of the amendment to the
Madhya Pradesh Upkar Adhiniyam 1981 (the 1981 Adhiniyam)
is the subject matter of challenge in these matters. The
amendment was initially made by an ordinance promulgated on
29th June 2001 by the State Government and entitled the
"Madhya Pradesh Upkar (Sanshodhan) Adhyadesh, 2001"
(hereafter referred to as the ’Ordinance’). By the amendment, a
cess @ 20 paise per unit was imposed on the captive power
producer on the total units of electrical energy produced. The
Act which has subsequently replaced the Ordinance is known
as the Madhya Pradesh Upkar (Sanshodhan) Adhiniyam, 2001
(hereinafter referred to as ’the Amending Act). The provisions
of the 2001 Ordinance and Act are identical.
The appellant in the first matter is an association
representing the interest of its members who are cement
manufacturers and owners of captive power plants. The
connected appeals are by the captive power producers
themselves. The amendment has been challenged broadly
speaking on three grounds : first \026 that by the amendment the
Legislature sought to impose a cess on the production of
electrical energy which it was legislatively incompetent to do
because any tax legislation on the production of electricity is
covered exclusively by Entry 84 of List-I to the Seventh
Schedule of the Constitution; second \026 that the Ordinance was
passed without fulfilling the mandatory pre-condition of
consultation with the Electricity Regulatory Commission as
provided under Section 12 (3) of the Madhya Pradesh Vidyut
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Sudhar Adhiniyam, 2000; third \026 that the levy was violative of
Article 14 of the Constitution. Virtually the same arguments
were raised before the High Court.
The respondents are the State of Madhya Pradesh and
the Madhya Pradesh State Electricity Board (MPSEB). They
have submitted that the word ’production’ in the impugned
amendment had been used in conjuction with the phrase
"whether for sale or supply to \005." and was intended to relate
only to sale and consumption of electricity. An Explanation was
introduced by the Madhya Pradesh Upkar (Sansodhan)
Adhiniyam, 2003 to clarify the ambiguity and to make it clear
that the levy imposed by the 2001 amendment was on the
electric energy sold or supplied by or from captive power
units. It was submitted that the doubt, if any, should be
resolved in favour of upholding the constitutional validity of the
amendment. It was also contended that Entry 53 of List II was
wide enough to cover the exercise of power of the State
Legislature in introducing the impugned amendment. On the
question of non-compliance with the provisions of Section 12
(3) of the Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000, it is
stated that the Sudhar Adhiniyam was enacted on 3rd July 2001
whereas the impugned ordinance was promulgated on 29th
June 2001 and as such, Section 12 (3) had no application. The
further argument is that Section 12 (3) of the Sudhar Adhiniyam
could not be construed as a restraint on the Legislature as no
Legislature can bind any future legislative action of the
Legislature. The third contention on this aspect is that the
Courts could not review the legislative process. On the
question of violation of Article 14, it is submitted that a cess is a
tax which may constitutionally be levied on the capacity of a
particular class of assessees to pay. It is submitted that the
appellants cannot be equated with the MPSEB and that in any
event there was no pleading to justify any finding on the issue
of discrimination.
The High Court dismissed the writ petitions. According to
the High Court the levy imposed by the impugned amendment
was on sale and consumption of electricity and that "by mere
use of word "production" in Section 3(2) it does not cease to be
cess on the consumption of electrical energy". According to the
High Court, "production is simply a measure of tax for the
purpose of calculation of the amount of cess to be paid by the
Captive Power Producer whose plant is located in the factory
premises and whatever electrical energy is generated is
consumed in the same premises and on the units so
consumed". The High Court concluded that in substance, the
impugned cess is on energy consumed and so falls under Entry
53, List II, and was not excise duty even if the measure of both
is at the same stage.
On the argument alleging violation of Section 12(3) of the
Sudhar Adhiniyam, it was held:
"We find that imposition of cess was under
consideration of the State for some time past. It
was discussed with the Industry and formed part of
Captive Power Policy before Ordinance was
promulgated. In case the Respondents wanted to
rush through the measure, it could be done long
back. It is not incumbent for the Government to
discuss a matter with public before it is legislated.
Therefore, the Ordinance could be promulgated at
any time, the Government deemed necessary to do
so. Moreover, the Bill was presented before the
Legislature, which had passed it".
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The plea of violation of Article 14 was negatived because
a valid distinction could be drawn between MPSEB and captive
power generating concerns like the appellants. The cess of 20
paise per unit was held not to be confiscatory and as such not
violative of Article 14.
LEGISLATIVE COMPETENCE
The two competing entries in the Seventh Schedule to the
Constitution are Entry 84 of List-I and Entry 53 of List-II. They
respectively read:
"List-I
"84. Duties of excise on tobacco and other goods
manufactured or produced in India except \026
(a) alcoholic liquors for human consumption.
(b) opium, Indian hemp and other narcotic drugs
and narcotics, but including medicinal and
toilet preparations containing alcohol or any
substance included in sub-paragraph (b) of
this entry.
List-II
"53. Taxes on the consumption or sale of
electricity".
Electricity is goods [See Commissioner v. MPEB {(1969)
1 SCC 200, 204]. Thus, the levy of excise duty on the
production of electricity which falls within the phrase "other
goods manufactured" in Entry 84 of List-I" is within the
exclusive jurisdiction of Parliament and the State has the
competence to levy tax only on the sale and consumption of
electricity1. This position is accepted by the respondents.
The Madhya Pradesh Electricity Duty Act , 1949 provides
for the levy of a duty on the consumption or sale of electrical
energy and under Section 3 of this Act , subject to certain
statutory exceptions, every distributor and every producer of
electrical energy is required to pay a monthly duty "on the
electrical energy sold or supplied to a consumer or consumed
by himself, for his own purpose or for purposes of his township
or colony". Under the Upkar Adhiniyam, 1981, an energy
development cess is levied under Section 3 on every distributor
of electrical energy at a rate of one paisa per unit "on the total
energy sold or supplied to a consumer or consumed by himself
or his employees during any month". The similarity in the
phraseology used in both these statutes in describing the
incidence of tax \026 namely sale or supply of electricity \026 is
significant.
By the impugned amendment in 2001, Section 3 of the
1981 Adhiniyam was substituted to provide for payment of an
Energy development cess by producers of electricity as well.
While setting out the substituted section, we have highlighted
those portions of the section which were introduced by way of
amendment.
"3. Levy of energy development cess \027 (1) Every
distributor of electricity energy shall pay to the State
Government at the prescribed time and in the
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prescribed manner an energy development cess at
the rate of one paise per unit on the total units of
electrical energy sold or supplied to a consumer or
consumed by himself or his employees during any
month:
Provided that no cess shall be payable in respect of
electric energy, -
(i) (a) sold or supplied to the Government of
India for consumption by that Government;
or
(b) sold or supplied to the Government of
India or a railway company for
consumption in the construction,
maintenance or operation of any railway
administered by the Government of India:
(ii) sold or supplied in bulk to a Rural Electric Co-
operative Society registered under the
Madhya Pradesh Co-operative Societies Act,
1960 (No. 17 of 1961).
Explanation: For the purpose of this sub-
section ’month’ means such period as may be
prescribed.
2. Every producer producing electrical
energy by his captive power unit or diesel
generator set of capacity exceeding 10 Kilowatt
in total shall pay to the State Government an
energy development cess at the rate of 20 paise
per unit on the total units of electrical energy
produced whether for sale or supply to a
consumer or for consumption by himself or his
employees during any month:
Provided that no cess shall be payable in
respect of electrical energy produced by \026
(i) the Government of India for consumption
by that Government;
(ii) the Government of India or a railway
company for consumption in the
construction, maintenance or operation of
any railway administered by the
Government of India;
(iii) the State Government for consumption by
that Government;
(iv) a Rural Electric Co-operative Society
registered under the Madhya Pradesh Co-
operative Societies Act, 1960 (No. 17 of
1961);
(v) the local bodies including Municipal
bodies and Panchayats for consumption in
public street lamp or lamps in any market
place or water works or any other places of
public resort maintained by such bodies:
Provided further that the amount of energy
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development cess shall be collected by the
Madhya Pradesh State Electricity Board
and the amount so collected shall be made
available to the State Government.
(3) The proceeds of the cess under sub-section
(1) and (2) shall first be credited to the Consolidated
fund of the State and the State Government may at
the commencement of each financial year, after due
appropriations has been made by law, withdraw
from the Consolidated Fund of the State an amount
equivalent to the proceeds of cess realized by the
State Government in the preceding financial year
and shall place it to the credit of a separate fund to
be called the Energy Development Fund and such
credit to the said fund shall be an expenditure
charged on the Consolidated Fund of the State
Government of Madhya Pradesh.
(4) The amount in the credit of the funds shall, at
the discretion of the State Government be utilised
for:-
(a) research and development in the field of
energy including electrical energy as well as
other conventional and non-conventional
sources of energy;
(b) improving the efficiency of generation,
transmission, distribution and utilisation of
energy including reduction of losses in
transmission and distribution;
(c) research in design, construction,
maintenance, operation and materials of the
equipment used in the field of energy with a
view to achieve optimum efficiency, continuity
and safety;
(d) survey of energy sources including non-
perennial sources to alleviate energy
shortage;
(e) Energy conservation programmes;
(f) Extending such facilities and services to the
consumers as may be deemed necessary;
(g) Creation of a laboratory and testing facilities
for testing of electrical appliances and
equipments and other equipments used in the
field of energy;
(h) Programmes of training conducive to achieve
any of the above objectives;
(i) Transfer of Technology in the field of Energy;
(j) Any purpose connected with improvement of
generation, transmission, distribution or
utilisation of electrical and other forms of
energy, as the State Government may, by
notification, specify.
Explanation: In this sub-section ’energy’
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includes all conventional and non-
conventional forms of energy.
(5) If any questions arises as to whether the
purpose for which the fund is being utilised is a
purpose falling under sub-section (4) or not, the
decision of the State Government thereon shall be
final and conclusive."
The High Court’s decision was given with reference to this
amendment.
A plain reading of Sub-Section (2) of Sub-Section 3
introduced by the amendment to the 1981 Adhiniyam makes it
clear that the levy of cess was "on the electrical energy
produced". The phrase "whether for sale or supply" merely
clarified that all electricity produced irrespective of its
destination would be liable to cess at the specified rate. The
use of the word "whether" after the phrase "energy produced"
means that the cess would apply on units produced whichever
of the alternatives mentioned after the word "whether", namely,
sale or supply or consumption is the case. There is no reason
to assume that the words used did not reflect the intention of
the Legislature. The imposition envisaged was on the
production of electricity units. The charge was on generation
and not on the sale or consumption of electricity. There is a
conscious linguistic departure from the language used in
Section 3 of the Electricity Duty Act, 1949 and indeed the
language used in Section 3(1) of the same Act where the cess
is levied on the total units of electrical energy sold or supplied
by distributors of electrical energy. When dealing with
producers under sub-Section (2) of the same section, the cess
is required to be paid "on the total units of electrical energy
produced". If, as is contended by the respondents, the
incidence of levy under Section (1) and sub-section (2) were
identical, the same language should have been used in both
sub-sections. The deliberate change in language reflects an
intention to alter the subject matter of levy as far as producers
were concerned.
Our interpretation of sub-section (2) of Section 3 is
buttressed by and in keeping with the language and effect of
the proviso to the said sub-section. It has been held that the
normal function of the proviso is to except something out of the
enactment or to qualify something enacted therein which but for
the proviso would be within the purview of the enactment2. The
proviso to Section 3(2) excepts "electrical energy produced"
from payment of the cess in five cases. This would show that
the general application of Section 3(2) to which an exception
was being carved by the proviso was in respect of the
production of electrical energy. Were it not for the exception in
the proviso to Section 3(2), what would be subjected to tax
would be electrical energy produced by the five categories
mentioned under the proviso. Although in categories (i), (ii), (iii)
and (v) the exemption is granted with reference to the utilisation
of the electrical energy produced, under exception (iv) \026
significantly, all electrical energy produced by a Rural Electrical
Co-operative Society registered under the M.P. Co-operative
Societies Act, 1960 is exempted. The difference of language
between the proviso to sub-section (2) of Section 3 and the
proviso to sub-section (1) of Section 3 is also telling. Under the
proviso to sub-section (1), the exception is of electrical energy
sold or supplied to specified authorities.
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That the intention of the Legislature was to levy cess on
the production of electricity is also borne out from the
Statement of Objects and Reasons which accompanied the Act
which replaced the Ordinance. It says:
"With a view to impose cess on the electricity
generated by the producers from their Captive
Power Plants/Diesel Generating Sets for self
consumption or for sale at the rate of 20 paise per
unit on all generated electricity units, it has been
decided to amend the Madhya Pradesh Upkar
Adhiniyam, 1981 (No. 1 of 1982) suitably."
There can, in the circumstances, be no doubt that the levy
was sought to be imposed on the generation of electricity by the
amendment, a levy which the State admittedly was incompetent
to impose3.
The interpretation of the amendment by the High Court
and as canvassed by the respondents that the cess was
actually on sale and consumption and that production was
merely the measure of tax is unacceptable. Such a
construction is contrary to the express words of the statute.
Doubtless, while considering a challenge to the constitutionality
of a statutory provision, the Court will lean in favour of
upholding its validity. {See: State of Karnataka v. Ranganatha
Reddy [(1977) 4 SCC 471]}. But this does not mean that in this
process of leaning the Court must perform verbal gymnastics to
overcome a patent lack of legislative competence. As said by
the Constitution Bench of this Court in Madhuram Agrawal V.
State of Madhya Pradesh [(1999) 8 SCC 667]:
"The intention of the legislature in a taxation statute
is to be gathered from the language of the
provisions particularly where the language is plain
and unambiguous. In a taxing Act it is not possible
to assume any intention or governing purpose of the
statute more than what is stated in the plain
language. It is not the economic results sought to
be obtained by making the provision which is
relevant in interpreting a fiscal statute. Equally
impermissible is an interpretation which does not
follow from the plain, unambiguous language of the
statute. Words cannot be added to or substituted
so as to give a meaning to the statute which will
serve the spirit and intention of the legislature."
Although a dispute was sought to be raised by the
appellants as to whether electricity can be stored or not, (this
despite the decision to the contrary by the Constitution Bench
of this Court in State of Andhra Pradesh v. National Thermal
Power Corpn. Ltd. [(2002) 5 SCC 203], it is not necessary to
enter into this controversy for the purpose of deciding this issue
as it is the common case of the parties before us that between
the generation and consumption of electricity there will be
transmission loss and the amount of electricity generated need
not necessarily be the amount of electricity consumed/sold. In
any event, the practice which is actually followed in metering
the generated electricity would not make the incidence of tax
different. "The method of collection does not affect the essence
of the duty, but only relates to the machinery of collection for
administrative convenience. Whether in a particular case the
tax ceases to be in essence an excise duty, and the rational
connection between the duty and the person on whom it is
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imposed ceased to exist, is to be decided on a fair construction
of the provisions of a particular Act"4. Section 3(2) of the
amendment speaks of cess on electrical energy generated and
that must be taken as conclusive of the object and nature of the
levy.
Had matters stood there, the appeals would have had to
be allowed and the decision of the High Court reversed. But
after the decision of the High Court, there was a further
amendment effected to the 1981 Adhiniyam by the Madhya
Pradesh Upkar (Sanshodhan) Adhiniyam, 2003. The 2003
amendment introduced an Explanation at the end of Section 3
of sub-Section (2). The Explanation is as follows:-
" Explanation \026 For the purpose of this sub-section,
the Cess shall be levied on units of electrical energy
sold or supplied from captive power units or Diesel
Generator sets to a consumer or consumed by the
Producer or his employees.".
The issue now is \026 can the 2003 Explanation cure the
2001 levy?
The legislature has the power to validate an invalid levy
and to do so retrospectively. The proscription provided in the
context of judicially invalidated legislation would not apply as
the 2001 amendment had not, till the promulgation of the 2003
Act, been held to be invalid by any Court. The legislature can
also change the character of the tax or duty from impermissible
to permissible but the tax or levy should be within its legislative
competence5. However, in our view, these principles would not
apply to the 2003 Amendment since it is in the form of an
Explanation to Section 3(2). The object of an Explanation to a
statutory provision has been culled out from the earlier judicial
decisions and succinctly restated in S. Sundaram Pillai & Ors.
v.V.R. Pattabiraman & Ors. [(1985) 1 SCC 591 at 613].
" Thus, from a conspectus of the authorities referred
to above, it is manifest that the object of an
Explanation to a statutory provision is \026
a) to explain the meaning and intendment of the
Act itself,
b) where there is any obscurity or vagueness in
the main enactment, to clarify the same so as
to make it consistent with the dominant object
which it seems to subserve,
c) to provide an additional support to the
dominant object of the Act in order to make it
meaningful and purposeful,
d) an Explanation cannot in any way interfere
with or change the enactment or any part
thereof but where some gap is left which is
relevant for the purpose of the Explanation, in
order to suppress the mischief and advance
the object of the Act it can help or assist the
Court in interpreting the true purport and
intendment of the enactment, and
e) it cannot, however, take away a statutory right
with which any person under a statute has
been clothed or set at naught the working of
an Act by becoming an hindrance in the
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interpretation of the same."
According to the appellants, since Section 3(2) continued
to remain the charging Section, the effect of the Explanation
could be construed either as replacing the impost under Section
3(2) or as an alternative cess or as being an additional cess.
The first construction had not been argued by the respondents.
The second alternative would give the assessing officer an
impermissible discretion and the third alternative would mean
that the vice of constitutional incompetence would continue to
attach to the impugned levy.
The respondents have argued that the decision of the
High Court with regard to the interpretation put to Section 3(2)
is correct. Indeed, they could hardly contend otherwise. We
have not agreed with the interpretation of Section 3(2) put by
the High Court judgment. Section 3(2) continues to be the
charging Section. The Explanation, according to the
respondents served the purpose of merely clearing up any
ambiguity in Section 3(2) and reaffirmed the object of the cess
levied thereunder.
The expression used by the Explanation is "for the
purpose of sub-section (2) of Section 3, the cess shall be levied
on units of electrical energy sold or supplied". Since the
purpose of sub-section (2) of Section 3 continues to be a levy
on production, the word ’levied’ in the context would at the
highest mean ’assessment’ and not ’imposition’. It is not the
respondents’ case that any new or additional or alternative cess
was sought to be introduced by the Explanation. Thus despite
the Explanation, the charge in Section 3(2) continues to be on
the production of the electrical energy units and nothing else.
The proviso to sub-section (2) of Section 3 continues to except
electrical energy produced from the cess in certain cases. The
Explanation, if it is read with the main provision, introduces
certain contradictions and vagueness. A charging provision
should be explicit, certain and clear in order to bind the subject.
The outcome of the introduction of the Explanation to an
otherwise unchanged Section 3(2) is a singularly ill drawn
provision. The 2003 amendment was obviously introduced for
the purpose of rectifying the obvious error in Section 3(2), an
object which cannot be achieved by introducing an Explanation
since an Explanation cannot be read as changing or as
interfering with the incidence of the levy. It is not for us,
particularly when legislative clarity is required since the
statutory provision imposes a tax, to untangle the legislative
confusion.
The legislature could have avoided the controversy, if it
had wished to make the incidence of tax explicitly on sale or
consumption, by the simple expedient of so providing. The
Legislature in its wisdom did not choose to do so. To use the
words voiced by Jessel M.R.6:
"I must say that whoever is responsible for drafting
\005.. of this Act \005. has taken a great deal of trouble
to raise a very difficult question, when he might with
the greatest ease by using appropriate and well-
known terms have avoided any question whatever."
We are, therefore, of the opinion that the cess chargeable
at all material times under Section 3(2) is only on the production
of electrical energy units as far as producers of electricity for
captive consumption are concerned and the Explanation does
not serve to change the character of the tax from an
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impermissible to a permissible levy.
SECTION 12(3) OF THE SUDHAR ADHINIYAM
The challenge to Section 3(2) of the 1981 Adhiniyam on
the ground of violation of Section 12(3) of the Madhya Pradesh
Vidyut Sudhar Adhiniyam, 2000 (hereinafter referred to as
’Sudhar Adhiniyam’) is not necessary to be decided in view of
our interpretation of the Section and the finding that it was an
incompetent piece of legislation. However, since the scope of
Section 12(3) of the Sudhar Adhiniyam has been argued in
depth, we think it appropriate not to leave the dispute
unanswered.
The Sudhar Adhiniyam was published in the Madhya
Pradesh Gazette (Extra-Ordinary) on 20.2.2001 after receiving
the assent of the President. It came into force on 3.7.2001. By
the Sudhar Adhiniyam, the State Electricity Regulatory
Commission has been set up and various provisions have been
made for the following avowed objects:
"(i) restructuring of the Electricity Industry;
(ii) rationalisation of Generation, Transmission,
Sub-Transmission, Distribution and Supply of
Electricity in the State;
(iii) Regulating the licensing of transmission and
supply of electricity;
(iv) regulating the purchase, Transmission, Sub-
Transmission, Distribution, Supply and utilisation of
electricity;
(v) providing quality of service and the tariff and
other charges considering the interest of the
consumers and utilities;
(vi) taking measures conducive to the
development and management of the electricity
industry in the State in an efficient, economic and
competitive manner."
Section 12(3), which is allegedly violated by the
respondent \026 State, reads as under:
"12 (3). The State Government shall consult the
Commission in relation to any policy directive which
it proposes to issue or any legislation is proposed to
be enacted affecting the Electricity Industry it shall
duly take into account the recommendation if any,
given by the Commission within such reasonable
time as the State Government may specify."
There can be no doubt, in view of the authoritative
pronouncement of the law in Maharaj Umeg Singh and
Others v. The State of Bombay and Others [(1955 (2) SCR
164] that a State legislature cannot be fettered from exercising
its plenary powers of legislation within the ambit of the
legislative heads specified in the lists (II) & (III) of the 7th
Schedule to the Constitution, unless the prohibition is contained
in the Constitution itself. It had been argued in Maharaj Umeg
Singh’s case that agreements of merger entered into by the
Rulers of the respective States with the Dominion of India and
the collateral letters of guarantee passed by the Ministry of
States precluded the State legislature from denying the rights
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under these two instruments. The argument was negatived
saying:
"Once the topic of legislation was comprised within
any of the entries in the Lists II & III of the Seventh
Schedule to the Constitution the fetter or limitation
on such legislative power had to be found within the
Constitution itself and if there was no such fetter or
limitation to be found there the State Legislature
had full competence to enact the impugned Act no
matter whether such enactment was contrary to the
guarantee given, or the obligation undertaken by
the Dominion Government or the Province of
Bombay or even the State of Bombay".
Unlike the decision in Maharaj Umeg Singh’s case, the
so-called legislative ’fetter’ in the case before us is itself
contained in valid legislation viz. the Sudhar Adhiniyam, 2000.
The State was competent to enact the Sudhar Adhiniyam,
2000. The respondents have not urged to the contrary. So
now we have two pieces of legislation viz. the Sudhar
Adhiniyam, 2000 and the Amendment Act of 2001, both
enacted by the State which are both equally valid.
The first question, therefore, is \026 whether Section 12(3)
does in fact impose any fetter on the power of State to
legislate? Sub-section (3) refers to "any policy directive which it
proposes to issue" or "any legislation proposed to be enacted
affecting the Electricity Industry ". It does not stop the State
from enacting the legislation but merely states that prior to any
legislation being proposed, the Government shall "duly take into
account the recommendation, if any, given by the Commission".
It was and is open to the State Legislature to repeal this law.
As long it continues to be operative, it must be assumed that it
was not a mere exercise in futility and some effect must be
given to the words of the sub-section (3) of Section 12. As we
read the sub-section, it is a mandate to the policy makers who,
before proposing legislation, are required to consult the State
Regulatory Commission.
Under the Sudhar Adhiniyam, the State Commission is a
juristic entity [Section 3(1)]. The Members of the Commission,
according to Section 5 of the Sudhar Adhiniyam, shall be
persons of ability, integrity and standing who have adequate
knowledge and experience of, or have shown capacity in
dealing with problems relating to engineering, economics,
commerce, finance, law, administration or management\005".
Under Section 9 of the Sudhar Adhiniyam, the Commission has
been vested with the powers inter alia \027
(a) to regulate the purchase, distribution, supply
and utilization of electricity, the quality of
service, the tariff and charges payable
considering the interest of the consumer and
the Electricity Industry both;
(c) to determine the tariff for electricity,
wholesale, bulk, grid or retail in accordance
with the provisions of this Act.
In particular the Commission has been given the power to
determine the tariff under Section 26 of the Sudhar Adhiniyam,
2000. For discharging its functions, the Commission has been
given wide ranging powers to carry out the objects for which it
has been set up including the powers of a Civil Court in certain
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specified matters [Section 10].
It is true that the Sudhar Adhiniyam, 2000 although
published in the Official Gazette prior to the promulgation of the
impugned Ordinance, came into force after such promulgation.
Nevertheless, the Act which replaced the Ordinance was
introduced as a Bill when the Sudhar Adhiniyam was operative
and was certainly in place when the Explanation was added to
Section 3(2) in 2003. There was admittedly no consultation by
the State Government with the Commission at any stage
though the levy of cess by the impugned legislation affects the
electricity industry.
We are not concerned with why the legislature provided
for this mandate of prior consultation but the importance of
consultation at a pre-decisional stage has been recognised by
Narayanan Sankaran Mooss v. The State of Kerala and
another [(1974) 2 SCR 60, page 70]:\027
"\005 First impressions and provisional judgments
have a tendency to become ultimate ideas and final
judgments. They would settle unconsciously on the
investigator’s mind as the imperceptible dust-
particles on an optical lens. They would dim his
understanding and obfuscate his observation.
Facts which will dovetail with them would arrest his
attention; facts which will conflict with them would flit
his observation. If by any chance he happens to
notice refractory facts, he would seek to reconcile
them with his first impressions and provisional
judgment. This understanding of human psychology
seems to have persuaded Parliament to interpose
the condition of the Board’s consultation to the
Government’s action. The Board is an independent
body. It consists of three members. One of them is
a technical expert, the other is financial expert, and
the third an administrative expert. While
considering the facts presented to it by the
Government and by the licensee in his explanation,
the Board will undoubtedly act with an open and
unconditioned mind and will be able to offer
unbiased counsel to the Government\005."
In our opinion, the consequence of non-consultation in
terms of Section 12 (3) of the Sudhar Adhiniyam would not be
an incompetent piece of legislation but a legislation introduced
in breach of a salutary requirement to consult an expert
statutory body. The statutory requirement for consultation with
a body of experts before proposing legislation will serve as an
in-built safeguard against a challenge under Article 14 of the
Constitution apart from anything else.
Nevertheless, we do not propose to decide \027 whether by
reason only of such non-consultation, Section 3(2) of the 1981
Adhiniyam is violative of Article 14, nor do we propose to
decide whether the cess of 20 paise is excessive, nor the other
grounds urged by the appellants pertaining to Article 14. We
have referred to the provisions of Sudhar Adhiniyam so that the
State Government may in future act in consonance with Section
12(3).
An additional challenge has been raised to the
constitutional validity of sub-sections (3), (4) and (5) of Section
3 in Civil Appeal No.2003 of 2002 alleging violation of Articles
202, 204, 207, 260 and 267 of the Constitution.
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In order to appreciate the submission, we may
recapitulate briefly the effect of these sub-sections. Under sub-
section (3), the proceeds of the cess levied under sub-section
(1) and (2) are required to be credited to the Consolidated Fund
of the State. The State Government may then withdraw an
amount equivalent to the proceeds of cess realised in the
preceding financial year and place it to the credit of a separate
fund called the Energy Development Fund. Such credit to the
fund would be an expenditure charged on the Consolidated
Fund. The State Government has also the discretion to use the
amount in the credit for the various purposes specified in sub-
section (4). A further discretion is given to the State
Government under sub-section (5) to finally and conclusively
decide whether the funds were in fact being utilised for a
purpose falling under sub-section (4).
Apart from the submission that the respondents had not
disclosed any information as to what had been done by the
State after collecting the cess from its consumers and how the
cess collected in fact been utilised since 1981 although called
upon to do so, it is argued by the appellants that no fund could
be earmarked or appropriated or expended from the
Consolidated Fund of the State except in accordance with the
provisions of Articles 196, 198, 199 and 200 of the Constitution
which requires the expenditure to be passed by the State
Legislature and it cannot be left to the State Executive to
determine the expenditure at its discretion. This argument was
raised before the High Court but not dealt with. Nor do we do so
since we have upheld the appellants’ contentions on the very
imposition of the cess under Section 3(2).
In the circumstances, we allow the appeals. Section 3(2)
of the Upkar Adhiniyam, 1981 as introduced by the Amendment
Act, 2001 and amended in 2003 is declared ultra vires the
Constitution as being outside the legislative competence of the
State. As far the amounts collected by the respondents under
Section 3(2) are concerned, the collection was in a sense
protected by the decision of the High Court. The ’protection’
became precarious when this Court while granting leave on the
special leave petitions on Ist March, 2002 had refused interim
relief stating that the question of refund with interest was an
issue to be decided at the final hearing. In the circumstances,
we direct that the respondents will be liable to refund the cess
collected after Ist March, 2002 to the appellants together with
interest at 9% p.a. There will however be no order as to costs.
WRIT PETITION (C) Nos.356 OF 2002 AND 236 OF 2003.
In terms of our above judgment, the writ petitions stand
disposed of accordingly.