Full Judgment Text
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CASE NO.:
Appeal (civil) 3112 of 1990
Transfer Case (civil) 3 of 1998
PETITIONER:
STATE OF A.P.
Vs.
RESPONDENT:
NATIONAL THERMAL POWER CORPN. LTD. & ORS.
DATE OF JUDGMENT: 22/04/2002
BENCH:
CJI, R.C.Lahoti, N. Santosh Hegde, Ruma Pal & Arijit Pasayat
JUDGMENT:
R.C. Lahoti, J.
The High Court of Andhra Pradesh at Hyderabad has, by its
impugned judgment dated April 11, 1990, allowed the writ petition
filed by the respondent National Thermal Power Corporation Ltd.
(hereinafter ’NTPCL’, for short) and declared that the levy of duty by
the State of Andhra Pradesh on the sales of electrical energy generated
by the Corporation-respondent No.1 at its thermal power station set up
at Ramagundam, within the State of Andhra Pradesh, and sold to the
Electricity Boards of Karnataka, Kerala, Tamil Nadu and the State of
Goa in pursuance of contracts of sales occasioning inter-State
movement of electricity is incompetent and outside the power of State
Legislature. Consequently, the tax levied and collected has also been
held to be without authority of law, hence liable to be refunded in
accordance with law. On a prayer made by the learned Advocate
General on behalf of the State of Andhra Pradesh, the High Court
certified that the case involves a substantial question of law as to the
interpretation of Constitution under Article 132. The appeal has been
filed pursuant to the certificate so granted by the High Court. On
4.10.1991, a bench of two learned Judges directed the appeal to be
placed for hearing before a Constitution Bench, as required by Clause
(3) of Article 145 of the Constitution.
At a point of time when this Court was seized of the appeal
filed by the state of Andhra Pradesh, NTPCL moved a petition under
Article 139A of the Constitution seeking withdrawal of Writ Petition
No.1941 of 1996 NTPCL Vs. State of Madhya Pradesh & Others
pending in the High Court of Madhya Pradesh at Jabalpur to this
Court. The prayer was allowed vide order dated 13.10.1997 and on
receipt of the records from High Court of Madhya Pradesh the same
has been registered here as T-C-3/1998.
The State of Madhya Pradesh and newly formed State of
Chhattisgarh with effect from 1.11.2000, during the pendency of the
petition were noticed and the parties thereto have been heard
analogously with the hearing in C.A.No.3112/1990. However, for
convenience sake we will refer to States of Madhya Pradesh and
Chhattisgarh as State of M.P. only as admittedly until the formation of
new State the two power stations in question were situated therein
only.
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Facts in C.A. No.3112/1990
Andhra Pradesh Electricity Duty Act, 1939 provides for levy of
duty on certain sales and consumption of electricity by licensees in the
State of Andhra Pradesh. The definition of the term ’licensee’
specifically includes the National Thermal Power Corporation
(respondent No.1) or any other Corporation engaged in the business of
supplying energy. Section 3 of the Act is the charging section, the
relevant part whereof reads as under:-
"3. Levy of a duty in certain sales of electrical
energy.__ (1) Save as otherwise provided in sub-
section (2), every licensee in the State of Andhra
Pradesh shall pay every month to the State
Government in the prescribed manner, a duty
calculated at the rate of four paise per unit of
energy, on and in respect of all sales of energy,
except sales to the Government of India for
consumption by that Government or sales to the
Government of India or a railway company
operating any railway for consumption in the
construction, maintenance or operation of that
railway effected by the licensee during the
previous month, at a price of more than twelve
paise per unit and on and in respect of all energy
which was consumed by the licensee during the
previous month for purposes other than those
connected with the construction, maintenance and
operation of his electrical undertaking and which,
if sold to a private consumer under like conditions,
would have fetched a price of more than twelve
paise per unit.
Provided that no duty under this sub-section
shall be payable on and in respect of sale of energy
effected:-
(a) by the Andhra Pradesh State Electricity
Board to any other licensee;
(b) by the National Thermal Power Corporation
to the Andhra Pradesh State Electricity
Board."
A bare reading of the provision shows that duty is leviable at
the prescribed rate on ’all sales of energy’ effected by the licensee
during the previous month at a price of more than 12 paise per unit.
Duty is also leviable on all energy consumed by the licensee. There
are certain categories of sales and consumption saved and excluded
from what would otherwise have been dutiable. However, in the
present case, we are not concerned with those exclusions, nor with
levy of duty on consumption. The limited question arising for our
consideration is __ whether sales of energy by NTPCL, the respondent
No.1, to several Electricity Boards situated outside the State of
Andhra Pradesh and to the State of Goa, attract the incidence of
taxation under Section 3 of the Act.
According to the facts found by the High Court, NTPCL, a
Government Company, wholly owned by the Government of India,
has set up several super thermal power stations in different parts of the
country normally located near coal-pit heads. One such super thermal
power station is set up in Ramagundam in Karimnagar District of the
State of Andhra Pradesh. There are various transmission lines and
sub-stations through which the power generated at Ramagundam
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station is transmitted to the purchasers. The power generated is fed
into the southern grid and is made available to the several State
Electricity Boards and the State of Goa. These facts are not in
controversy and sufficient to be taken note of for the purpose of this
appeal. During the course of hearing, by reference to certain
documents, it was sought to be pointed out where the meters are
located __ within the State of M.P. or within the territories of buyer
states or at both the places, by reference to reading whereof the
quantum of energy sold, exported or imported is fixed and the price
calculated. We do not propose to state the facts and contending
submissions in that regard in details as it is unnecessary.
The controversy centres mainly around the question as to under
which entry Andhra Pradesh Electricity Duty Act, 1939 is covered
and whether the sales of electricity by NTPCL, the respondent No.1,
to the Electricity Boards situated outside the State of Andhra Pradesh
and to the State of Goa, can be construed as inter-State sale or intra-
State sale.
Facts in T-C-3/98
The relevant facts of this writ petition are briefly set out in what
follows. The erstwhile Central Provinces and Berar Legislative
Assembly enacted the CP and Berar Electricity Duty Act, 1949 which
having been adapted in the State of Madhya Pradesh has come to be
known as M.P. Electricity Duty Act, 1949 and extends to the whole of
Madhya Pradesh. The Preamble to the Act, as amended by Madhya
Pradesh Legislature, provides that it is an Act for the levy of duty on
sale or consumption of electrical energy. The expression "distributor
of electrical energy" is defined in Clause (b) of Section 2 to
specifically include therein the National Thermal Power Corporation.
Section 3 provides that every distributor of electrical energy and every
producer shall, subject to certain exceptions, pay every month to the
State Government a duty calculated at the rates specified in the table
appended thereto on the units of electrical energy sold or supplied to a
consumer or consumed by himself for his own purposes or for
purposes of his township or colony during the preceding month. The
table appended to Section 3 prescribes different rates of duty
depending on the purpose for which electrical energy is sold, supplied
or consumed, the details whereof are not relevant for our purpose.
There is yet another legislation, namely, the Madhya Pradesh Upkar
Adhiniyam 1981 (No.1 of 1982) which provides for levy of certain
cesses. Sub-section (1) of Section 3 thereof provides that every
distributor of electrical energy shall pay to the State Government an
energy development cess at the rate of certain 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. NTPCL
has two power projects located in the State of Madhya Pradesh (i)
Korba Super Thermal Power Station at Pragati Nagar, District
Bilaspur, known as Korba Station (presently in the State of
Chhattisgarh) and (ii) Vindhyachal Super Thermal Power Station
situated at Vindhya Nagar, District Sidhi of Madhya Pradesh known
as Vindhyachal Station. The electricity generated by it at these two
stations, is fed into Northern grid and supplied to several States
outside the State of Madhya Pradesh pursuant to contracts entered into
between the parties, that is, the seller and the buyers. On 30.11.1994,
the Chief Engineer (Electricity Duty) and Chief Electrical Inspector,
Government of Madhya Pradesh issued a letter annexed by a tabulated
statement raising a demand of Rs.2,74,01,59,535/28 paise for the
period commencing October, 1984 and expring March, 1996. The
demand is on account of electricity duty at the rate of 2 paise per unit
and cess at the rate of 1 paise per unit calculated on the units sold to
Electricity Boards of other States.
In the counter-affidavit on behalf of the States of Madhya
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Pradesh and Chhattisgarh reliance has been placed on the definition of
’consumer’ engrafted into the M.P. Electricity Duty Act, 1949 by
M.P. Act No.46 of 1984 with effect from 1.10.1984 which reads as
under:-
"Consumer" means any person who
receives electrical energy sold or supplied
by a distributor of electrical energy or a
producer and includes a person receiving
electrical energy in bulk for onward
distribution.
By the same amendment "distributor of electrical energy" was defined
so as to include therein NTPCL, as already stated. It is admitted by
the States of M.P. and Chhattisgarh that the power generated at the
two power stations is sold and supplied to various electricity
boards/electricity departments situated in other States but as the
generating stations are located in the State of Madhya Pradesh the sale
is not an inter-State sale. The situs of sale is within the State of M.P.
Transaction of sale is complete in the State of M.P. and the buyers
carry the electricity to their respective States when property in
electricity sold has already passed to them. Reliance has been placed
on the several clauses of the bulk power supply agreement entered
into between NTPCL and buyers, one of which entered into between
NTPCL and Western Region Electricity Board (WREB) having its
office at Andheri East, Bombay, has been filed and quoted in the
counter affidavit, according to which (a) Metering is within the State
of M.P.; (b) Transmission loss from Madhya Pradesh to the Home
State of the buyer is to the account of the buyer; (c) Wheeling loss
from Madhya Pradesh to the Home State of the buyer to the account
of the buyer; (d) Transmission charges for transmission from Madhya
Pradesh to the Home State of the buyer to the account of the buyer; (e)
Wheeling charges from Madhya Pradesh to the Home State of the
buyer to the account of the buyer; (f) Delivery of WREB in Madhya
Pradesh; (g) NTPCL ceases to have control over the electrical energy
once it is delivered to WREB within State of M.P.; (h) Payment made
by the Bulk Beneficiaries is in respect of quantum of electrical energy
supplied/delivered at metering point in State of M.P. Similar are the
agreements entered into with other outside-State buyers.
It is not disputed that the power generated at the abovesaid two
stations is fed into transmission system of Power Grid Corporation of
India Limited and the transmission systems of other bulk power
beneficiaries wherefrom the buyers draw the power purchased by
them. Great emphasis was laid on the fact that the points for metering
are installed within the State of Madhya Pradesh. It was submitted
that the transaction under scrutiny in the case of State of M.P. is
different from the one under scrutiny in the case of State of Andhra
Pradesh.
Relevant Provisions
We proceed to notice the relevant provisions of the Constitution
and other statutory provisions.
Changes of far reaching implications were made in the
Constitution by the Constitution (Sixth Amendment) Act, 1956 with
effect from September 11, 1956. To enable a convenient comparative
reading, we set out the provisions as under:-
"246. Subject-matter of laws made by
Parliament and by the Legislatures of States.__
(1) Notwithstanding anything in clauses (2) and
(3), Parliament has exclusive power to make laws
with respect to any of the matters enumerated in
List I in the Seventh Schedule (in this Constitution
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referred to as the "Union List").
(2) Notwithstanding anything in clause (3),
Parliament and, subject to clause (1), the
Legislature of any State also, have power to make
laws with respect to any of the matters enumerated
in List III in the Seventh Schedule (in this
Constitution referred to as the "Concurrent List").
(3) Subject to clauses (1) and (2), the
Legislature of any State has exclusive power to
make laws for such State or any part thereof with
respect to any of the matters enumerated in List II
in the Seventh Schedule (in this Constitution
referred to as the ’State List’).
(4) Parliament has power to make laws with
respect to any matter for any part of the territory of
India not included in a State notwithstanding that
such matter is a matter enumerated in the State
List."
Seventh Schedule
List I Union List
xxx xxx xxx xxx
92A. Taxes on the sale or
purchase of goods other than
newspapers, where such
sale or purchase takes place
in the course
of inter-State trade or
commerce.
(inserted by Sixth Amendment)
List II - State List
Entry 52
Taxes on the entry of goods into a local area for consumption,
use or sale therein.
Entry 53
Taxes on the consumption or sale of electricity.
Entry 54 :
(Before Sixth Amendment)
54. Taxes on the sale or purchase
of goods other than newspapers
(After Sixth Amendment)
54.Taxes on the sale or purchase
of goods other than newspapers,
subject to the provisions of entry
92A of List I.
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Before 11.9.56
After 11.9.56
269.The following duties and taxes shall
be levied and collected
Taxes levied and by the Government of
collected by the India but shall be assig-
Union but assig- ned to the States in the
ned to the States. manner provided in
clause (2), namely :-
(a) duties in respect of succession to
property other than agricultural
land;
(b) estate duty in respect of property
other than agricultural land;
(c) terminal taxes on goods or pass-
ngers carried by railway, sea or
air.
(d) taxes on railway fares and
freights;
(e) taxes other than stamp duties on
transactions in stock-exchanges
and future markets;
(f) taxes on the sale or purchase of
newspapers and on advertise-
ments published therein.
(2) The net proceeds in any financial
year of any such duty or tax, except in so
far as those proceeds represent proceeds
attributable to States specified in Part C
of the first Schedule, shall not form part
of the Consolidated Fund of India, but
shall be assigned to the States within
which that duty or tax is leviable in that
year, and shall be distributed among
those States in accordance with such
principles of distribution as may be
formulated by Parliament by law.
269.(1)The following duties and taxes shall
be levied and collected
Taxes levied and by the Government of
collected by the India but shall be assig-
Union but assig- ned to the States in the
ned to the States. manner provided in
clause (2), namely :-
(a) duties in respect of succession to
property other than agricultural
land;
(b) estate duty in respect of property
other than agricultural land;
(c) terminal taxes on goods or passn-
gers carried by railway, sea or air;
(d) taxes on railway fares and freights;
(e) taxes other than stamp duties on
transactions in stock-exchanges
and future markets;
(f) taxes on the sale or purchase of
newspapers and on advertise-
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ments published therein.
(g) taxes on the sale or purchase of
goods other than newspapers,
where such sale or purchase takes
place in the course of inter-State
trade or commerce.
(h) taxes on the consignment of goods
(whether the consignment is to the
person making it or to any other
person), where such consignment
takes place in the course of inter-
State trade or commerce;
(2) The net proceeds in any financial year of
any such duty or tax, except in so far as
those proceeds represent proceeds
attributable to Union territories shall not
form part of the Consolidated Fund of India,
but shall be assigned to the States within
which that duty or tax is leviable in that
year, and shall be distributed among those
States in accordance with such principles of
distribution as may be formulated by
Parliament by law.
(3)Parliament may be law formulate
principles for determining when a sale or
purchase of or consignment of goods takes
place in the course of inter-State trade or
commerce.
Before 11.9.56.
After 11.9.56.
286. (1) No law of a State shall impose
or authorise the imposition of, a tax on the
sale or purchase of goods where such sale
or purchase takes place__
(a)
(b) (a) outside the State; or
(b) (b) in the course of the import of the goods
into, or export of the goods out of, the
territory of India.
Explanation __ For the purposes of sub-
clause (a), a sale or purchase shall be
deemed to have taken place in the State in
which the goods have actually been
delivered as a direct result of such sale or
purchase for the purpose of consumption
in that State, notwithstanding the fact that
under the general law relating to sale of
goods the property in the goods has by
reason of such sale or purchase passed in
another State.
(2) Except in so far as Parliament may
by law otherwise provide, no law of a
State shall impose, or authorise the
imposition of, a tax on the sale or purchase
of any goods where such sale or purchase
takes place in the course of inter-State
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trade or commerce:
Provided that the President may by
order direct that any tax on the sale or
purchase of goods which was being
lawfully levied by the Government of any
State immediately before the
commencement of this Constitution shall,
notwithstanding that the imposition of
such tax is contrary to the provisions of
this clause, continue to be levied until the
thirty-first day of March, 1951.
(3) No law made by the Legislature of
a State imposing, or authorizing the
imposition of, a tax on the sale or purchase
of any such goods as have been declared
by Parliament by law to be essential for
the life of the community shall have effect
unless it has been reserved for the
consideration of the President and has
received his assent.
286. (1) No law of a State shall impose,
or authorize the imposition of, a tax on
the sale or purchase of goods where such
sale or purchase takes place__
(a)
(b) (a) outside the State; or
(b) in the course of the import of the
goods into, or export of the goods out of,
the territory of India.
*
(2) Parliament may by law formulate
principles for determining when a sale or
purchase of goods takes place in any of
the ways mentioned in clause (1).
(3) Any law of a State shall, in so far
as it imposes, or authorizes the
imposition of,. __
(a) a tax on the sale or purchase of
goods declared by Parliament by law to
be of special importance in inter-State
trade or commerce; or
(b) (b) a tax on the sale or purchase of
goods, being a tax of the nature referred
to in sub-clause (b), sub-clause (c) or
sub-clause (d) of clause (29A) of article
366,
be subject to such restrictions and
conditions in regard to the system of
levy, rates and other incidents of the tax
as Parliament may be law specify.
Out of the several changes introduced by the Constitution
(Sixth Amendment) Act, only a few are relevant and material for our
purpose. In Article 269, Sub-Clause (g) was added in clause (1) and
a new Clause (3) was added. The Forty-Sixth Amendment substituted
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the words ’sale or purchase of, or consignment of, goods’ in place of
’sale or purchase of goods’ as was occurring in Clause (3) inserted by
Sixth Amendment. Such Forty Sixth Amendment has no relevance
for the present controversy. In Article 286 subsequent to the Sixth
Amendment, Clause (3) has been brought in the present form by Forty
-Sixth Amendment which again is not relevant for the present
controversy. What is relevant for our purpose is the deleting of former
explanation appended to Clause (1) and substitution of Clause (2) in
the present form in Article 286 by Sixth Amendment.
As to the several relevant entries quoted hereinabove, it may be
noted that Entry 92A in List-I of Seventh Schedule was added by
Sixth Amendment. Entry 54 in List-II in the present form was
substituted by Sixth Amendment. Entries 52 and 53 in List-II remain
unaffected by Sixth Amendment.
The Central Sales Tax Act, 1956 was enacted to formulate
principles for determining __ when a sale or purchase of goods takes
place in the course of inter-state trade or commerce or outside a State
or in the course of import into or export from India, to provide for the
levy, collection and distribution of taxes on sale of goods in the course
of inter-State trade or commerce etc., as the Preamble to the Act
states. Clause (d) of Section 2 defines ’goods’ (unless the context
otherwise requires) to include all materials, articles, commodities and
all other kinds of moveable properties, but not including newspapers,
actionable claims, stocks, shares and securities. Section 3 of the Act,
placed in Chapter II thereof, provides as under:-
"CHAPTER II
FORMULATION OF PRINCIPLES FOR
DETERMINING WHEN A SALE OR
PURCHASE OF GOODS TAKES PLACE IN
THE COURSE OF INTER-STATE TRADE
OR COMMERCE OR OUTSIDE A STATE
OR IN THE COURSE OF IMPORT OR
EXPORT
3. When is a sale or purchase of goods
said to take place in the course of inter-State
trade or commerce.__ A sale or purchase of goods
shall be deemed to take place in the course of
inter-State trade or commerce if the sale or
purchase__
(a) occasions the movement of goods
from one State to another; or
(b) is effected by a transfer of documents
of title to the goods during their
movement from one State to another.
Explanation 1.__ Where goods are delivered
to a carrier or other bailee for transmission, the
movement of the goods shall, for the purposes of
clause (b), be deemed to commence at the time of
such delivery and terminate at the time when
delivery is taken from such carrier or bailee.
Explanation 2. __ Where the movement of
goods commences and terminates in the same State
it shall not be deemed to be a movement of goods
from one State to another by reason merely of the
fact that in the course of such movement the goods
pass through the territory of any other State."
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At this juncture it would be appropriate to have a view of the
legislative history. Explanation to clause (1) of Article 286 generated
some controversy which led to the constitution of a larger Bench (7-
judge strength) in The Bengal Immunity Company Limited Vs. The
State of Bihar and Ors. - 1955 (2) SCR 603. 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 appended
to clause (1) of Article 286. The situs of a sale or purchase is wholly
irrelevant so far as its inter-State character is concerned. The larger
bench further ruled that until Parliament by law made in exercise of
the powers vested in it by clause (2) of Article 286 provides
otherwise, no State can impose or authorize the imposition of any tax
on sale or purchases of goods when any sales or purchases take place
in the course of inter-State trade or commerce. To put in other words,
it was held that explanation to Article 286(1) as it existed prior to the
Sixth Amendment could not be applied for the purpose of interpreting
clause (2) of Article 286.
The issue attracted the attention of Taxation Enquiry
Commission 1953-54 (TEC, for short). In its report, Volume III,
Chapter 4, vide para 30, the Commission observed, inter alia, that
Clause (1) of Article 286 links the sales-tax to one of the two parties,
viz., the consumer and lays down that no State shall levy tax on a sale
which results in delivery for consumption in another State. While
making recommendations for consideration of future policy regarding
sales tax, it opined that the system should contain provisions whereby
certain constitutional restrictions on the States and certain powers of
levy and control by the Union are introduced. The TEC observed that
the Constitution, in effect, divides sales of goods in India into (a)
goods delivered for consumption in particular States and (b) other
sales, which dichotomy is imperfect from the point of view of tax
administration. It suggested division, both useful and effective, of all
sales of goods into two, namely (a) those in the course of inter-State
trade and commerce, and (b) those not in the course of such trade and
commerce; while the former should be the sphere of the Union and the
latter in the sphere of the States. It appears that so far as the
electricity duty is concerned, though the subject was separately dealt
with by the report, in the then circumstances the TEC did not
comprehend inter-State sale of electricity and, therefore, did not make
any recommendation specifically in that regard. However, that does
not make any difference.
Pursuant to the recommendations made by the Taxation
Enquiry Commission the Parliament incorporated certain amendments
in the Constitution by enacting the Constitution (Sixth Amendment)
Act, 1956 which we have already noticed briefly.
We have very briefly stated the legislative history for it has
been noticed in details in a recent Constitution Bench decision of this
Court in 20th Century Finance Corporation Ltd. & Anr. Vs. State of
Maharashtra (2000) 6 SCC 12 and earlier in Shiv Dutt Rai Fateh
Chand etc. Vs. Union of India & Anr. (1983) 3 SCC 529, and
therefore, we have deemed it not necessary to repeat or re-state the
same in details. The Central Sales Tax Act, 1956 was enacted by the
Parliament as authorized by the Constitution. We have already
reproduced Section 3 of the CST Act hereinabove. By Section 6 of
the Act the Central Government was empowered to levy tax on all
sales of goods effected by a dealer in the course of inter-State trade or
commerce. However, by the Central Sales Tax (Amendment) Act,
1972, which came into force with effect from 1.4.1973, the language
of Section 6 was suitably amended so as to confine the levy of tax
under Section 6 on all sales "of goods other than electrical energy".
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The Statement of Objects and Reasons for this amendment was so
stated "Exemption from Central sales-tax Act on inter-State sales of
electrical energy is now dependent on the exemption from tax by a
State Government on local sales of electrical energy. It is now
proposed to provide specifically that inter-State sale of electrical
energy would not be liable to Central sales tax." (see Gazette of India
Extraordinary Part II, at page 522). The purpose behind referring to
this amendment and the SOR is that in the understanding of the
Parliament also the inter-State sale of electrical energy was liable to
central sales-tax under Section 6 of the Act and but for the amendment
such tax was capable of being levied by the Central Government.
Electricity, what it is
Before we deal with the constitutional aspects let us first state
what electricity is, as understood in law, and what are its relevant
characteristics. It is settled with the pronouncement of this Court in
Commissioner of Sales Tax, Madhya Pradesh, Indore Vs. Madhya
Pradesh Electricity Board, Jabalpur- 1969 (2) SCR 939 that
electricity is goods. The definition of goods as given in Article 366
(12) of the Constitution was considered by this Court and it was held
that the definition in terms is very wide according to which "goods"
means all kinds of moveable property. The term "moveable
property" when considered with reference to "goods" as defined for
the purpose of sales-tax cannot be taken in a narrow sense and merely
because electrical energy is not tangible or cannot be moved or
touched like, for instance, a piece of wood or a book it cannot cease to
be moveable property when it has all the attributes of such property.
It is capable of abstraction, consumption and use which if done
dishonestly is punishable under Section 39 of the Indian Electricity
Act, 1910. If there can be sale and purchase of electrical energy like
any other moveable object, this Court held that there was no difficulty
in holding that electric energy was intended to be covered by the
definition of "goods". However, A.N. Grover, J. speaking for three-
Judge Bench of this Court went on to observe that electric energy "can
be transmitted, transferred, delivered, stored, possessed etc. in the
same way as any other moveable property". In this observation we
agree with Grover, J. on all other characteristics of electric energy
except that it can be ’stored’ and to the extent that electric energy can
be ’stored’, the observation must be held to be erroneous or by
oversight. The science and technology till this day have not been able
to evolve any methodology by which electric energy can be preserved
or stored.
Another significant characteristic of electric energy is that its
generation or production coincides almost instantaneously with its
consumption. To quote from Aiyar’s Law Lexicon (Second Edition,
2000) __ ’Electricity in physics is "the name given to the cause of a
series of phenomena exhibited by various substances, and also to the
phenomena themselves." Its true nature is not understood. Imperial
Dict. (quoted in Spensley v. Lancashire Ins. Co., 54 Wis. 433, 442,
11 NW 894, where the court, quoting from the same authority, said,
"We are totally ignorant of the nature of this cause whether it be a
material agent or merely a property of matter. But as some hypothesis
is necessary for explaining the phenomena observed, it has been
assumed to be a highly subtle, imponderable fluid, identical with
lightning, which pervades the pores of all bodies, and is capable of
motion from one body to another.’ This characteristic quality of
electric energy was judicially noticed in Indian Aluminium
Co.etc.etc. Vs. State of Kerala & Ors. (1996) 7 SCC 637. Vide para
25 this Court has noted, "Continuity of supply and consumption starts
from the moment the electrical energy passes through the meters and
sale simultaneously takes place as soon as meter reading is recorded.
All the three steps or phases (i.e. sale, supply and consumption) take
place without any hiatus. It is true that from the place of generating
electricity, the electricity is supplied to the sub-station installed at the
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units of the consumers through electrical higher-tension transformers
and from there electricity is supplied to the meter. But the moment
electricity is supplied through the meter, consumption and sale
simultaneously take place." "as soon as the electrical
energy is supplied to the consumers and is transmitted through the
meter, consumption takes place simultaneously with the supply.
There is no hiatus in its operation. Simultaneously sale also takes
place." These properties of electricity as goods are of immense
relevance as we would state hereafter.
List II, Entries 53 and 54, how to be read:
We now come to the question on the interpretation of Entry 53
in List II of Seventh Schedule. It provides for taxes on the
consumption or sale of electricity. The word ’sale’ as occurring in
Entry 52 came up for the consideration of this Court in Burmah Shell
Oil Storage & Distributing Co.India Ltd. Vs. The Belgaum Borough
Municipality 1963 Supp.(2) SCR 216. It was held that the act of
sale is merely the means for putting the goods in the way of use or
consumption. It is an earlier stage, the ultimate destination of the
goods being "use or consumption". We feel that the same meaning
should be assigned to the word ’sale’ in Entry 53. This is for a
fortiorari reason in the context of electricity as there can be no sale of
electricity excepting by its consumption, for it can neither be
preserved nor stored. It is this property of electricity which persuaded
this Court in Indian Aluminium Co. etc’s case (supra) to hold that in
the context of electricity, the word ’supply’ should be interpreted to
include sale or consumption of electricity. Entry 53 should therefore
be read as ’taxes on the consumption or sale for consumption of
electricity’.
With these two things in mind, namely, that electricity is goods,
and that sale of electricity has to be construed and read as sale for
consumption within the meaning of Entry 53, the conflict, if any,
between Entry 53and Entry 54 ceases to exist and the two can be
harmonized and read together. Because electricity is goods it is
covered in Entry 54 also. It is not disputed that duty on electricity is
tax. Tax on the sale or purchase of goods including electricity but
excluding newspapers shall fall within Entry 54 and shall be subject to
provisions of Entry 92A of List I. Taxes on the consumption or sale
for consumption of electricity within the meaning of Entry 53 must be
consumption within the State and not beyond the territory of the State.
Any other sale of electricity shall continue to be subject to the limits
provided by Entry 54. Even purchase of electricity would be available
for taxation which it would not be if electricity was not includible in
the meaning of term ’goods’. A piece of legislation need not
necessarily fall within the scope of one entry alone; more than one
entry may overlap to cover the subject-matter of a single piece of
legislation. A bare consumption of electric energy even by one who
generates the same may be liable to be taxed by reference to Entry 53
and if the State Legislature may choose to impose tax on consumption
of electricity by the one who generates it, such tax would not be
deemed to be a tax necessarily on manufacture or production or a duty
of excise, as held by Constitution Bench in Jiyajeerao Cotton Mills
Ltd., Birlanagar, Gwalior Vs. State of Madhya Pradesh 1962
Supp.(1) SCR 282. A mere consumption of goods (other than
electricity), not accompanied by purchase or sale would not be taxable
under Entry 54 because it does not provide for taxes on the
consumption and Entry 53 does not speak of goods other than
electricity. Thus in substance Entries 53 and 54 can be and must be
read together and to the extent of sale of electricity for consumption
outside the State, the electricity being goods, shall also be subject to
provisions of Entry 92A of List I. This, in our opinion, is the best way
of reading the two entries. In C.P. Motor Spirit Act re., AIR 1939 FC
131, it was held that two entries in the lists may overlap and
sometimes may also appear to be in direct conflict with each other. It
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is then the duty of this Court to reconcile the entries and bring about
harmony between them. The Court should strive at searching for
reasonable and practical construction to seek reconciliation and give
effect to all of them. If reconciliation proves impossible the
overriding power of Union Legislature operates and prevails. Gwyer,
C.J. observed "A grant of the power in general terms, standing by
itself, would no doubt be construed in the wider sense; but it may be
qualified by other express provisions in the same enactment, by the
implication of the context, and even by considerations arising out of
what appears to be the general scheme of the Act." And again he said,
"an endeavour must be made to solve it, as the Judicial
Committee have said, by having recourse to the context and scheme of
the Act, and a reconciliation attempted between two apparently
conflicting jurisdictions by reading the two entries together and by
interpreting, and, where necessary, modifying the language of the one
by that of the other. If needed such a reconciliation should prove
impossible, then and only then, will the non-obstante clause operate
and the federal power prevail." In Calcutta Gas Co. Ltd. Vs. The
State of West Bengal & Ors., 1962 Supp (3) SCR 1, the Constitution
Bench has held that the same rules of construction apply for the
purpose of harmonizing an apparent conflict between two entries in
the same list.
What is inter-State sale?
It is well settled by a catena of decisions of this Court that a
sale in the course of inter-State trade has three essential ingredients:
(i) there must be a contract of sale, incorporating a stipulation, express
or implied, regarding inter-State movement of goods; (ii) the goods
must actually move from one State to another, pursuant to such
contract of sale; the sale being the proximate cause of movement; and
(iii) such movement of goods must be from one State to another State
where the sale concludes. It follows as a necessary corollary of these
principles that a movement of goods which takes place independently
of a contract of sale would not fall within the meaning of inter-State
sale. In other words, if there is no contract of sale preceding the
movement of goods, obviously the movement cannot be attributed to
the contract of sale. Similarly, if the transaction of sale stands
completed within the State and the movement of goods takes place
thereafter, it would obviously be independently of the contract of sale
and necessarily by or on behalf of the purchaser alone and, therefore,
the transaction would not be having an inter-State element.
Precedents are legion; we may briefly refer to some of them. In
English Electric Company of India Ltd. Vs. Deputy Commercial Tax
Officer, 1977 (1) SCR 631, this Court held that when the movement
of the goods from one State to another is an incident of the contract it
is a sale in the course of inter-State sale and it does not matter which
is the State in which the property passes. What is decisive is whether
the sale is one which occasions the movement of goods from one State
to another. In Union of India Vs. K.G. Khosla and Co. Ltd., (1979)
2 SCC 242, it was observed that a sale would be an inter-State sale
even if the contract of sale does not itself provide for the movement of
goods from one State to another provided, however, that such
movement was the result of a covenant in the contract of sale or was
an incident of the contract. Similar view was expressed in M/s.
Sahney Steel and Press Works Ltd. and Anr. Vs. Commercial Tax
Officer and Others (1985) 4 SCC 173. In Manganese Ore (India)
Ltd. Vs. The Regional Assistant Commissioner of Sales-tax,
Jabalpur 1976 (4) SCC 124, after referring to Balabhagas
Hulaschand Vs. State of Orissa, (1976) 2 SCC 44, it was observed
that so far as Section 3 (a) of the C.S.T. Act is concerned there is no
distinction between unascertained or future goods and goods which
are already in existence, if at the time when the sale takes place these
goods have come into actual existence.
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Effect of Entry-53, List-II, having remained unamended
Having seen the properties of electricity as goods and what is
inter-State sale, let us examine the effect of Entry 53, List II, having
been left unamended by Sixth Amendment from another angle. Sixth
Amendment did not touch Entry 53 in List-II and so the contents of
Entry 53 were not expressly made subject to the provisions of Entry
92 A of List I and arguments were advanced, with emphasis, on behalf
of the States of Andhra Pradesh and Madhya Pradesh contending that
such omission was deliberate and therefore the restriction which has
been placed only in Entry 54 by making it subject to the provisions of
Entry 92A of List I should not be read in Entry 53. It was submitted
that so far as sale of electricity is concerned even if such sale takes
place in the course of inter-State trade or commerce the State can
legislate to tax such sale if the sale can be held to have taken place
within the territory of that State or if adequate territorial nexus is
established between the transaction and State legislation. For the
several reasons stated hereinafter such a plea cannot be countenanced.
The prohibition which is imposed by Article 286(1) of the
Constitution is independent of the legislative entries in Seventh
Schedule. After the decision of larger Bench in Bengal Immunity
Company Limited (supra) and Constitution Bench decision in Ram
Narain Sons Ltd. & Ors. Vs. Asst. Commissioner of Sales Tax &
Ors., 1955 (2) SCR 483, there is no manner of doubt that the bans
imposed by Articles 286 and 269 on the taxation powers of the State
are independent and separate and must be got over before a State
legislature can impose tax on transactions of sale or purchase of
goods. Needless to say, such ban would operate by its own force and
irrespective of the language in which an Entry in List-II of Seventh
Schedule has been couched. The dimension given to field of
legislation by the language of an Entry in List-II Seventh Schedule
shall always remain subject to the limits of constitutional
empowerment to legislate and can never afford to spill over the
barriers created by the Constitution. The power of State legislature to
enact law to levy tax by reference to List II of the Seventh Schedule
has two limitations : one, arising out of the entry itself; and the other,
flowing from the restriction embodied in the Constitution. It was held
in Tata Iron and Steel Co. Ltd. Bombay Vs. S.R. Sarkar and Ors. -
1961 (1) SCR 379 (at pages 387 and 388) that field of taxation on
sale or purchase taking place in the course of inter-State trade or
commerce has been excluded from the competence of the State
Legislature. In 20th Century Finance Corporation Limited (supra)
the Constitution Bench (majority) made it clear that the situs of the
sale or purchase is wholly immaterial as regards the inter-State trade
or commerce. In view of Section 3 of the Central Sales Tax, 1956 all
that has to be seen is whether the sale or purchase (a) occasions the
movement of goods from one State to another; or (b) is effected by a
transfer of documents of title to the goods during their movement
from one State to another. If the transaction of sale satisfies any one
of the two requirements it shall be deemed to be a sale or purchase of
goods in the course of inter-State trade or commerce and by virtue of
Articles 269 and 286 of the Constitution the same shall be beyond the
legislative competence of a State to tax without regard to the fact
whether such a prohibition is spelled out by the description of a
legislative entry in Seventh Schedule or not.
It is well settled, and hardly needs any authority to support the
proposition, that several entries in the three lists of Seventh Schedule
are legislative heads or fields of legislation and not the source of
legislative empowerment. [To wit, see The Calcutta Gas Co. Ltd. Vs.
The State of West Bengal & Ors. (supra)]. Competence to legislate
has to be traced to the Constitution. The division of powers between
Parliament and the State Legislatures to legislate by reference to
territorial limits is defined by Article 245. The subject-matters with
respect to which those powers can be exercised are enumerated in the
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several entries divided into three groups as three Lists of Seventh
Schedule. Residuary powers of legislation are also vested by Article
248 in the Parliament with respect to any matter not enumerated in
any of the lists in Seventh Schedule. This residuary power finds
reflected in Entry 97 of List I. If an Entry does not spell out an
exclusion from field of legislation discernible on its apparent reading,
the absence of exclusion cannot be read as enabling power to legislate
in the field not specifically excluded, more so, when there is available
a specific provision in the Constitution prohibiting such legislation.
It is by reference to the ambit or limits of territory by which the
legislative powers vested in Parliament and the State Legislatures are
divided in Article 245. Generally speaking, a legislation having extra
territorial operation can be enacted only by Parliament and not by any
State Legislature; possibly the only exception being one where extra
territorial operation of a State legislation is sustainable on the ground
of territorial nexus. Such territorial nexus, when pleaded, must be
sufficient and real and not illusory. In Burmah Shell Oil Storage &
Distributing Co.India Ltd.(supra), which we have noticed, it was held
that sale for use or consumption would mean the goods being brought
inside the area for sale to an ultimate consumer, i.e. the one who
consumes. In Entry 53, ’sale for consumption’ (the meaning which
we have placed on the word ’sale’) would mean a sale for
consumption within the State so as to bring a State Legislation within
the field of Entry 53. If sale and consumption were to take place in
different States, territorial nexus for the State, where the sale takes
place, would be lost. We have already noticed that in case of
electricity the events of sale and consumption are inseparable. Any
State legislation levying duty on sale of electricity, by artificially or
fictionally assuming that the events of sale and consumption have
taken place in two States, would be vitiated because of extra territorial
operation of State legislation.
In 20th Century Finance Corporation’s case, the Constitution
Bench by reference to the definition of "tax on the sale or purchase of
goods" (which too has been inserted as clause (29-A) in Article 366
by Sixth Amendment) opined that the situs of sale can be fixed either
by the appropriate legislature or by Judge made law and no settled
principles for determining situs of sale can be laid down. Further, the
State legislature cannot by law, treat sales outside the State and sales
in the course of import as "sales within the State" by fixing the situs
of sales within its State in the definition of sale, as it is within the
exclusive domain of the appropriate legislature, i.e. Parliament to fix
the location of sale by creating legal fiction or otherwise. The,
majority has clearly opined that the State where the goods are
delivered in the transaction of inter-State sale, cannot levy a tax on the
basis that one of the events in the chain has taken place within the
State; so also where the goods are in existence and available for the
transfer of right to use, there also that State cannot exercise power to
tax merely because the goods are located in that State. Then it was
observed that in case where goods are not in existence or where there
is an oral or implied transfer of the right to use the goods, such
transactions may be effected by the delivery of the goods in which
case the taxable event would be on the delivery of goods. However,
we are dealing with the case of electricity as goods, the property
whereof, as we have already noted, is that the production (generation),
transmission, delivery and consumption are simultaneous, almost
instantaneous. Electricity as goods comes into existence and is
consumed simultaneously; the event of sale in the sense of
transferring property in the goods merely intervenes as a step between
generation and consumption. In such a case when the generation
takes place in one State wherefrom it is supplied and it is received in
another State where it is consumed, the entire transaction is one and
can be nothing else excepting an inter-State sale on account of
instantaneous movement of goods from one State to another
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occasioned by the sale or purchase of goods, squarely covered by
Section 3 of C.S.T. Act.
Sale of electricity by NTPCL
In both the cases before us, contracts have been entered into
between parties to the transaction, that is, the sellers and the buyers (in
other States) prior to the generation of electricity. The NTPCL
generates electricity and pursuant to these contracts supplies the same
from its power stations situated in the States of A.P. or M.P. to the
buyers in other States where it is received and consumed. There is no
hiatus between generation, sale, supply, transmission, delivery and
consumption. The inter-State movement of electricity is pursuant to
contracts of sale. Such sales can be held only as inter-State sales.
Though it may be permissible to fix the situs of sale either by
appropriate State legislation or by Judge made law as held by the
majority opinion in 20th Century Finance Corporation case, we
would like to clarify that none of the two can artificially appoint a
situs of sale so as to create territorial nexus attracting applicability of
tax legislation enacted by any State Legislature and tax an inter-State
sale in breach of Section 3 of the CST Act read with Articles 286 (2)
and 269(1) and (3) of the Constitution. No State legislation, nor any
stipulation in any contract, can fix the situs of sale within the State or
artificially define the completion of sale in such a way as to convert
an inter-State sale into an intra-State sale or create a territorial nexus
to tax an inter-State sale unless permitted by an appropriate central
legislation. But this is exactly what the definition of ’consumer’ in
Clause (2)(a) of the M.P. Electricity Duty Act, 1949 has done. The
definition of consumer has been artificially extended to include any
person who receives electrical energy (without regard to its
consumption) and also to include a person who, receiving the
electrical energy in bulk, forwards it onwards for distribution,
(without regard to the fact whether it transmitted outside the State and
whether the electricity is or is not consumed within the State). The
same definition has been adopted in M.P. Upkar Adhiniyam, 1981.
This definition of consumer shall have to be read down as including
within it only such persons who receive the electricity for
consumption or distribution for consumption within the State.
Without such reading down, the definition of ’consumer’ would be
rendered ultra vires of Articles 286 and 269 of the Constitution read
with Section 3 of the Central Sales Tax Act, 1956.
Consequences on free flow of trade
Yet another reason why we cannot accept the line of reasoning
advanced on behalf of the States of Andhra Pradesh and Madhya
Pradesh is that the same runs counter to the scheme of constitutional
provisions and specially the Sixth Amendment. As has been found by
the Division Bench of Andhra Pradesh High Court in its impugned
judgment, if the reasoning suggested on behalf of the State of A.P.
was accepted, the State where the dealer supplying the electricity is
located and the electricity originates for sale, as also the States in
which the purchaser of electricity is located and it is delivered, shall
both subject the electrical energy to taxation, by relying on the theory
of territorial nexus. Such a situation would be the one which was
obtaining in the country with respect to sales tax prior to coming into
force of the Constitution and which led to complications and
difficulties in administration of sales tax legislation and therefore, was
taken care of by the Sixth Amendment. Such multiple taxation would
result in hampering free movement of electricity between the States,
and therefore, would be prejudicial to freedom of trade, commerce
and intercourse throughout the territory of India, and for the unity and
integrity of the country. That would give rise to the same situation
which was sought to be remedied by the Constitution and the Sixth
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Amendment.
On behalf of the States of A.P. and M.P., it was submitted that
subject of electricity has been specifically dealt with by Articles 287
and 288 of the Constitution and by implication the Articles, other than
287 and 288, should be read as not dealing with electricity. This
submission is stated only to be rejected. These articles make some
provisions for electricity and water or electricity in the special context
dealt with by those articles and do not exclude applicability of other
articles where electricity has been dealt with as goods.
For the foregoing reasons, we are of the opinion that no fault
can be found with the judgment of the Andhra Pradesh High Court
which is affirmed and Civil Appeal No. 3112 of 1990 is dismissed
with costs. Civil Writ Petition T.C. No.3 of 1998 is allowed with
costs and the demand raised by the Chief Electrical (Electricity Duty)
and Chief Electrical Inspector, Government of M.P. vide its letter
dated 30.11.1995 is directed to be quashed.
. . . . . . .. . . . . . . . . . . . . . . . . . . . . CJI
. . . . . . .. . . . . . . . . . . . . . . . . . . . . . .J.
( R.C. Lahoti )
. . . . . . .. . . . . . . . . . . . . . . . . . . . . . .J.
( N. Santosh Hegde )
. . . . . . .. . . . . . . . . . . . . . . . . . . . . . .J.
( Ruma Pal )
. . . . . . .. . . . . . . . . . . . . . . . . . . . . . .J.
( Arijit Pasayat )
April 22, 2002.
9