Un-necessary litigation by revenue to disallow electricity charges under section 43B

[CA DEV KUMAR KOTHARI]

Electricity charges:

Electricity charges are payable by a customer for purchasing/ withdrawing or consuming electricity or as a minimum contractual charges as the case may be . Such charges are generally payable to the distributor of electricity from whom electrical connection and electricity is obtained.

Generally we find that electricity charges are paid to Electricity Board of state, or any government department, or Electricity Company and in some cases there can be purchase from other persons who have surplus electricity generated and therefore allow, associates or neighbors to use such electricity as per mutual convenience.

Contractual payment:

Electricity charges are payable as per contract between parties. It is not a levy under any law, though certain aspects of arrangements between parties are governed by specific law in this regard.

An Electricity Board or an electricity generating and /or distributing company is a party to agreement for supply of electricity. He is not like a government authority who can collect electricity charges as a statutory levy irrespective of agreement, consumption and other aspects.

Electricity Board, or company   are engaged in business of generating and / or distributing electricity, they are not collecting charges from consumers as a statutory levy like a tax, duty or fees. They collect charges as per agreement based on consumption of electricity.

Therefore, it is wrong to say that amount of electricity charges payable even to a State Electricity Board or a department of government is in nature of statutory levy in nature of tax, duty or fees as applicable in terms of section 43B.

Electricity charges are not covered by S.43B:

Electricity charges being contractual payment for purchase of electricity is not covered by section 43B in the category of “any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force.

In this expression any law means a specific law which levy any   tax, duty, cess or fees.

Any fees payable as per Indian Contract Act to any person will not be covered by this expression. Because fees in those cases is related to specific facility or service or supply.

Furthermore in the context of this provision wherein words used are “tax, duty, cess or fees payable under any law in force” means a statutory levy and not all contractual payments.

The word ‘fees’ is to be considered in accordance with the rule of ejusdem genris. The word will take its meaning and contextual colour from the other words that is tax, duty or cess. Word ‘fees’ cannot be read in isolation from other words. These words indicate one common and peculiar feature that these words represent a liability imposed under any law for public purposes and not for rendering any service.

Certain relevant rules of interpretation:

http://legal-dictionary.thefreedictionary.com/Ejusdem+generis

ejusdem generis legal definition

Of the same category. A legal principle stating that a general phrase following a list of specific items refers to an item of the same type as those in the list.

of the same kind or class ejusdem generis with the class of articles specifically named in said paragraph 217 — U.S. Daily> —usu. used in law to limit the application of a broad term to a specific class of things

http://en.wikipedia.org/wiki/Statutory_interpretation

Ejusdem generis ("of the same kinds, class, or nature")

When a list of two or more specific descriptors is followed by more general descriptors, the otherwise wide meaning of the general descriptors must be restricted to the same class, if any, of the specific words that precede them. For example, where "cars, motor bikes, motor powered vehicles" are mentioned, the word "vehicles" would be interpreted in a limited sense (therefore vehicles cannot be interpreted as including airplanes).

 Noscitur a sociis ("a word is known by the company it keeps")

When a word is ambiguous, its meaning may be determined by reference to the rest of the statute.

Applying the above two rules we need to ascertain meaning of word ‘fees’ as relating to the nature of tax, duty or cess and not ‘fees’ as is generally understood. Applying these rules, fees cannot include any fees charged under any law, if it is not of nature relating to tax, duty or cess.

Charges payable to an Electricity Board can include following type of charges:

1. Meter rent for electrical meter
2. Other equipment charges e.g. rent or cost of meter or transformer
3. Electricity charges based on actual consumption measured by reading electrical meters on two dates.
4. Minimum charges- in case consumption charges are lower than minimum agreed charges the consumer has to pay minimum charges.

All these charges are payable according to terms and conditions and for the purpose of availing electricity and not otherwise.

Relationship- consumer / customer:

Relationship of a consumer of electricity is that of consumer or customer and not a taxpayer. Nobody will say that a person is paying a tax, duty, cess or fees to SEB or CESC for availing electrical connection.

The SEB is not regarded as a tax department, as would be like in a case of Income-tax Department, Sales Tax department ,Excise department, Municipal Corporation etc.

Therefore, it can be said that even a State Electricity Board, constituted by a state law, is not considered as an authority who levy and collect a tax, duty, cess or fees.

In view of above discussion, author is of considered opinion that amount payable to any Electricity Board for purchase of electricity and incidental charges are not in nature of ‘tax, duty , cess or fees’ and section 43B is not applicable to such charges.

Un-necessary litigation by revenue:

We find that in practice, electricity charges payable even to State Electricity Board are not reported in tax audit report and generally electricity charges are allowed by the Assessing Officers without applying section 43B. However sometimes disputes have been raised. For example, in case of Andhra Ferro Alloys P. Ltd recently webhosted on this website.

In this case the AO and CIT(A) both disallowed electricity charges payable to APSEB by applying section 43B. The Tribunal allowed the same and the revenue preferred appeal before the High Court. The High Court dismissed appeal of revenue.

The Tribunal held that electricity charges was statutory payment but it was not in nature of fees in context of section 43B. The High court confirmed the same and held that S.43B is not applicable, and when assessee maintains accounts on mercantile method basis, the demand of electricity board was allowable thought there was dispute and partial stay was also granted by the High Court.

Authors point of view:

As explained and discussed earlier, the word fees is used in context of a statutory levy and not any payment for any supply or service provided by any government or its organizations.

Electricity charges are also not commonly known as fees.

With respect, author feels that the Tribunal has wrongly held that sums payable to SEB is a statutory due. Charges payable for electricity are contractual charges and not something like statutory levy in nature of tax, duty, cess or fees which are levied by Central , State or Local government for public purposes as a levy and not as a charge for something.

Let us hope that the revenue accept the judgment of high court and do not indulge into further litigation. In case revenue prefers an appeal before the Supreme Court, the assessee should also raise contention that amount payable to APSEB is not a statutory payment but a contractual payment. Had it been a statutory payment, there would be no scope to contest with APSEB that they have wrongly charged excess amount and demanded in addition to what is payable as per contract (express, or implied or general terms and conditions etc.)

The judgment of the High Court - [Commissioner of Income-tax Versus Andhra Ferro Alloys P. Ltd., 2013 (2) TMI 530 - Andhra Pradesh High Court].