TMI Blog2002 (4) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... h Shrivastava, S.K. Agnihotri, Ms. Malini Poduval, Ms. Lansinglu Rongmei, Ms. Indu Malhotra,Vikas Mehta, Ms. Pooja Vij, Sidharth Bhatnagar, Mrs. Meenakshi Sakhardande, Ms. Aprajita Singh, Sidhartha Chouwdhury, Sidharth Goswami, Ms. Gayatri Goswami, Preetesh Kapoor, Krishnan Venugopal, Varun Goswami, S.N. Terdol, V.G. Pragasam, Ms. Santha Vasudevan, P.K. Manohar, A.S. Bhasme, Sanjay K. Visen and Manoj K. Mishra, for the parties. Senior Advocates: Mrs. K. Amareswari, G.L. Sanghi, K.K. Venu-gopal, C.S. Vaidyanathan, T.L.V. Iyer, Ranjit Kumar and A.S. Nambiar, for the parties. 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 oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty 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 licens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. 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 assigned Union but assigned to the States in the 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 passngers 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 advertisements published therein. (2) The net proceeds in any financial year of any such duty or tax, except in so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration 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 cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 'sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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