2002 (4) TMI 694 - SC - VAT and Sales Tax

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? Under which entry Andhra Pradesh Electricity Duty Act, 1939 is covered? 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? Held that - Appeal dismissed.

Issues Involved:
1. Levy of duty by the State of Andhra Pradesh on inter-State sales of electrical energy.
2. Legitimacy of the demand raised by the State of Madhya Pradesh on inter-State sales of electrical energy.
3. Interpretation of relevant constitutional provisions and statutory provisions.
4. Determination of whether the sales of electricity by NTPCL to other states are inter-State or intra-State sales.
5. Reconciliation of Entries 53 and 54 of List II of the Seventh Schedule of the Constitution.
6. Impact on free flow of trade and commerce between states.

Issue-Wise Detailed Analysis:

1. Levy of Duty by the State of Andhra Pradesh on Inter-State Sales of Electrical Energy:
The Andhra Pradesh Electricity Duty Act, 1939, imposes a duty on certain sales and consumption of electricity by licensees within the state. The High Court of Andhra Pradesh ruled that the levy of duty on sales of electrical energy generated by NTPCL and sold to other states was incompetent and outside the power of the State Legislature. The Supreme Court affirmed this decision, stating that such sales are inter-State sales and fall outside the purview of the state's taxing authority.

2. Legitimacy of the Demand Raised by the State of Madhya Pradesh on Inter-State Sales of Electrical Energy:
The Madhya Pradesh Electricity Duty Act, 1949, and the Madhya Pradesh Upkar Adhiniyam, 1981, were examined. The State of Madhya Pradesh raised a demand for electricity duty and cess on units sold to other states. The Supreme Court held that the definition of 'consumer' in the Madhya Pradesh legislation was artificially extended to include persons receiving electrical energy in bulk for onward distribution, which could not be sustained. The demand by the State of Madhya Pradesh was quashed.

3. Interpretation of Relevant Constitutional Provisions and Statutory Provisions:
The judgment analyzed Articles 246, 269, and 286 of the Constitution, along with Entries 53 and 54 of List II and Entry 92A of List I of the Seventh Schedule. The Court emphasized that the amendments made by the Constitution (Sixth Amendment) Act, 1956, were crucial in determining the legislative competence of states concerning inter-State sales. The Court also referred to the Central Sales Tax Act, 1956, which defines when a sale or purchase of goods takes place in the course of inter-State trade or commerce.

4. Determination of Whether the Sales of Electricity by NTPCL to Other States are Inter-State or Intra-State Sales:
The Court held that the sales of electricity by NTPCL to other states were inter-State sales. The movement of electricity from one state to another pursuant to contracts of sale was deemed to be inter-State sales, as the generation, sale, supply, transmission, delivery, and consumption of electricity are simultaneous and almost instantaneous.

5. Reconciliation of Entries 53 and 54 of List II of the Seventh Schedule of the Constitution:
The Court reconciled Entries 53 and 54 by interpreting Entry 53 to mean 'taxes on the consumption or sale for consumption of electricity' within the state. This interpretation harmonized the entries, ensuring that inter-State sales of electricity fall under Entry 54, subject to the provisions of Entry 92A of List I.

6. Impact on Free Flow of Trade and Commerce Between States:
The Court highlighted that allowing states to tax inter-State sales of electricity would lead to multiple taxation and hamper the free flow of electricity between states. This would be contrary to the constitutional scheme and the amendments introduced to facilitate free trade and commerce across the country. The judgment emphasized the importance of maintaining the unity and integrity of the country by preventing such impediments.

Conclusion:
The Supreme Court affirmed the judgment of the Andhra Pradesh High Court, dismissing the appeal by the State of Andhra Pradesh. The Court also allowed the writ petition by NTPCL, quashing the demand raised by the State of Madhya Pradesh. The judgment clarified the constitutional and statutory provisions concerning the taxation of inter-State sales of electricity, ensuring that such sales are not subject to state levies, thereby promoting free trade and commerce across state boundaries.

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