1996 (2) TMI 526 - SC - Indian Laws

Whether the impugned Act the Central Excise and Salt Act, 1944 enacted by the State legislature is one under Entry 53 of the State List, viz., Taxes on the consumption or sale of electricity ? Held that - As already seen, the specific case of the State and the Board is that the State has been expending its public money for the effective functioning for the KSEB and the duty under the Act is flowing into the public exchequer and, therefore, it is not a duty for the benefit of KSEB coming under Essential Articles Act. Equally, it is not either a threat to the power of judicial review or form of restraint to exercise the power of judicial review over legislative action. It is true that under the Electricity Act which admittedly has been enacted under Entry 53 of the State List, the rate of duty, as amended, is 10 per cent. As stated above, under the duty is an additional impost in the nature of compulsory exaction for the benefit of public exchequer. When we look into the provisions of the Act it is clear that levy and collection of additional duty is not discontinued as contended by Shri Venugopal. As held above, the Act is a complete code in itself and operates retrospectively. Therefore, both the Acts operate harmoniously and do not collide in their operation since 1984 Act is the principal Act and the Act is in addition to, but not in substitution of the principal Act. Therefore, 1984 Act does not get eclipsed with the passing of the Act. Under these circumstances, we hold that the Act is valid. The direction with regard to the refund of duty for the period which the Act did not seek to cover, has already been given by the High Court and no appeal has rightly been filed by the State. Therefore, to that extent that order has become final. We need not dwell upon it. Appeal dismissed.

Summary

Issues Involved:
1. Validity of the Kerala State Electricity Supply (Kerala State Electricity Board and Licensees Area) Surcharge Order, 1984.
2. Competence of the Kerala State Legislature to enact the Kerala Electricity Surcharge (Levy and Collection) Ordinance, 1989.
3. Retrospective validation of the levy and collection of surcharge under Section 11 of the Kerala Electricity Surcharge (Levy and Collection) Ordinance, 1989.
4. Whether Section 11 of the Act encroaches upon judicial power and violates the basic structure of the Constitution.

Detailed Analysis:

1. Validity of the Kerala State Electricity Supply (Kerala State Electricity Board and Licensees Area) Surcharge Order, 1984:
The Kerala State Electricity Board (KSEB) was initially liable to pay excise duty on electricity generated and produced by it as per the Central Excise and Salt Act, 1944, amended by Section 36 of the Finance Act, 1978. To recoup the loss, the Government of Kerala issued an order imposing a surcharge at the rate of 2.5 paise per unit of electrical energy on all supplies made by KSEB. However, the Kerala High Court in Chakolas Spinning & Weaving Mills Ltd. v. K.S.E. Board (1988 [2] KLT 680) declared the 1984 Order ultra vires, stating that the levy of surcharge was a compulsory exaction intended to enrich the state coffers and effectively partook the character of a tax on electricity. The High Court issued a writ of mandamus directing the refund of excise duty collected from the petitioners, which was confirmed by the Supreme Court.

2. Competence of the Kerala State Legislature to Enact the Kerala Electricity Surcharge (Levy and Collection) Ordinance, 1989:
The Kerala State Legislature enacted the Kerala Electricity Surcharge (Levy and Collection) Ordinance, 1989, which later became Act 22 of 1989. The appellants contended that the Act levied a tax on the supply of electrical energy, which was not a tax on the sale or consumption of electricity as per Entries 26 and 27 of List II of the Seventh Schedule to the Constitution. However, the Court held that the words "sale or consumption" in Entry 53 of the State List should receive a wide interpretation to include the levy of duty on the supply of electricity. The Court concluded that the Act was indeed a tax on the sale or consumption of electrical energy and thus within the competence of the State Legislature under Article 246(3) of the Constitution.

3. Retrospective Validation of the Levy and Collection of Surcharge under Section 11 of the Kerala Electricity Surcharge (Levy and Collection) Ordinance, 1989:
Section 11 of the Act validated the levy and collection of surcharge by the KSEB from October 1, 1984, to August 1, 1988, notwithstanding any judgment, decree, or order of any court. The Court examined whether the legislature had the competence to enact such a validating provision and whether it effectively removed the defect pointed out by the Court in Chakolas' case. The Court held that the legislature could enact laws with retrospective effect to validate past transactions, provided it removed the defect that rendered the previous law invalid. The Court found that Section 11 effectively validated the surcharge by removing the base of invalidity pointed out in Chakolas' case.

4. Whether Section 11 of the Act Encroaches Upon Judicial Power and Violates the Basic Structure of the Constitution:
The appellants argued that Section 11 encroached upon judicial power by nullifying the High Court's mandamus, thereby violating the basic structure of the Constitution. The Court reiterated that the legislature could not directly overrule a judicial decision but could remove the defect in the law that led to the judicial decision. The Court found that Section 11 did not encroach upon judicial power but rather validated the surcharge by curing the defect identified in Chakolas' case. The Court concluded that Section 11 was a valid piece of legislation and did not violate the basic structure of the Constitution.

Conclusion:
The Supreme Court upheld the validity of the Kerala Electricity Surcharge (Levy and Collection) Ordinance, 1989, and the retrospective validation of the surcharge under Section 11. The Court found that the Act was within the legislative competence of the Kerala State Legislature and did not encroach upon judicial power or violate the basic structure of the Constitution. The appeals were dismissed without costs.