2007 (5) TMI 591 - SC - Indian Laws

Whether Tamil Nadu Tax on Consumption or Sale of Electricity Act, 2003 constitunially valid? Whether the provisions of Section 14 of the 2003 Act should be read in such a manner so as to make it in consonance with Article 14 of the Constitution of India?

Summary

Issues Involved:
1. Validity of Tamil Nadu Tax on Consumption or Sale of Electricity Act, 2003 without the President's assent under Article 288(2).
2. Repugnancy of the 2003 Act with Section 29 of the Electricity Regulatory Commissions Act, 1998.
3. Continuation of exemptions under the repealed 1962 Act.
4. Basis for calculating tax on electricity consumption, specifically whether it should include maximum/sanctioned demand charges or be based solely on actual consumption.
5. Constitutionality of Section 14 of the 2003 Act under Article 14 of the Constitution.

Detailed Analysis:

1. Validity of Tamil Nadu Tax on Consumption or Sale of Electricity Act, 2003 without the President's assent under Article 288(2):
The High Court held that Article 288 of the Constitution requires the President's assent only for laws imposing taxes on authorities specified therein, such as the Government and Railways, not for private consumers. The Court concluded that the appellants, being private consumers, cannot claim protection under Article 288. The Supreme Court upheld this view, stating that the State's obligation under Article 288 was satisfied as the 2003 Act exempted the authorities mentioned in Article 288.

2. Repugnancy of the 2003 Act with Section 29 of the Electricity Regulatory Commissions Act, 1998:
The High Court found no repugnancy between the 2003 Act and the 1998 Act, as the tax levied by the state was not part of the tariff regulated by the Central Act. The Supreme Court agreed, stating that the State Act, falling under Entry 53 of List II, and the Central Act, under Entry 38 of List III, operate in different fields. Thus, Article 254(2) did not apply, and there was no conflict between the two laws.

3. Continuation of exemptions under the repealed 1962 Act:
The High Court held that the exemptions under the 1962 Act did not survive the enactment of the 2003 Act due to inconsistencies between the two Acts. The Supreme Court disagreed, emphasizing that the repeal and saving clause in Section 20 of the 2003 Act preserved existing rights and privileges unless explicitly revoked. The Court concluded that exemptions granted under the 1962 Act continued to be valid under the 2003 Act.

4. Basis for calculating tax on electricity consumption:
The High Court upheld the inclusion of maximum demand charges in the tax calculation, reasoning that tariff collection on permitted demand was permissible. The Supreme Court overturned this, ruling that tax should be levied on actual consumption, not on maximum demand charges. The Court emphasized that a taxing statute must be strictly interpreted, and tax should be based on actual consumption as recorded by the meters.

5. Constitutionality of Section 14 of the 2003 Act under Article 14 of the Constitution:
The High Court did not address this issue as it was not raised before it. The Supreme Court noted the lack of necessary factual foundation and pleadings to support the claim of discrimination under Article 14. The Court emphasized that in taxation matters, the State has wide discretion to pick and choose objects for taxation and exemption. Therefore, the challenge to the constitutionality of Section 14 on the grounds of discrimination was not entertained.

Promissory Estoppel and Legitimate Expectation:
The Supreme Court also addressed the doctrine of promissory estoppel, holding that it applies to the appellants who altered their position based on the State's promise of tax exemption. The Court recognized that the principle of legitimate expectation could also apply, preserving the substantive benefit expected by the appellants. The Court concluded that the State could not withdraw the exemption without overriding public interest and without providing a fair opportunity to the affected parties.

Conclusion:
The Supreme Court allowed the appeals, setting aside the High Court's judgment to the extent mentioned. The Court upheld the validity of the 2003 Act but ruled that exemptions granted under the 1962 Act continued and that tax on electricity consumption should be based on actual consumption, not maximum demand charges. The Court did not entertain the challenge to the constitutionality of Section 14 under Article 14 due to the lack of necessary factual foundation.