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TMI Blog2002 (4) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... athan, 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 occasioning inter-State movement of electricity is incompetent and outside the power of State Legislature. Consequently, the tax levied and collected has also been held to be without authority of law, hence liable to be refunded in accordance with law. On a prayer made by the learned Advocate General on behalf of the State of Andhra Pradesh, the High Court certified that the case involves a substantial question of law as to the interpretation of Constitution under Article 132. The appeal has been filed pursuant to the ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 licensee during the previous month at a price of more than 12 paise per unit. Duty is also leviable on all energy consumed by the licensee. There are certain categories of sales and consumption saved and excluded from what would otherwise have been dutiable. However, in the present case, we are not concerned with those exclusions, nor with levy of duty on consumption. The limited question arising for our consideration is whether sales of energy by NTPCL, the respondent No.1, to several Electricity Boards situated outside the State of Andhra Pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 of certain cesses. Sub-section (1) of Section 3 thereof provides that every distributor of electrical energy shall pay to the State Government an energy development cess at the rate of certain paise per unit on the total units of electrical energy sold or supplied to a consumer or consumed by himself or his employees during any month. NTPCL has two power projects located in the State of Madhya Pradesh (i) Korba Super Thermal Power Station at Pragati Nagar, District Bilaspur, known as Korba Station (presently in the State of Chhattisgarh) and ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 State of M.P. Similar are the agreements entered into with other outside-State buyers. It is not disputed that the power generated at the abovesaid two stations is fed into transmission system of Power Grid Corporation of India Limited and the transmission systems of other bulk power beneficiaries wherefrom the buyers draw the power purchased by them. Great emphasis was laid on the fact that the points for metering are installed within the State of Madhya Pradesh. It was submitted that the transaction under scrutiny in the case of State of M.P. is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; 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 far as those proceeds represent proceeds attributable to States specified in Part C of the first Schedule, shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that duty or tax is leviable in that year, and shall be distributed among those States in accordance with such principles of distribution as may be formulated by Parliament by law. 269.(1)The following duties and taxes shall be levied and collected Taxes levied and by the Government of collected by the India but shall be assig- Union but assig- ned to the States in the ned to the States. manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase 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 of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent. 286. (1) No law of a State shall impose, or authorize the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place (a) (b) (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. * * * * * (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities. 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 purchase__ (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. Explanation 1. Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Explanation 2. - Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmer 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 certain amendments in the Constitution by enacting the Constitution (Sixth Amendment) Act, 1956 which we have already noticed briefly. We have very briefly stated the legislative history for it has been noticed in details in a recent Constitution Bench decision of this Court in 20th Century Finance Corporation Ltd. & Anr. Vs. State of Maharashtra (2000) 6 SCC 12 and earlier in Shiv Dutt Rai Fateh Chand etc. Vs. Union of India & Anr. (1983) 3 SCC 529, and therefore, we have deemed it not necessary to repeat or re-state the same in details. The Central Sales Tax Act, 1956 was enacted by the Parliament as authorized by the Constitution. We have already reproduced Section 3 of the CS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 'stored', the observation must be held to be erroneous or by oversight. The science and technology till this day have not been able to evolve any methodology by which electric energy can be preserved or stored. Another significant characteristic of electric energy is that its generation or production coincides almost instantaneously with its consumption. To quote from Aiyar's Law Lexicon (Second Edition, 2000) 'Electricity in physics is "the name given to the cause of a series of phenomena exhibited by various substances, and also to the phenomena themselves." Its true nature is not understood. Imperial Dict. (quoted in Spensley v. Lancashire Ins. Co., 54 Wis. 433, 442, 11 NW 894, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her 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 for consumption within the meaning of Entry 53, the conflict, if any, between Entry 53and Entry 54 ceases to exist and the two can be harmonized and read together. Because electricity is goods it is covered in Entry 54 also. It is not disputed that duty on electricity is tax. Tax on the sale or purchase of goods including electricity but excluding newspapers shall fall within Entry 54 and shall be subject to provisions of Entry 92A of List I. Taxes on the consumption or sale for consumption of electricity within the meaning of Entry 53 must be consumption within the State and not beyond the territory of the State. Any other sale of electricity shall continue to be subject to the limits pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pparently 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 an apparent conflict between two entries in the same list. What is inter-State sale. It is well settled by a catena of decisions of this Court that a sale in the course of inter-State trade has three essential ingredients: (i) there must be a contract of sale, incorporating a stipulation, express or implied, regarding inter-State movement of goods; (ii) the goods must actually move from one State to another, pursuant to such contract of sale; the sale being the proximate cause of movement; and (iii) such movement of goods must be from one State to another State where the sale concludes. It follows as a necessary corollary of these principles that a movement of goods which takes place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 the sale can be held to have taken place within the territory of that State or if adequate territorial nexus is established between the transaction and State legislation. For the several reasons stated hereinafter such a plea cannot be countenanced. The prohibition which is imposed by Article 286(1) of the Constitution is independent of the legislative entries in Seventh Schedule. After the decision of larger Bench in Bengal Immunity Company Limited (supra) and Constitution Bench decision in Ram Narain Sons Ltd. & Ors. Vs. Asst. Commissioner of Sales Tax & Ors., 1955 (2) SCR 483, there is no manner of doubt that the bans imposed by Articles 286 and 269 on the taxation powers of the State are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reflected in Entry 97 of List I. If an Entry does not spell out an exclusion from field of legislation discernible on its apparent reading, the absence of exclusion cannot be read as enabling power to legislate in the field not specifically excluded, more so, when there is available a specific provision in the Constitution prohibiting such legislation. It is by reference to the ambit or limits of territory by which the legislative powers vested in Parliament and the State Legislatures are divided in Article 245. Generally speaking, a legislation having extra territorial operation can be enacted only by Parliament and not by any State Legislature; possibly the only exception being one where extra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 the sense of transferring property in the goods merely intervenes as a step between generation and consumption. In such a case when the generation takes place in one State wherefrom it is supplied and it is received in another State where it is consumed, the entire transaction is one and can be nothing else excepting an inter-State sale on account of instantaneous movement of goods from one State to another occasioned by the sale or purchase of goods, squarely covered by Section 3 of C.S.T. Act. Sale of electricity by NTPCL In both the cases before us, contracts have been entered into between parties to the transaction, that is, the sellers and the buyers (in other States) prior to the generatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hra 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 is delivered, shall both subject the electrical energy to taxation, by relying on the theory of territorial nexus. Such a situation would be the one which was obtaining in the country with respect to sales tax prior to coming into force of the Constitution and which led to complications and difficulties in administration of sales tax legislation and therefore, was taken care of by the Sixth Amendment. Such multiple taxation would result in hampering free movement of electricity between the States, and therefore, would be prejudicial to freedom of trade, commerce and intercourse throughout the territory of India, and for the unity and integrity of the country. That would give rise to the same situation whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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