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TMI Blog2003 (12) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of its members who are cement manufacturers and owners of captive power plants. The connected appeals are by the captive power producers themselves. The amendment has been challenged broadly speaking on three grounds : first that by the amendment the Legislature sought to impose a cess on the production of electrical energy which it was legislatively incompetent to do because any tax legislation on the production of electricity is covered exclusively by Entry 84 of List-I to the Seventh Schedule of the Constitution; second that the Ordinance was passed without fulfilling the mandatory pre-condition of consultation with the Electricity Regulatory Commission as provided under Section 12 (3) of the Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000; third that the levy was violative of Article 14 of the Constitution. Virtually the same arguments were raised before the High Court. The respondents are the State of Madhya Pradesh and the Madhya Pradesh State Electricity Board (MPSEB). They have submitted that the word 'production' in the impugned amendment had been used in conjuction with the phrase "whether for sale or supply to ." and was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12(3) of the Sudhar Adhiniyam, it was held:- "We find that imposition of cess was under consideration of the State for some time past. It was discussed with the Industry and formed part of Captive Power Policy before Ordinance was promulgated. In case the Respondents wanted to rush through the measure, it could be done long back. It is not incumbent for the Government to discuss a matter with public before it is legislated. Therefore, the Ordinance could be promulgated at any time, the Government deemed necessary to do so. Moreover, the Bill was presented before the Legislature, which had passed it". The plea of violation of Article 14 was negatived because a valid distinction could be drawn between MPSEB and captive power generating concerns like the appellants. The cess of 20 paise per unit was held not to be confiscatory and as such not violative of Article 14. LEGISLATIVE COMPETENCE The two competing entries in the Seventh Schedule to the Constitution are Entry 84 of List-I and Entry 53 of List-II. They respectively read: "List-I "84. Duties of excise on tobacco and other goods manufactured or produced in India except (a) alcoholic liquors for human consumpt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government of India or a railway company for consumption in the construction, maintenance or operation of any railway administered by the Government of India: (ii) sold or supplied in bulk to a Rural Electric Co- operative Society registered under the Madhya Pradesh Co-operative Societies Act, 1960 (No. 17 of 1961). Explanation: For the purpose of this sub- section 'month' means such period as may be prescribed. 2. Every producer producing electrical energy by his captive power unit or diesel generator set of capacity exceeding 10 Kilowatt in total shall pay to the State Government an energy development cess at the rate of 20 paise per unit on the total units of electrical energy produced whether for sale or supply to a consumer or for consumption by himself or his employees during any month: Provided that no cess shall be payable in respect of electrical energy produced by. (i) the Government of India for consumption by that Government; (ii) the Government of India or a railway company for consumption in the construction, maintenance or operation of any railway administered by the Government of India; (iii) the State Government for consumption by that Government; (iv) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther forms of energy, as the State Government may, by notification, specify. Explanation: In this sub-section 'energy' includes all conventional and non-conventional forms of energy. (5) If any questions arises as to whether the purpose for which the fund is being utilised is a purpose falling under sub-section (4) or not, the decision of the State Government thereon shall be final and conclusive." The High Court's decision was given with reference to this amendment. A plain reading of Sub-Section (2) of Sub-Section 3 introduced by the amendment to the 1981 Adhiniyam makes it clear that the levy of cess was "on the electrical energy produced". The phrase "whether for sale or supply" merely clarified that all electricity produced irrespective of its destination would be liable to cess at the specified rate. The use of the word "whether" after the phrase "energy produced" means that the cess would apply on units produced whichever of the alternatives mentioned after the word "whether", namely, sale or supply or consumption is the case. There is no reason to assume that the words used did not reflect the intention of the Legislature. The imposition envisaged was on the production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Objects and Reasons which accompanied the Act which replaced the Ordinance. It says: "With a view to impose cess on the electricity generated by the producers from their Captive Power Plants/Diesel Generating Sets for self consumption or for sale at the rate of 20 paise per unit on all generated electricity units, it has been decided to amend the Madhya Pradesh Upkar Adhiniyam, 1981 (No. 1 of 1982) suitably." There can, in the circumstances, be no doubt that the levy was sought to be imposed on the generation of electricity by the amendment, a levy which the State admittedly was incompetent to impose3. The interpretation of the amendment by the High Court and as canvassed by the respondents that the cess was actually on sale and consumption and that production was merely the measure of tax is unacceptable. Such a construction is contrary to the express words of the statute. Doubtless, while considering a challenge to the constitutionality of a statutory provision, the Court will lean in favour of upholding its validity. {See: State of Karnataka v. Ranganatha Reddy [(1977) 4 SCC 471]}. But this does not mean that in this process of leaning the Court must perform verbal gym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Madhya Pradesh Upkar (Sanshodhan) Adhiniyam, 2003. The 2003 amendment introduced an Explanation at the end of Section 3 of sub-Section (2). The Explanation is as follows:- " Explanation. For the purpose of this sub-section, the Cess shall be levied on units of electrical energy sold or supplied from captive power units or Diesel Generator sets to a consumer or consumed by the Producer or his employees.". The issue now is can the 2003 Explanation cure the 2001 levy? The legislature has the power to validate an invalid levy and to do so retrospectively. The proscription provided in the context of judicially invalidated legislation would not apply as the 2001 amendment had not, till the promulgation of the 2003 Act, been held to be invalid by any Court. The legislature can also change the character of the tax or duty from impermissible to permissible but the tax or levy should be within its legislative competence5. However, in our view, these principles would not apply to the 2003 Amendment since it is in the form of an Explanation to Section 3(2). The object of an Explanation to a statutory provision has been culled out from the earlier judicial decisions and succinctly rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the word 'levied' in the context would at the highest mean 'assessment' and not 'imposition'. It is not the respondents' case that any new or additional or alternative cess was sought to be introduced by the Explanation. Thus despite the Explanation, the charge in Section 3(2) continues to be on the production of the electrical energy units and nothing else. The proviso to sub-section (2) of Section 3 continues to except electrical energy produced from the cess in certain cases. The Explanation, if it is read with the main provision, introduces certain contradictions and vagueness. A charging provision should be explicit, certain and clear in order to bind the subject. The outcome of the introduction of the Explanation to an otherwise unchanged Section 3(2) is a singularly ill drawn provision. The 2003 amendment was obviously introduced for the purpose of rectifying the obvious error in Section 3(2), an object which cannot be achieved by introducing an Explanation since an Explanation cannot be read as changing or as interfering with the incidence of the levy. It is not for us, particularly when legislative clarity is required since the statutory provision imposes a tax, to unt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r." Section 12(3), which is allegedly violated by the respondent State, reads as under: "12 (3). The State Government shall consult the Commission in relation to any policy directive which it proposes to issue or any legislation is proposed to be enacted affecting the Electricity Industry it shall duly take into account the recommendation if any, given by the Commission within such reasonable time as the State Government may specify." There can be no doubt, in view of the authoritative pronouncement of the law in Maharaj Umeg Singh and Others v. The State of Bombay and Others [(1955 (2) SCR 164] that a State legislature cannot be fettered from exercising its plenary powers of legislation within the ambit of the legislative heads specified in the lists (II) & (III) of the 7th Schedule to the Constitution, unless the prohibition is contained in the Constitution itself. It had been argued in Maharaj Umeg Singh's case that agreements of merger entered into by the Rulers of the respective States with the Dominion of India and the collateral letters of guarantee passed by the Ministry of States precluded the State legislature from denying the rights under these two instruments. The ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion has been vested with the powers inter alia (a) to regulate the purchase, distribution, supply and utilization of electricity, the quality of service, the tariff and charges payable considering the interest of the consumer and the Electricity Industry both; (c) to determine the tariff for electricity, wholesale, bulk, grid or retail in accordance with the provisions of this Act. In particular the Commission has been given the power to determine the tariff under Section 26 of the Sudhar Adhiniyam, 2000. For discharging its functions, the Commission has been given wide ranging powers to carry out the objects for which it has been set up including the powers of a Civil Court in certain specified matters [Section 10]. It is true that the Sudhar Adhiniyam, 2000 although published in the Official Gazette prior to the promulgation of the impugned Ordinance, came into force after such promulgation. Nevertheless, the Act which replaced the Ordinance was introduced as a Bill when the Sudhar Adhiniyam was operative and was certainly in place when the Explanation was added to Section 3(2) in 2003. There was admittedly no consultation by the State Government with the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal challenge has been raised to the constitutional validity of sub-sections (3), (4) and (5) of Section 3 in Civil Appeal No.2003 of 2002 alleging violation of Articles 202, 204, 207, 260 and 267 of the Constitution. In order to appreciate the submission, we may recapitulate briefly the effect of these sub-sections. Under sub- section (3), the proceeds of the cess levied under sub-section (1) and (2) are required to be credited to the Consolidated Fund of the State. The State Government may then withdraw an amount equivalent to the proceeds of cess realised in the preceding financial year and place it to the credit of a separate fund called the Energy Development Fund. Such credit to the fund would be an expenditure charged on the Consolidated Fund. The State Government has also the discretion to use the amount in the credit for the various purposes specified in sub- section (4). A further discretion is given to the State Government under sub-section (5) to finally and conclusively decide whether the funds were in fact being utilised for a purpose falling under sub-section (4). Apart from the submission that the respondents had not disclosed any information as to what had been ..... 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