NTPC Ltd. vs South Delhi Municipal Corporation & Ors.

ANIL KSHETARPAL, J.:

The principal issue that has been raised by way of the present Petition, is to declare the Bye-Law 3(3) of the Delhi Municipal Corporation (Assessment and Collection of Tax on the Consumption, Sale or Supply of Electricity) Bye Laws, 1962^{11.hereinafter referred to as Bye-Laws} ultra vires the Delhi Municipal Corporation Act, 1957^{22.hereinafter referred to as the Act}, which enables the Respondent No.1 to impose a municipal electricity tax upon the Petitioner for consumption of self-generated electricity for the period 01.06.2006 to 15.10.2018 amounting to Rs. 197,15,84,639/- (Rupees One Hundred Ninety-Seven Crores Fifteen Lakhs Eighty-Four Thousand Six Hundred Thirty-Nine-only)

As a consequence to the aforestated, the Petitioner also seeks issuance of writ in the nature of certiorari, seeking quashing of impugned Demand cum Show Cause Notice dated 06.12.2021 and communications dated 08.11.2021, 03.01.2022 and 24.01.2022 issued to the Petitioner by the Respondent No.1, seeking payment of the electricity tax demand raised thereof.

In order to appreciate the controversy in the present case, the facts in brief are required to be noticed.

In the year 1973, the Badarpur Thermal Power Station (BTPS) was established and constructed under the ownership of Central Electric Authority with an object of supplying electricity to various states including Delhi. However, in the year 1978, its management came to be transferred to the Petitioner, and since then Delhi became the sole beneficiary of the electricity generated by the said plant.

Subsequently, vide notification dated 31.05.2006, the ownership of the BTPS also came to be transferred to the Petitioner. In the ordinary course of its operations, the plant continued to generate and supply electricity to the licensees until its closure on 15.10.2018, when it came to be shut down permanently.

Thereafter, the Respondent No.1, vide a communication dated 08.11.2021, raised a demand of Rs. 197,15,84,639/- towards alleged electricity tax on the auxiliary consumption of electricity at BTPS for the period from 01.06.2006 to 15.10.2018. Following which, the impugned SCN dated 06.12.2021 along with subsequent communications dated 03.01.2022 and 24.01.2022, came to be issued by the Respondent No.1 seeking payment of the assessed electricity tax by the Petitioner. Aggrieved thereby, the Petitioner has approached this Court seeking our indulgence.

Before proceeding towards the examination of contentions raised by the parties, we deem it appropriate to reproduce the relevant provisions of the Bye-Law along with the Act, which forms the basis of contentions raised thereby. The relevant provisions are as under-

Learned senior counsel representing the Petitioner has raised the following submissions:

Per contra, learned senior counsel representing the Respondent No.1 has made the following submissions:

Learned counsel representing the Respondent Nos.3 and 4, although a performa party, have also made the following submissions:

Similarly, learned counsel representing the Respondent No.5, who again is a performa party, has made the following submissions:

Learned senior counsel representing the Petitioner has made the following rebuttals to the arguments raised by the Respondent No.1:

Having heard the rival submissions advanced by the learned counsel for the parties and upon perusal of the record, this Court is of the view that the entire challenge rests on a single proposition, namely, that consumption of electricity in the course of generation is an incident of generation itself. If that proposition fails, the attack on the vires of Bye-Law 3(3) loses its premise, and the pleas of double taxation and arbitrariness loose their foundation. Therefore, this Court has, identified the following four issues, which are to be examined in that order:

At the outset, this Court deems it appropriate to observe that the character of a levy must be determined by reference to its taxable event, namely, the event upon which the charge is imposed, and not merely by the nomenclature assigned to it. However, the Petitioner seeks to conflate generation with consumption by contending that electricity consumed in the process of generation constitutes an incident of generation itself and a levy thereon is, in substance, a tax on production, a subject falling within the legislative domain of Parliament.

A tax on the consumption of electricity is attracted by its use and falls within the legislative field contemplated under Entry 53 of List II of the Seventh Schedule, whereas a duty of excise is attracted by its production. The question, therefore, is whether the levy on auxiliary consumption at BTPS is attracted by the consumption of electrical energy or as contended by the Petitioner, constitutes a tax on generation itself.

Notably, law in regard to the aforestated is no longer res integra and has been settled by the Supreme Court by way of its precedents discussed hereinafter. In Jiyajeerao Cotton Mills Ltd. (Supra), the Court held that a levy on consumption, including consumption by the very person who generated the electricity, is distinct from an excise duty on generation. The Court also observed that the expression consumption means the use or expenditure of electrical energy, so that the levy attaches when energy is used up and not when it is brought into being.

The above stated principle was further reiterated by the Supreme Court in National Thermal Power Corporation Ltd. (Supra), wherein the Court recognised that the relevant taxable event may be sale or consumption, and a levy on it does not become an excise duty merely because the electricity is generated before it is consumed. Similarly, in Rajasthan Textile Mills Assn. v. State of Rajasthan^{1919.2005 SCC OnLine Raj 563}, the Rajasthan High Court held that a producer consuming electricity generated by it is a consumer for the purposes of Entry 53 of List II and the State Legislature is competent to impose duty on such consumption. In view of these decisions, the Petitioner's contention that auxiliary consumption in the course of generation is merely an incident of generation cannot be sustained.

This Court is also unable to accept the contention of the Petitioner that auxiliary consumption stands on a different footing merely because the electricity generated is intended for supply to third parties. In West Coast Paper Mills Ltd. (Supra), the Supreme Court held that electricity utilised to operate equipment for generating further electricity constitutes consumption and may attract tax. The said decision also highlighted that the distinction lies between electricity consumed and electricity lost in transmission before reaching the point of use. It was observed that auxiliary electricity is not lost in transmission but is utilised to operate the generating station‟s equipment and, therefore, constitutes consumption for the purposes of the levy.

Similarly, neither the source of the electricity nor the purpose for which it is consumed alters the said position. In Swaroop Vegetable Products Industries (Supra), a person consuming electricity from its own source of generation was held liable to the levy even though it also purchased electricity from a licensee. Therefore, this Court is in agreement with the Respondent No.1 that the source of the electricity, the purpose for which it is consumed, and the identity of the consumer are immaterial to a levy on consumption. Consequently, the fact that the Petitioner supplies the remaining electricity to third parties does not alter the character of the electricity consumed within the generating station.

The Petitioner‟s attempt to confine the decisions in Jiyajeerao Cotton Mills Ltd. (Supra), West Coast Paper Mills Ltd. (Supra) and Swaroop Vegetable Products Industries (Supra) to cases of captive consumption is equally misplaced. Captive electricity is a narrow statutory category, being electricity generated by a qualifying captive generating plant and consumed by the captive users in accordance with the ownership and consumption conditions of the Electricity Rules, 2005. Whereas, self-generated electricity is the wider genus, namely, electricity produced by a person for its own use, and it may be self-generated without being captive.

The aforesaid decisions, which pre-date the 2005 Rules interpreted the scope of the term „consumption‟ and did not turn upon the captive status of the generating plant. As such, the absence of an express reference to self-generated electricity in Section 113(2)(d) of the Act does not, by itself, exclude such consumption from the ambit of the provision.

In view of the aforestated, this Court holds that the taxable event under Section 113(2)(d) of the Act is consumption of electricity, hence, the auxiliary consumption at BTPS is consumption, and a levy thereon does not, merely by reason of its use in the process of generation, constitute a duty of excise on generation.

It is trite law that delegated legislation cannot supplant the parent statute or travel beyond the authority conferred thereunder. The principles laid down in St. Johns Teachers Training Institute (Supra), Association of Concerned Citizens of New Delhi (Supra) and Kerala State Electricity Board (Supra), relied upon by the Petitioner, admit of no dispute. However, the question is whether Bye-Law 3(3) creates a liability beyond that contemplated under the Act or merely prescribes the manner of imposing the tax already authorised by the parent statute.

The test is whether the impugned Bye-Law creates a new levy, alters the taxable event or the measure of tax, or merely gives effect to the charge authorised by the parent Act. Section 113(2)(d) of the Act authorises the levy of tax on consumption, which, as held hereinabove, includes consumption of self-generated electricity. Bye-Law 3(3) does not create a new taxable event but identifies the person liable to pay tax on such consumption, which is precisely what Sections 113(3), 150(1) and 152 of the Act empower the Respondent No.1 to do. Therefore, this Court is in agreement with the Respondent No.1 that the Bye-Law does not create a new tax.

The aforesaid interpretation is also consistent with the scheme of the Bye-Laws, as Bye-Law 2(2) includes within the definition of consumer, a person consuming electricity generated by himself, Bye-Law 15 requires accounts of such consumption to be maintained, and Bye-Law 7(2) prescribes the time for payment of the tax.

In this regard, the decisions relied upon by the Petitioner are distinguishable on facts, as rightly submitted by Respondent No. 1. St. Johns Teachers Training Institute (Supra) reiterates the settled principle that subordinate legislation must conform to the parent Act, a requirement which Bye-Law 3(3) satisfies. In Association of Concerned Citizens (Supra), the impugned Bye-Law altered the method of valuation prescribed by the statute, whereas in Thomas Joseph (Supra), the regulation was directly contrary to the parent enactment.

In the present case, Bye-Law 3(3) neither alters the taxable event nor the measure of tax and is not inconsistent with Section 113(2)(d) of the Act. Indeed, had Bye-Law 3(3) never been framed, the consumption of the Petitioner would still have fallen within the scope of the charging provision. However, if the Bye-Law 3(3) is taken into consideration for the purpose of imposition of tax, the same at its highest is declaratory in nature, clarifying the operation of the statutory charge. Therefore, a provision which declares what the Act already provides cannot be said to supplant or exceed the parent Act.

With respect to the present issue, two ancillary issues raised by the Petitioner also warrant consideration. Firstly, the contention that Bye-Law 2(2) does not apply to the Petitioner in the absence of a connection with the works of a licensee is misconceived. Bye-Law 2(2) expressly includes within the definition of a consumer a person who consumes electricity generated by himself, irrespective of whether his premises are connected to the works of a licensee. Reference in this regard is to be made to Swaroop Vegetable Products Industries (Supra), wherein the Supreme Court held that the source of electricity is immaterial to the levy on consumption.

Secondly, this Court finds no infirmity in compliance with Section 150 of the Act. The Respondent No.1 has pointed to the Resolution dated 17.03.1992 defining the classes of persons liable, the sanction of the Lieutenant Governor dated 30.06.1992 under Section 150(2), and the rates fixed with effect from 01.07.1992, however, no material has been placed on record by the Petitioner to displace the said submissions.

In view of the aforesaid discussion, this Court is of the view that Bye-Law 3(3) gives effect to the Act and does not supplant it, therefore, cannot be held to be ultra vires the Act.

The plea of double taxation, urged by the Petitioner and the Respondent Nos.3 and 4, proceeds on the premise that the cost of auxiliary consumption, having been factored into the tariff, cannot be subjected to a separate levy of electricity tax. The contention falls for consideration on two aspects, namely, the distinction between tariff and taxation, and the illustration relied upon to demonstrate the alleged duplication of tax.

It is pertinent to note that tariff determination and taxation operate in distinct fields. While tariff represents the schedule of prices and charges payable for the supply of electricity, tax constitutes a statutory levy payable to the State over and above the tariff. As recognised by the Supreme Court in National Thermal Power Corporation Ltd. (Supra), the power of a regulatory commission to determine tariff does not extend to imposing or regulating a statutory levy of electricity tax.

This Court accepts the submission of Respondent Nos.3 and 4 that the cost of auxiliary consumption is factored into the tariff to enable the Petitioner to recover its generation costs. However, the inclusion of such costs in the tariff does not, by itself, confer immunity from a tax otherwise lawfully leviable on the electricity consumed. Any grievance arising from the treatment of such tax in the tariff determination must be agitated before the appropriate regulatory forum and cannot, in the absence of any statutory exemption, furnish a ground to invalidate the impugned levy.

Similarly, the illustration relied upon by the Respondent Nos.3 and 4 does not establish double taxation. On the contrary, it demonstrates that the electricity tax of Rs. 50, calculated at 5% of the tariff of Rs. 1,000 recovered from the supply of 80 units, is attributable to the consumption of those units by the end consumers. No tax is thereby imposed on the 20 units consumed by BTPS towards auxiliary consumption. The additional levy of Rs. 12.50 represents tax on the value attributable to those 20 units and constitutes the first levy thereon. The aggregate figure of Rs. 62.50 is arrived at only by treating the cost of auxiliary consumption embedded in the tariff as equivalent to tax already paid on that consumption, which is not borne out by the illustration.

Since the illustration demonstrates that no tax has been imposed on auxiliary consumption, it does not amount to double taxation, which requires the same subject to be taxed twice. It is for the reason that the 80 units supplied to the end consumers and the 20 units consumed by BTPS constitute distinct quantities of electricity consumed by different persons, and the tax is levied separately on each. The inclusion of the cost of auxiliary consumption in the tariff does not render the tax paid on the electricity supplied to end consumers a tax on the electricity consumed by BTPS.

The proposition drawn by the Petitioner is that where a statute prescribes no period of limitation, a power must be exercised within a reasonable time, and this Court has no hesitation in accepting the same. However, what constitutes a reasonable period depends on the facts and circumstances of each case, and delay in raising a demand does not, by itself, extinguish a tax liability lawfully incurred.

In the present case, the demand raised in November 2021 cannot be held to be invalid on three premises. Firstly, the liability did not arise from the demand, rather it accrued month to month under Bye-Law 7(2) by operation of law, under a levy in force since 1992 and Bye-Laws in force since 1963. Secondly, under Bye-Law 15, the Petitioner was required to maintain accounts of electricity consumed. In this regard, it has been argued by the Respondent No.1 that no returns were filed and no tax was paid, a position not controverted by the Petitioner in its rejoinder. In these circumstances, the Petitioner cannot rely upon the delay in raising the demand while having failed to discharge its obligation to account for the consumption. Lastly, the demand raised by the Respondent No.1 seeks recovery of an existing statutory liability and does not impose a new levy.

The apprehension expressed by the Respondent No.5 that recovery of the demand may burden existing consumers through a future tariff revision does not affect the Petitioner‟s statutory liability. As observed hereinabove, the recovery of such costs through tariff is a matter for the appropriate regulatory framework. Likewise, the closure of BTPS in October 2018 is immaterial, since the liability arose when the electricity was consumed.

The Petitioner‟s reliance placed on Citadel Fine Pharmaceuticals (Supra) and CITI Bank (Supra), also does not come to its rescue, inasmuch as the said decisions merely lay down a general observation of law, a position that is not alien. However, what they do not establish is the prejudice caused by a delay with respect to the imposition of municipal tax by the Respondent No.1 on consumption of electricity by the Petitioner.

For all the foregoing reasons, this Court is of the view that the taxable event under Section 113(2)(d) of the Act is consumption, and the auxiliary consumption at BTPS is consumption and not generation. Further, Bye-Law 3(3) does not enlarge the Act, as it only identifies the person liable on consumption of self-generated electricity, which the Act already taxes. Furthermore, tariff and tax operate in separate fields, and the levy on auxiliary consumption does not result in double taxation. Lastly, the Respondent No.1 was not barred by delay from recovering a tax which accrued by operation of law and was never paid.

In view of the aforestated, the present Petition is dismissed. Pending applications, if any, also stands closed.

It is clarified that the foregoing discussion is confined to the lis raised in the present Petition. Any dispute confined to the computation of the amount may be raised by the Petitioner before the appropriate forum under Section 169 of the Act, in accordance with law.