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Judgment
The Honourable Mr. Justice Vinod K. Sharma
The Petitioner prays for issuance of a writ, in the nature of Mandamus or any other appropriate writ directing to prohibiting the Respondents
from charging electricity tax at 5% on Maximum Demand Charges from the month of October 2007 onwards, and thus render justice.
The Petitioner is a company registered under the Companies Act, and is consumer of electricity. The Petitioner obtained High Tension Power
connection under tariff 1 as per the schedule to the Tamil Nadu Revision of Tariff on Supply of Electrical Energy Act, 1978.
The High Tension Service number allotted to the Petitioner is 244. The Government of Tamil Nadu enacted Act 4 of 1962, to levy tax on
consumption of electricity energy on certain categories of consumption in the state of Madras. u/s 3(b) of the said ''Act'' electricity tariff was
calculated at the rate mentioned therein in respect of High Tension supply. The tax was subsequently enhanced to 35%. This act continued to be in
force till 30.04.1979.
After appeal to the Government, the tax was regulated by different Government orders. The validity of any of the order is not in question in this
Writ Petition.
The Tamil nadu Electricity (Taxation and consumption) Amendment Act, 1991 was introduced to levy additional tax on consumption of energy.
Finally, the State Legislature enacted Act 12 of 2003 called the Tamil Nadu Tax on Consumption Or Sale of Electricity Act, 2003, and imposed
electricity tax on various categories of consumers, including the consumer having their own captive generating plant, as well as generators etc.
The case of the Petitioner is that in pursuance of the powers conferred under Electricity Act, 2003, the State has imposed tax at the rate of 5%
of the electricity consumed in the case of licensees.
The Petitioner is aggrieved by the levy of tax at the rate of 5%, which has been imposed in exercise of powers conferred by clause(A) of Sub-
Section 10, and Section 3 of the Tamil Nadu Tax on Consumption or Sale of Electricity Act,2003, w.e.f. 16.06.2003
The Petitioner has challenged the constitutional validity of the Act, under which the power had been given to the State to impose tax even with
respect to the generation of electricity by the consumers themselves.
The constitutional validity of Tamil Nadu Tax on Consumption or Sale of Electricity Act, 2003 has been upheld by the Honourable Supreme
Court in the case of Southern petrochemical Industries company Limited. v. Electricity Inspector and E.T.I.O and others reported in 2007(3) CTC
273.
The Learned Counsel for the Petitioner only challenges the electricity tax at 5% on the Maximum Demand Charges, on the ground that the tax
could only be claimed on the actual consumption, and not on Maximum Demand Charges.
There is force in this contention of the Learned Counsel for the Petitioner. The bill raised on the Petitioner for the month of September shows
electricity tax at the rate of Rs. 19,537/- (Rupees Nineteen thousand five hundred and thirty seven only) against the actual consumption of Rs.
3,32,736/- (Rupees three lakhs thirty two thousand seven hundred and thirty six only) which shows that the electricity tax has been demanded on
the Maximum Demand Charges, and not to actual consumption.
The Honourable Supreme Court in the case of Southern petrochemical Industries company Limited. v. Electricity Inspector and E.T.I.O and
Ors. (Supra) has been please to lay down as under:
We have noticed here in before that the legislative field carved out by reason of Entry 53 of List II and Entry 38 of List III of the Seventh
schedule of the Constitution of India operate in different fields.The 1948 Act was enacted to provide for the rationalization of the production and
supply of electricity, and generally for taking measures conducive to clerical development.
Tariff is framed by the State Electricity Boards under Sections 46 and 49 of the 1948 Act. They may have different considerations for
imposition of tariffs. We have noticed hereinbefore, the definition of ''tariff in BSES Ltd(Supra) where upon Mr. Andhyarujina himself relied upon.
A tax on tariff and a tax on consumption or sale of electrical energy, thus, operate in different fields, if it is to be held that the power of the
Electricity Regulatory Commission to fix tariff does not include a power to impose tax, automatically the same principle would apply also when a
tax is sought to be levied on consumption or sale of electrical energy and not on tariff. Power of taxation, as noticed hereinbefore, operates
differently from power to impose tariff. A tariff validly framed by the licensee, in exercise of its statutory power, may lay down a higher rate on the
sale of power to various types of consumers having regard to the necessity to maintain infrastructure. A maximum demand charg, when levied,
does not contemplate a sale or consumption of electrical energy. Maximum tariff is provided for various reasons. It has been noticed by this Court
in IPI Steel Limited (supra) in the following terms:
From this circumstance, however, one cannot jump to the conclusion that it is an arbitrary way of levying consumption charges. Normally speaking,
a factory utilises energy at a broadly constant level. Maybe on certain occasions, whether on account of breakdowns, strikes or shutdowns or for
other reasons, the factory may not utilise energy at the requisite level over certain periods, but these are exceptions. Every factory expects to work
normally. So does the Electricity Board expect and accordingly produces energy required by the factory and keeps it in readiness for that factory
keeping it ready on tap, so to speak. As already emphasised, electricity once generated cannot be stored for future use. This is the reason and the
justification for the demand charges and the manner of charging for it. There is yet another justification for this type of levy and it is this demand
charges and consumption charges are intended to defray different items. Broadly speaking, while demand charges are meant to defray the capital
costs, consumption charges are supposed to meet the running charges. Every Electricity Board requires machinery, plant, equipment,sub-stations,
transmission lines and so on, all of which require a huge capital outlay. The Board like any other corporations has to raise funds for the purpose
which means it has to obtain loans. The loans have to be repaid, and with interest. Provision has to be made for depreciation of machinery
equipment and buildings, plants, machines, stations and transmission lines have to be maintained, all of which require a huge staff. it is to meet the
capital outlay that demand charges are levied and collected whereas the consumption charges are levied and collected to meet the running charges.
Pausing here for a moment, we may explain the importance and significance of maximum demand. The maximum demand of a given plant
factory determines the type of lines to be laid and the power of transformers and other equipment to be installed for the purpose. A factory having
a maximum demand say 1000 KVA and a factory having a maximum demand of 10,000 KVA require different type of lines and other equipment
for providing supply to them. In the case of latter, lines have to be of a more load-bearing variety.
Transformers have to be installed and of more capacity. Sometimes in the case of bulk consumers even a sub-station may have to be established
exclusively for such factory / plaint. Very often these industries are situated away from power stations and main transmission lines which means
laying special power lines over considerable distances to give the supply connection. As a matter of fact,the significance of the maximum demand
would be evident from the fact that the agreement between the Board and consumer(like the Respondent)specifies only the maximum demand and
not the total units allowed to be consumed. The agreement concerned here in prescribes the maximum demand at 7778 KVA but does not
prescribe the total number of units of energy allowed to be consumed,.This is for the reasons,explains Shri Hegde, that the total number of units of
energy consumed is determined by the load/level at which power is drawn. The formula, taking the case of the Respondent is stated to be 100%
KVA x power factor x load factor x total number of hours in a year. In concrete terms, it means 7778 KVAx0-90x0.611x8760=37,467,590
KWH(Units)-37,467.59 MU(Million Units) This formula, as it states expressly, is premised on unrestricted supply. Problems arise only when
restrictions are placed on consumption on account of fall in production of electricity by the Board, as would be explained herein after.
The reason for insertion of such an explanation is to get over the decision of this Court in The State of Madras Vs. Gannon Dunkerley and
Co., (Madras) Ltd., , wherein it has been held that tax cannot be imposed on sale of materials transferred in execution of a works contract stating
In our opinion, that is not the inference to be drawn from the absence of words linking up the meaning of the word""sale"" with what it might that the
expression ""sale of goods"" in Entry 48 should bear the precise and definite meaning it has in law, and that that meaning should not be left to
fluctuate with the definition of""sale""in laws relating to sale of goods which might be in force for the time being.It was then said that in some of the
Entries, for example, Entries 31 and 49,List II, the word ""sale"" was used in a wider sense than in the Sale of Goods Act, 1930. Entry 31
intoxicating liquors and narcotic drugs that is to say, the production,manufacture,possession,transport,purchaseand sale of intoxicating liquors,
opium and other narcotic drugs..."". The argument is that ""sale"" in the Entry must be interpreted as including barter, as the policy of law can not be
to prohibit transfers of liquor only when there is money consideration therefore. But this argument proceeds on a misapprehension of the principles
on which the Entries are drafted. The scheme of the drafting is that there is in the beginning of the Entry words of general import and they are
followed by words having reference to particular aspects thereof.The operation of the general words, however,is not cut down by reason of the
fact that there are sub-heads dealing with specific aspects.
Our attention has been drawn to a simple bill, from a perusal whereof it appears that although permitted MD was 350 KVA, the recorded
demand being 144 KVA, electricity tax was charged only on the basis of 144 KVA and not on the basis of 350 KVA. Keeping in view the faft
that the maximum demand postulates something other than actual delivery of electricity,the question of imposition of any tax thereupon does not
arise.The decision of this Court in M/S. Northern India Iron and Steel Co(supra)did not assign any reason. The said decision did not take into
consideration the provisions of Article 366(12) of the Constitution of India or the effect of Entry 53 of List II of the Seventh Schedule of the
Constitution of India.It has also not been taken into consideration that the state can not impose tax only because the State Electricity Board would
be entitled to levy tax on certain services. It would bear repetition to state that the concept of tariff and taxis different. Whereas, tariff would
include a list of charges, the tax must be on actual basis. it is also not the case nor can it be that imposition of tax on actual sale or consumption of
electrical energy was impossible keeping in view of the particular fact situation. As noticed here in before, two different meters are installed; one,
for the purpose of actual consumption of electrical energy and another being a trivector, the same merely records the maximum demand.
In view of the authoritative pronouncement of the Honourable Supreme Court, the demand of electricity tax on Maximum Demand Charges,
cannot be sustained.
Consequently, the Writ Petition is allowed. The Demand of electricity Tax on Maximum Demand Charges is set aside. The Respondents are
directed to recalculate the electricity on the actual consumption of electricity w.e.f. September 2007 and the amount if any deposited by the
Petitioner be adjusted against the tax which may ultimately be due.
In case, it is found that the Petitioner has paid in excess, than tax due, the amount be either refunded to the Petitioner, or adjusted against the
furture bills.
Consequently, connected Miscellaneous Petition is closed.
No costs.