Captive power generation and electricity duty: wholly controlled subsidiary output was treated as the parent's own source of generation.

Electricity generated by a wholly owned and fully controlled subsidiary exclusively for its parent company was treated as the parent's own source of generation, because the commercial reality of a captive arrangement can justify lifting the corporate veil despite separate legal personality; the electricity duty had to be recomputed on that basis. The Court also held that refusal of exemption from electricity duty under a public-interest statutory power was not invalid, because the State had considered relevant factors, obtained material, afforded a hearing, and balanced industrial promotion against revenue needs. No breach of natural justice or failure to consider mandatory factors was shown.

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Issues: (i) Whether electricity generated by a wholly-owned subsidiary exclusively for the parent company constituted the parent company's own source of generation for the purpose of levy of electricity duty. (ii) Whether rejection of exemption from electricity duty under the statutory power was vitiated for non-consideration of relevant factors or breach of natural justice.

Issue (i): Whether electricity generated by a wholly-owned subsidiary exclusively for the parent company constituted the parent company's own source of generation for the purpose of levy of electricity duty.

Analysis: The statutory scheme taxed energy sold to a consumer by a licensee and also energy consumed by any other person from his own source of generation. On the facts, the generating company was a wholly-owned and fully controlled subsidiary, created to meet the parent's power requirements, with no independent volition, a single transmission line, and generation confined to the parent's needs. The corporate arrangement had consistently been treated by the State itself as a captive arrangement in allied proceedings. In these circumstances, the realities of the arrangement, rather than the separate corporate form, governed the legal character of the supply. The corporate veil could therefore be lifted and the two entities treated as one concern.

Conclusion: Yes. The generating plant was the parent company's own source of generation, and the applicable duty rate was that applicable to own-source generation.

Issue (ii): Whether rejection of exemption from electricity duty under the statutory power was vitiated for non-consideration of relevant factors or breach of natural justice.

Analysis: The exemption power was to be exercised in public interest having regard to prevailing charges, generating capacity, industrial promotion, and other relevant factors. The Court treated the power as quasi-legislative in nature where the State must consider relevant matters but is not required to adopt a judicial or adversarial process. The record showed that the State had considered the material placed before it, obtained independent reports, afforded a hearing, and balanced the competing considerations of industrial encouragement and public revenue. Mere disagreement with the State's policy choice or the sufficiency of profits did not justify judicial interference, and no substantive violation of natural justice was established.

Conclusion: No. The rejection of exemption was not invalid on the grounds urged, and the State's decision could not be quashed on that basis.

Final Conclusion: The levy had to be recomputed by treating the electricity supplied from the captive generating plant as own-source generation, but the challenge to the State's refusal of exemption failed.

Ratio Decidendi: Where a wholly-owned and wholly-controlled subsidiary is created and operated as a captive generating arrangement exclusively for the parent company's use, the corporate veil may be lifted and the generation treated as the parent company's own source of generation; however, exemption decisions under a public-interest tariff statute will not be struck down unless the State has ignored relevant statutory factors or acted in a manner vitiated by genuine procedural unfairness.

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