2002 (4) TMI 694 - SC - VAT / Sales Tax

Inter-State electricity supply by generating company to other States' boards-State duty u/s3 held inapplicable; appeal dismissed

The SC considered whether electricity supplied by a generating company from within a State to electricity boards in other States and to another State ... Whether sales of energy by NTPCL, the respondent No.1, to several Electricity Boards situated outside the State of Andhra Pradesh and to the State of Goa, attract the incidence of taxation under Section 3 of the Act? Under which entry Andhra Pradesh Electricity Duty Act, 1939 is covered? Whether the sales of electricity by NTPCL, the respondent No.1, to the Electricity Boards situated outside the State of Andhra Pradesh and to the State of Goa, can be construed as inter-State sale or intra- State sale? Held that:- Appeal dismissed. Issues: Whether State enactments imposing duty or tax on sales of electrical energy by central generating stations to purchasers in other States (i.e. sales occasioning inter-State movement of electricity) are constitutionally valid, and whether demands raised by State authorities in respect of such sales are maintainable.Analysis: Electricity is held to be 'goods' and, because generation, transmission, delivery and consumption of electrical energy are virtually simultaneous, sale of electricity for delivery and consumption in another State occasions inter-State movement under Section 3 of the Central Sales Tax Act, 1956. Entry 53 (taxes on consumption or sale of electricity) must be read as taxes on consumption or sale for consumption within the State. Entry 54 (taxes on sale or purchase of goods) is made subject to Entry 92A of List I which concerns inter-State sales. The prohibition in Article 286 read with Article 269 and the formulation in Section 3 CST Act operate independently of the language of entries in the Seventh Schedule: if a sale occasions movement from one State to another or is effected by transfer of documents during such movement, it is inter-State and beyond State power to tax. State definitions or contract stipulations that artificially fix situs of sale or expand 'consumer' to include out-of-State recipients so as to create territorial nexus are ultra vires to the extent they seek to tax inter-State sales of electrical energy. Applying these principles, contracts entered into prior to generation, metering/delivery in one State with consumption in another, and transmission via the grid, result in inter-State sales not amenable to State electricity-duty levies.Conclusion: State levies and demands in respect of sales of electrical energy by the Corporation to purchasers in other States are unconstitutional and liable to be quashed; the High Courts declaration that such levies are incompetent is affirmed in the Andhra Pradesh matter and the demand raised by Madhya Pradesh authorities is quashed in T.C. No.3/1998.