2003 (12) TMI 581 - SC - Indian Laws

Supreme Court rules Madhya Pradesh power cess unconstitutional, orders refund

MP Cement Manufacturers Versus State of Madhya Pradesh and others

MP Cement Manufacturers Versus State of Madhya Pradesh and others - 2003 (6) Suppl. SCR 557, 2004 (2) SCC 249, 2005 (11) JT 342, 2003 (10) SCALE 547 Issues Involved:1. Constitutional validity of the amendment to the Madhya Pradesh Upkar Adhiniyam, 1981.2. Legislative competence to impose cess on the production of electrical energy.3. Non-compliance with Section 12(3) of the Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000.4. Alleged violation of Article 14 of the Constitution.5. Validity of sub-sections (3), (4), and (5) of Section 3 of the Upkar Adhiniyam in light of Articles 202, 204, 207, 260, and 267 of the Constitution.Detailed Analysis:1. Constitutional Validity of the Amendment:The amendment to the Madhya Pradesh Upkar Adhiniyam, 1981, challenged for imposing a cess of 20 paise per unit on captive power producers, was initially promulgated by an ordinance on 29th June 2001 and later replaced by the Madhya Pradesh Upkar (Sanshodhan) Adhiniyam, 2001. The amendment was contested on grounds of legislative incompetence, non-compliance with mandatory consultation, and violation of Article 14.2. Legislative Competence:The core issue was whether the state legislature was competent to impose a cess on the production of electrical energy. The appellants argued that such a tax falls under Entry 84 of List-I (Union List) of the Seventh Schedule to the Constitution, which is within the exclusive jurisdiction of Parliament. The respondents contended that the levy was on the sale and consumption of electricity, falling under Entry 53 of List-II (State List). The High Court upheld the levy, interpreting it as a tax on consumption, but the Supreme Court found that the language of the amendment explicitly imposed a cess on the production of electricity, which the state legislature was not competent to do.3. Non-compliance with Section 12(3) of the Sudhar Adhiniyam:The appellants argued that the ordinance was promulgated without consulting the Electricity Regulatory Commission as required by Section 12(3) of the Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000. The High Court dismissed this contention, stating that the ordinance was promulgated before the Sudhar Adhiniyam came into force. The Supreme Court, however, noted that the Act replacing the ordinance was introduced after the Sudhar Adhiniyam was operative, and there was no consultation with the Commission, which was a statutory requirement.4. Violation of Article 14:The appellants claimed that the levy was discriminatory and violative of Article 14. The High Court rejected this argument, stating that a valid distinction could be drawn between the Madhya Pradesh State Electricity Board (MPSEB) and captive power producers. The Supreme Court did not delve deeply into this issue, given its findings on legislative competence and non-compliance with mandatory consultation.5. Validity of Sub-sections (3), (4), and (5) of Section 3:The appellants challenged these provisions, arguing they violated Articles 202, 204, 207, 260, and 267 of the Constitution, which govern the appropriation and expenditure from the Consolidated Fund of the State. The Supreme Court did not address this challenge, as it had already found the imposition of the cess under Section 3(2) to be unconstitutional.Conclusion:The Supreme Court declared Section 3(2) of the Upkar Adhiniyam, 1981, as introduced by the Amendment Act, 2001 and amended in 2003, ultra vires the Constitution due to lack of legislative competence. The respondents were directed to refund the cess collected after 1st March 2002, with interest at 9% per annum. The writ petitions were disposed of accordingly.