1974 (9) TMI 117 - SC - Indian Laws

Electricity tax not charged on lost energy in transmission; liability remains for energy used in generating more.

STATE OF MYSORE Versus WEST COAST PAPERS MILLS LTD.

The Supreme Court held that electricity tax is not chargeable on the quantity of electrical energy lost during transmission and transformer loss. However, ... - Issues Involved:1. Whether electricity tax is chargeable on the quantity of electrical energy lost in the course of transmission.2. Whether the respondent company is liable to pay electricity tax on the quantity of electrical energy used by it for the generation of further electrical energy.Detailed Analysis of the Judgment:1. Electricity Tax on Transmission Losses:The primary issue was whether electricity tax is payable on the electrical energy lost during transmission and transformation, known as transmission loss and transformer loss. The High Court had ruled in favor of the respondent company, stating that no tax is payable on such losses. The Supreme Court upheld this view, emphasizing that the entire scheme of the Mysore Electricity (Taxation on Consumption) Act, 1959 (the Act) is to tax the consumption of electrical energy. The Court noted that energy lost before reaching the point of consumption cannot be taxed as it is not consumed. The Court stated, 'To hold otherwise and to realize tax on 100 units of electrical energy would be tantamount to levying tax on the generation or production of electrical energy and not on its consumption.' This reasoning was supported by a similar decision in the case of Gokak Mills Ltd. v. State of Mysore, where the Mysore High Court held that energy lost during transmission is not consumed and thus not taxable.2. Electricity Tax on Energy Used for Further Generation:The second issue was whether the respondent company is liable to pay electricity tax on the electrical energy it used for generating further electrical energy. The High Court had ruled that no tax is payable on such energy. However, the Supreme Court disagreed, holding that the use of electrical energy for generating further electrical energy constitutes consumption under the Act. The Court stated, 'The use of electrical energy would none the less be consumption of such energy even though it has been consumed in operating the apparatus for generating further electrical energy.' The Court emphasized that the purpose for which the energy is consumed does not affect the tax liability. Sub-section (3) of Section 4 of the Act makes it clear that electricity tax is payable if a person consumes electrical energy generated by himself. The Court concluded that the respondent company is liable to pay tax on the energy used for further generation, equating it with energy consumed for any other purpose.Separate Opinions:One judge delivered a separate opinion, concurring with the majority on the point that energy used for generating further electrical energy is taxable but dissenting on the issue of transmission losses. This judge argued that consumption begins immediately after generation and includes energy used in transmission and transformation. The judge stated, 'The use of energy or electricity is necessarily a process of using up or destroying it in the course of such use,' and thus, transmission and transformation losses should also be considered as consumption and be taxable.Conclusion:The Supreme Court partially accepted the appeal, holding that:- No electricity tax is payable on the electrical energy lost as a result of transmission and transformer loss.- Electricity tax is payable on the electrical energy used for generating further electrical energy.The judgment of the High Court was modified accordingly, and the parties were left to bear their own costs.