2019 (5) TMI 363 - HC - VAT and Sales Tax

High Court allows deductions for sales to DISCOMs under DST Rules.

The High Court allowed the assessees' appeals and dismissed the Revenue's appeals. The Court held that the assessees were entitled to claim deductions for ... Interpretation of statute - scope of the term 'Undertakings' - Licensee - whether the authorities have been justified in holding that the DISCOMs., viz BSES, BSES (Y), NDPL and Transco to whom the assessees had made sales were not “undertakings” supplying electricity? HELD THAT:- The Delhi Vidyut Board (DVB) was deemed to be a licensee under the 1910 Act. This is because the Delhi Electricity Control Order (“DECO”) of 1959 was framed under provision of section 22 B of 1910 Act read with notification of Central Government dated 10.11.1959 to regulate transmission, distribution and utilisation of electricity and for maintaining the supply and securing equitable distribution of energy by all concerned in the Union Territory of Delhi. When functions to deal with electricity were delegated to Municipal Corporation of Delhi (MCD) under the Delhi Municipal Corporation Act 1957 as licensee, the Delhi Electricity Supply Undertaking (DESU) was functioning as undertaking of MCD and no Board was in existence. In the DERC Rules, “Board” was defined to mean DVB constituted under Section 5 of the Supply Act; Rule 2(f) defined DISCOMs to mean as companies with the principal object of engaging in the business of distribution and supply of electricity in the area as specified in Part II of Schedule H. “Transferee” was been defined in Rule 2(r) to mean “GENCO”, “TRANSCO”, “DISCOMS” and “PPCL”, in whom the undertaking or undertakings or the assets, liabilities, proceedings and personnel of the DVB stood transferred. The said DISCOMs (M/s NDPL, M/s BSES Rajdhani Power Limited, BSES Yamuna Power Ltd etc) distributed electricity in Delhi during the relevant period and Delhi Transco Ltd. transmitted electricity in Delhi during the relevant period. Therefore, they were licensees – or at least deemed to be licensees under the 1910 Act. A conjoint reading of the provisions shows that the Supply Act did not repeal the 1910 Act; instead it stipulated that the provisions of the Supply Act were in addition to and not in derogation of the 1910 Act. Therefore, the deeming provisions of the 1910Act continued to be in force during even under the provisions of the2000 Act which remained in force. It is also a fact that the Electricity Act 2003 replaced the Indian Electricity Act, 1910, after 10th June, 2003; the DISCOMs were licensees under Electricity Act, 1910 and these licenses were never withdrawn even after coming into force of the said 2003 Act - From the reading of Rule 11(XII) it can be seen that a dealer is entitled to deduct the turnover of sales made by him to any undertaking supplying electrical energy to the public in Delhi under a license or sanction granted or deemed to have been granted under the Supply Act. Unlike an exemption granted through a notification, the effect of the rule is to exclude a species of transaction from calculation of taxable turnover. Appeal dismissed - decided against Revenue. Issues Involved:1. Whether the VAT Tribunal erred in upholding the refusal of the Revenue’s claim for exemption under Rule 11 for sales made to distribution companies (DISCOMS) for the period prior to 2003-04.2. Whether the DISCOMs were deemed licensees under the Indian Electricity Act, 1910.3. Whether the interpretation of Rule 11(XII) of the DST Rules should include the 2003 Electricity Act in place of the 1910 Act.4. Whether the assessees were entitled to claim deductions for sales made to DISCOMs under the DST Act and Rules.5. Whether the benefit of Rule 11(XII) should be denied based on the nature of the entities involved.Detailed Analysis:1. Whether the VAT Tribunal erred in upholding the refusal of the Revenue’s claim for exemption under Rule 11 for sales made to distribution companies (DISCOMS) for the period prior to 2003-04:The High Court noted that the VAT Tribunal had partly allowed and partly dismissed the assessees' appeal. The Tribunal held that the assessees were entitled to the benefit of Rule 11(XII) for the period up to 11.03.2004, when the DISCOMs enjoyed being licensees under the Electricity Act 1910 but not thereafter when the Electricity Act, 2003 was brought into force. The Tribunal's decision resulted in various liabilities for the assessees for the period after 11.03.2004.2. Whether the DISCOMs were deemed licensees under the Indian Electricity Act, 1910:The Court found that the DISCOMs (BSES Rajdhani, BSES Yamuna, NDPL, and Delhi Transco Ltd.) were deemed licensees under the 1910 Act. The Delhi Electricity Reforms Act, 2000 and the DERC Transfer Scheme Rules, 2001 facilitated the transition of rights and obligations from the Delhi Vidyut Board (DVB) to these DISCOMs. The Court cited the judgment in Suresh Jindal v. BSES Rajdhani, which confirmed that the DISCOMs were duly licensed under the 1910 Act.3. Whether the interpretation of Rule 11(XII) of the DST Rules should include the 2003 Electricity Act in place of the 1910 Act:The Court held that Rule 11(XII) should be read in conjunction with Section 8 of the General Clauses Act, 1897, which states that references to repealed enactments should be construed as references to the re-enacted provisions. Therefore, the condition for exclusion from turnover under Rule 11(XII) should be read to include licenses or sanctions granted under the 2003 Act.4. Whether the assessees were entitled to claim deductions for sales made to DISCOMs under the DST Act and Rules:The Court concluded that the assessees were entitled to claim deductions for sales made to DISCOMs under Rule 11(XII) of the DST Rules. The DISCOMs were deemed licensees under the 1910 Act and continued to be so under the 2003 Act. The Court emphasized that the intention of the DST Rules was to provide deductions for sales made to entities supplying electrical energy, regardless of whether they were private or government undertakings.5. Whether the benefit of Rule 11(XII) should be denied based on the nature of the entities involved:The Court rejected the Revenue's argument that the benefit of Rule 11(XII) should be denied because the DISCOMs were not government undertakings. The Court noted that the term 'undertaking' in Rule 11(XII) was not restricted to government entities and included private entities as well. The Court emphasized that the purpose of Rule 11(XII) was to ensure that electricity was not double-taxed, and denying the benefit based on the nature of the entities would defeat this purpose.Conclusion:The High Court allowed the assessees' appeals and dismissed the Revenue's appeals. The Court held that the assessees were entitled to claim deductions for sales made to DISCOMs under Rule 11(XII) of the DST Rules. The DISCOMs were deemed licensees under the 1910 Act and continued to be so under the 2003 Act. The Court emphasized that the intention of the DST Rules was to provide deductions for sales made to entities supplying electrical energy, regardless of whether they were private or government undertakings.