Consumption-based electricity tax remains valid where the taxable event is use, not generation, even for captive consumption.

The amended Karnataka Electricity (Taxation on Consumption) Act, 1959 was analysed as imposing tax on consumption of electricity, not on generation. The challenge that levy on captive and auxiliary consumption by non-licensees exceeded State legislative competence was rejected because the taxable event remained consumption, and the fact that the generator was also the payer did not change the character of the levy. On that footing, the amended Sections 3(1), 3(2) and 4(3) were treated as intra vires. The rate-fixing notification for captive and auxiliary consumption, and the consequential demand notices, were upheld as consistent with the valid levy.

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Issues: (i) Whether the amended provisions of the Karnataka Electricity (Taxation on Consumption) Act, 1959, including the levy on captive and auxiliary consumption of electricity generated by non-licensees, were beyond the State Legislature's competence and unconstitutional; (ii) Whether the notification fixing the rate of tax on captive and auxiliary consumption and the consequential demand notices were valid.

Issue (i): Whether the amended provisions of the Karnataka Electricity (Taxation on Consumption) Act, 1959, including the levy on captive and auxiliary consumption of electricity generated by non-licensees, were beyond the State Legislature's competence and unconstitutional.

Analysis: The charging provision was read as imposing tax on consumption of electricity, not on generation. The earlier decisions upholding the validity of the levy on consumption were treated as governing the controversy. The argument that the levy was in substance a tax on generation was rejected on the footing that the taxable event remained consumption, while the fact that the generator was also the person liable to pay did not alter the character of the levy. The distinction between a levy on production and a levy on consumption was maintained, and the amended provisions were held to fall within the State's legislative field.

Conclusion: The amended Sections 3(1), 3(2) and 4(3) are valid and intra vires.

Issue (ii): Whether the notification fixing the rate of tax on captive and auxiliary consumption and the consequential demand notices were valid.

Analysis: Once the charging and payment provisions were upheld, the notification prescribing the rate of tax on captive and auxiliary consumption was found to be consistent with the statute. The demand notices were consequential to the valid levy and rate fixation and therefore did not survive the challenge independently.

Conclusion: The notification and the consequential demand notices are valid.

Final Conclusion: The challenge to the amended levy failed, and the impugned notification and demand notices were sustained, resulting in dismissal of the writ petitions.

Ratio Decidendi: A levy whose taxable event is consumption remains within the State's competence even if the person liable to pay is the generator, and a rate-fixing notification issued consistently with such a valid levy cannot be struck down merely because the electricity is self-generated or captively consumed.

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