2021 (6) TMI 263 - HC - Indian Laws

Court declares Tripura Electricity Duty Act provision unconstitutional, orders refund

The Court declared Section 4(4)(d) of the Tripura Electricity Duty Act, 2019 unconstitutional and beyond the State legislature's competence. It prohibited ... State power to levy duty on inter-State supply of electricity - doctrine of territorial limitations on State taxation - effect of the One Hundred and First Constitutional Amendment and the GST regime on State taxing power - occupancy of the field by Central legislation governing inter-State supplies (IGST/CGST) - doctrine of unjust enrichment in tax refund claimsState power to levy duty on inter-State supply of electricity - doctrine of territorial limitations on State taxation - effect of the One Hundred and First Constitutional Amendment and the GST regime on State taxing power - occupancy of the field by Central legislation governing inter-State supplies (IGST/CGST) - Validity of Section 4(4)(d) of the Tripura Electricity Duty Act, 2019 which seeks to levy duty on electricity sold outside the State. - HELD THAT: - The Court analysed the constitutional scheme, earlier precedents (notably the Constitution Bench decision in National Thermal Power Corporation Ltd.), and the amendments introduced by the GST regime. While Entry 54 of List II was substantially narrowed by the amendments and no longer covers all goods, the Court held that this change does not eliminate constitutional limits on State taxation of inter-State supplies. The Court emphasised that entries in the Seventh Schedule are fields of legislation and not sources of legislative empowerment; constitutional limitations (including Articles 246A, 269-A and 286 as amended) and the exclusivity of Parliament to legislate for inter-State supplies under the GST framework continue to operate. The IGST/CGST scheme occupies the field of taxation of inter-State supplies of goods and services (including electricity as a supply), and a State enactment purporting to tax inter-State sale/supply of electricity thus encroaches upon a field reserved for Central legislation and breaches territorial limitations recognised in NTPC. For these reasons the impugned clause seeking to levy duty on electricity sold outside the State was held unconstitutional. [Paras 33, 34, 38, 39, 40]Section 4(4)(d) of the E.D. Act, 2019 is unconstitutional and ultra vires the legislative competence of the State; no duty on the petitioner's inter-State sale of electricity shall henceforth be levied or collected.Doctrine of unjust enrichment in tax refund claims - Consequences as to duty already collected and criteria for refund on declaration of statute's invalidity. - HELD THAT: - Applying settled principles, the Court held that duty already collected is illegal but refund is subject to the doctrine of unjust enrichment. A claimant seeking refund must establish the extent to which it bore the burden and did not pass it on to purchasers or end consumers. The Court directed factual verification: the petitioner must file full accounts showing duty borne and duty passed on; the Secretary, Finance is to verify and order refunds only to the extent duty was not passed on, after hearing the petitioner. Time-limits and interest consequences for delayed refunds were specified. [Paras 41, 42, 43, 44, 45]Duty already collected is declared illegal; refund shall be granted only to the extent petitioner proves it has borne the duty without passing it on, and the Secretary, Finance shall verify accounts and determine refundable amounts within prescribed timelines.Final Conclusion: The Court declared Section 4(4)(d) of the Tripura Electricity Duty Act, 2019 unconstitutional insofar as it seeks to levy duty on electricity sold outside the State; duty already collected is illegal but refunds are to be processed subject to the doctrine of unjust enrichment and the verification directions given to the Secretary, Finance. Issues Involved:1. Constitutional validity of Section 4(4)(d) of the Tripura Electricity Duty Act, 2019.2. Legislative competence of the State legislature to levy duty on inter-State sale of electricity.3. Refund of duty already collected under the impugned provision.4. Application of the doctrine of unjust enrichment.Analysis:1. Constitutional Validity of Section 4(4)(d) of the Tripura Electricity Duty Act, 2019:The petitioner challenged the vires of Section 4(4)(d) of the Tripura Electricity Duty Act, 2019, which sought to levy duty on inter-State sale of electricity. The Court examined the provision which imposes duty on electricity sold outside the State and found it unconstitutional. The Court held that the State legislature lacks the competence to levy such a duty on inter-State sales, as it is beyond the legislative powers granted to the State under the Constitution.2. Legislative Competence of the State Legislature:The Court referred to the decision in *State of Andhra Pradesh v. National Thermal Power Corporation Ltd.*, where the Supreme Court had held that the State legislature lacks competence to levy duty on inter-State sale of electricity. The respondents argued that subsequent constitutional amendments, particularly the amendment to Entry 54 of the State list, had changed the legal landscape. However, the Court concluded that despite these amendments, the State legislature still does not have the authority to tax inter-State sales of electricity. The Court emphasized that the entries in the lists of the Seventh Schedule are fields of legislation, not sources of legislative power, and must be read subject to other constitutional limitations.3. Refund of Duty Already Collected:The petitioner sought a refund of the duty already collected under the impugned provision. The Court held that any refund must be subject to the principle of unjust enrichment. The petitioner can claim a refund only to the extent it has borne the duty and not passed it on to consumers. The Court directed the petitioner to produce accounts to the Secretary, Finance, who would verify the documents and determine the extent of the refundable duty. The refund process was to be completed within specified timelines, failing which the refund would carry interest.4. Application of the Doctrine of Unjust Enrichment:The Court discussed the doctrine of unjust enrichment, which prevents a person from being unjustly enriched at the expense of another. The Court cited several precedents, including *Mafatlal Industries Ltd. v. Union of India* and *Jindal Stainless Limited v. State of Haryana*, to emphasize that a refund of tax or duty can only be granted if the claimant has not passed on the burden to another party. The Court applied this doctrine to the case, ensuring that the petitioner could only receive a refund for the duty it had not passed on to consumers.Conclusion:The Court declared Section 4(4)(d) of the Tripura Electricity Duty Act, 2019 unconstitutional and beyond the competence of the State legislature. It prohibited the future collection of duty on inter-State sales of electricity and directed the refund of duty already collected, subject to verification and the principle of unjust enrichment. The Secretary, Finance, was tasked with verifying the petitioner's accounts and determining the refundable amount, with specific timelines for compliance.