TaxTMI 
TaxTMI 
2002 (4) TMI 694
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....mbiar, for the parties. JUDGMENT: R.C. Lahoti, J. 1. The High Court of Andhra Pradesh at Hyderabad has, by its impugned judgment dated April 11, 1990, allowed the writ petition filed by the respondent National Thermal Power Corporation Ltd. (hereinafter 'NTPCL', for short) and declared that the levy of duty by the State of Andhra Pradesh on the sales of electrical energy generated by the Corporation-respondent No.1 at its thermal power station set up at Ramagundam, within the State of Andhra Pradesh, and sold to the Electricity Boards of Karnataka, Kerala, Tamil Nadu and the State of Goa in pursuance of contracts of sales occasioning inter-State movement of electricity is incompetent and outside the power of State Legislature. Consequently, the tax levied and collected has also been held to be without authority of law, hence liable to be refunded in accordance with law. On a prayer made by the learned Advocate General on behalf of the State of Andhra Pradesh, the High Court certified that the case involves a substantial question of law as to the interpretation of Constitution under Article 132. The appeal has been filed pursuant to the certificate so granted by the....
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.... for purposes other than those connected with the construction, maintenance and operation of his electrical undertaking and which, if sold to a private consumer under like conditions, would have fetched a price of more than twelve paise per unit. Provided that no duty under this sub-section shall be payable on and in respect of sale of energy effected:- (a) by the Andhra Pradesh State Electricity Board to any other licensee; (b) by the National Thermal Power Corporation to the Andhra Pradesh State Electricity Board." 5. A bare reading of the provision shows that duty is leviable at the prescribed rate on 'all sales of energy' effected by the licensee during the previous month at a price of more than 12 paise per unit. Duty is also leviable on all energy consumed by the licensee. There are certain categories of sales and consumption saved and excluded from what would otherwise have been dutiable. However, in the present case, we are not concerned with those exclusions, nor with levy of duty on consumption. The limited question arising for our consideration is whether sales of energy by NTPCL, the respondent No.1, to several Electricity Boards si....
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....tributor of electrical energy and every producer shall, subject to certain exceptions, pay every month to the State Government a duty calculated at the rates specified in the table appended thereto on the units of electrical energy sold or supplied to a consumer or consumed by himself for his own purposes or for purposes of his township or colony during the preceding month. The table appended to Section 3 prescribes different rates of duty depending on the purpose for which electrical energy is sold, supplied or consumed, the details whereof are not relevant for our purpose. There is yet another legislation, namely, the Madhya Pradesh Upkar Adhiniyam 1981 (No.1 of 1982) which provides for levy of certain cesses. Sub-section (1) of Section 3 thereof provides that every distributor of electrical energy shall pay to the State Government an energy development cess at the rate of certain paise per unit on the total units of electrical energy sold or supplied to a consumer or consumed by himself or his employees during any month. NTPCL has two power projects located in the State of Madhya Pradesh (i) Korba Super Thermal Power Station at Pragati Nagar, District Bilaspur, known as....
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....etering is within the State of M.P.; (b) Transmission loss from Madhya Pradesh to the Home State of the buyer is to the account of the buyer; (c) Wheeling loss from Madhya Pradesh to the Home State of the buyer to the account of the buyer; (d) Transmission charges for transmission from Madhya Pradesh to the Home State of the buyer to the account of the buyer; (e) Wheeling charges from Madhya Pradesh to the Home State of the buyer to the account of the buyer; (f) Delivery of WREB in Madhya Pradesh; (g) NTPCL ceases to have control over the electrical energy once it is delivered to WREB within State of M.P.; (h) Payment made by the Bulk Beneficiaries is in respect of quantum of electrical energy supplied/delivered at metering point in State of M.P. Similar are the agreements entered into with other outside-State buyers. 11. It is not disputed that the power generated at the above said two stations is fed into transmission system of Power Grid Corporation of India Limited and the transmission systems of other bulk power beneficiaries wherefrom the buyers draw the power purchased by them. Great emphasis was laid on the fact that the points for metering are installed within the State....
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....entry 92A of List I. Before 11.9.56 269 After 11.9.56 269 The following duties and taxes shall be levied and collected by the Government of India but shall be assigned to the states in the manner provided in clause(2), namely :- States. (1) The following duties and taxes shall be levied and collected by the Government of India but shall be Taxes levied and assigned to the States collected by the in the manner Union but provided in clause (2), assigned to the namely:-States. (a) duties in respect of succession to property other than agricultural land (a) duties in respect of succession to property other than agricultural land; (b) estate duty in respect of property other than agricultural land; (b) estate duty in respect of property other than agricultural land; (c) terminal taxes on goods or passengers carried by railway, sea or air. (c) terminal taxes on goods or passengers carried by railway, sea or air; (d) taxes on railway fares and freights; (d) taxes on railway fares and freights; (e) taxes other than stamp duties on transactions in stock-exchanges and future markets; (e) taxes other than stamp duties on transaction in stock exc....
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....be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in the state, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another state. ****** (2) Except insofar as Parliament may by law otherwise provide, no law of a state shall impose, or authorise the imposition of, a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter-state trade or commerce : Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the government of any state immediately before the commencement of this Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty-first day of March, 1951. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). (3) No law made by the legislature of a st....
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....on shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty-first day of March, 1951. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). (3) No law made by the legislature of a state imposing, or authorizing the imposition of, a tax on the sale or purchase of any goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent. (3) Any law of a state shall, insofar as it imposes, or authorizes the imposition of, (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-state trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in subclause (b), sub-clause (c) sub-clause(d) of clause (29A) of Article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law s....
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....rchase__ (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. Explanation 1. Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Explanation 2. - Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State." 17. At this juncture it would be appropriate to have a view of the legislative history. Explanation to clause (1) of Article 286 generated some controversy which led to the constitution of a larger Bench (7- judge strength) in The Bengal Immunity Company Limited Vs. The State of Bihar and Ors. - 1955 (2) SCR 603. The larger bench ruled by majority that an inter-State sale or purchase continues to be s....
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....ommission the Parliament incorporated certain amendments in the Constitution by enacting the Constitution (Sixth Amendment) Act, 1956 which we have already noticed briefly. 20. We have very briefly stated the legislative history for it has been noticed in details in a recent Constitution Bench decision of this Court in 20^th Century Finance Corporation Ltd. & Anr. Vs. State of Maharashtra (2000) 6 SCC 12 and earlier in Shiv Dutt Rai Fateh Chand etc. Vs. Union of India & Anr. (1983) 3 SCC 529, and therefore, we have deemed it not necessary to repeat or re-state the same in details. The Central Sales Tax Act, 1956 was enacted by the Parliament as authorized by the Constitution. We have already reproduced Section 3 of the CST Act herein above. By Section 6 of the Act the Central Government was empowered to levy tax on all sales of goods effected by a dealer in the course of inter-State trade or commerce. However, by the Central Sales Tax (Amendment) Act, 1972, which came into force with effect from 1.4.1973, the language of Section 6 was suitably amended so as to confine the levy of tax under Section 6 on all sales "of goods other than electrical energy". The Statement of Objects a....
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....tored' and to the extent that electric energy can be 'stored', the observation must be held to be erroneous or by oversight. The science and technology till this day have not been able to evolve any methodology by which electric energy can be preserved or stored. 22. Another significant characteristic of electric energy is that its generation or production coincides almost instantaneously with its consumption. To quote from Aiyar's Law Lexicon (Second Edition, 2000) 'Electricity in physics is "the name given to the cause of a series of phenomena exhibited by various substances, and also to the phenomena themselves." Its true nature is not understood. Imperial Dict. (quoted in Spensley v. Lancashire Ins. Co., 54 Wis. 433, 442, 11 NW 894, where the court, quoting from the same authority, said, "We are totally ignorant of the nature of this cause whether it be a material agent or merely a property of matter. But as some hypothesis is necessary for explaining the phenomena observed, it has been assumed to be a highly subtle, imponderable fluid, identical with lightning, which pervades the pores of all bodies, and is capable of motion from one body to another.'....
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....these two things in mind, namely, that electricity is goods, and that sale of electricity has to be construed and read as sale for consumption within the meaning of Entry 53, the conflict, if any, between Entry 53and Entry 54 ceases to exist and the two can be harmonized and read together. Because electricity is goods it is covered in Entry 54 also. It is not disputed that duty on electricity is tax. Tax on the sale or purchase of goods including electricity but excluding newspapers shall fall within Entry 54 and shall be subject to provisions of Entry 92A of List I. Taxes on the consumption or sale for consumption of electricity within the meaning of Entry 53 must be consumption within the State and not beyond the territory of the State. Any other sale of electricity shall continue to be subject to the limits provided by Entry 54. Even purchase of electricity would be available for taxation which it would not be if electricity was not includible in the meaning of term 'goods'. A piece of legislation need not necessarily fall within the scope of one entry alone; more than one entry may overlap to cover the subject-matter of a single piece of legislation. A bare consumption ....
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....Bengal & Ors., 1962 Supp (3) SCR 1, the Constitution Bench has held that the same rules of construction apply for the purpose of harmonizing an apparent conflict between two entries in the same list. What is inter-State sale. 25. It is well settled by a catena of decisions of this Court that a sale in the course of inter-State trade has three essential ingredients: (i) there must be a contract of sale, incorporating a stipulation, express or implied, regarding inter-State movement of goods; (ii) the goods must actually move from one State to another, pursuant to such contract of sale; the sale being the proximate cause of movement; and (iii) such movement of goods must be from one State to another State where the sale concludes. It follows as a necessary corollary of these principles that a movement of goods which takes place independently of a contract of sale would not fall within the meaning of inter-State sale. In other words, if there is no contract of sale preceding the movement of goods, obviously the movement cannot be attributed to the contract of sale. Similarly, if the transaction of sale stands completed within the State and the movement of goods takes place there....
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....e of electricity is concerned even if such sale takes place in the course of inter-State trade or commerce the State can legislate to tax such sale if the sale can be held to have taken place within the territory of that State or if adequate territorial nexus is established between the transaction and State legislation. For the several reasons stated hereinafter such a plea cannot be countenanced. 27. The prohibition which is imposed by Article 286(1) of the Constitution is independent of the legislative entries in Seventh Schedule. After the decision of larger Bench in Bengal Immunity Company Limited (supra) and Constitution Bench decision in Ram Narain Sons Ltd. & Ors. Vs. Asst. Commissioner of Sales Tax & Ors., 1955 (2) SCR 483, there is no manner of doubt that the bans imposed by Articles 286 and 269 on the taxation powers of the State are independent and separate and must be got over before a State legislature can impose tax on transactions of sale or purchase of goods. Needless to say, such ban would operate by its own force and irrespective of the language in which an Entry in List-II of Seventh Schedule has been couched. The dimension given to field of legislation by the....
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....are also vested by Article 248 in the Parliament with respect to any matter not enumerated in any of the lists in Seventh Schedule. This residuary power finds reflected in Entry 97 of List I. If an Entry does not spell out an exclusion from field of legislation discernible on its apparent reading, the absence of exclusion cannot be read as enabling power to legislate in the field not specifically excluded, more so, when there is available a specific provision in the Constitution prohibiting such legislation. 29. It is by reference to the ambit or limits of territory by which the legislative powers vested in Parliament and the State Legislatures are divided in Article 245. Generally speaking, a legislation having extra territorial operation can be enacted only by Parliament and not by any State Legislature; possibly the only exception being one where extra territorial operation of a State legislation is sustainable on the ground of territorial nexus. Such territorial nexus, when pleaded, must be sufficient and real and not illusory. In Burmah Shell Oil Storage & Distributing Co. India Ltd.(supra), which we have noticed, it was held that sale for use or consumption would mean the ....
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.... (generation), transmission, delivery and consumption are simultaneous, almost instantaneous. Electricity as goods comes into existence and is consumed simultaneously; the event of sale in the sense of transferring property in the goods merely intervenes as a step between generation and consumption. In such a case when the generation takes place in one State where from it is supplied and it is received in another State where it is consumed, the entire transaction is one and can be nothing else excepting an inter-State sale on account of instantaneous movement of goods from one State to another occasioned by the sale or purchase of goods, squarely covered by Section 3 of C.S.T. Act. Sale of electricity by NTPCL 31. In both the cases before us, contracts have been entered into between parties to the transaction, that is, the sellers and the buyers (in other States) prior to the generation of electricity. The NTPCL generates electricity and pursuant to these contracts supplies the same from its power stations situated in the States of A.P. or M.P. to the buyers in other States where it is received and consumed. There is no hiatus between generation, sale, supply, transmission, d....