TaxTMI 
TaxTMI 
TaxTMI 
2021 (6) TMI 263
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....of Tripura and generates electricity based on Gas Turbine Units and Steam Turbine Units. The petitioner sales bulk of its electricity generated from the said power project to seven north-eastern States including the State of Tripura. A small portion comprising of approximately 13.5% of the power is sold by the petitioner through bilateral contracts with States or directly through power exchange to the traders. 3. The Government of Tripura promulgated an Ordinance called Tripura Electricity Duty Ordinance, 2019 (hereinafter to be referred to as the said Ordinance of 2019) under which the State would levy duty on sale or consumption of electrical energy. Section 4 of the said Ordinance pertained to levy of electricity duty. Sub-section (4) thereof provided that the duty shall also be levied on different items mentioned in clauses (a) to (d) thereof, clause (d) being the following: "(d) electricity sold outside the State and licensees shall have to pay electricity duty on sold energy charges." In exercise of rule making powers under the Ordinance the State of Tripura had also framed Tripura Electricity Duty Rules, 2019. Rule 5 thereof provided that the rate of electricity duty sha....
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.... of energy charges and fixed charges of energy consumed. Sub-section (4) of Section 4 of the Act provides that duty shall also be levied on electricity consumption or generation and sale under different situations mentioned in clauses (a) to (d) contained therein. Clause (d) which is under challenge reads as under: "4. Levy of electricity duty: (4) Duty shall also be levied on- (d) electricity sold outside the State and licensees shall have to pay electricity duty on sold energy charges." This provision which is impugned in this petition thus seeks to levy duty on electricity sold outside the State. 5. The petitioner wrote to the Commissioner of Electricity Duty on 01.11.2019 and took up the issue of impermissibility for the State to tax inter-State sale of electricity. Detailed correspondence between the petitioner and the Government authorities followed, however, it is not necessary to take note of the contents of all these letters and communications except for a letter dated 31.01.2020 written by the Deputy Commissioner of Electricity Duty, Government of Tripura to the Managing Director of the petitioner company in which it was conveyed that perusal of Power Purcha....
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....of the decision of the Supreme Court in case of National Thermal Power Corporation Ltd. (supra) is no longer applicable and the State legislature is now competent to frame a law for collection of duty on inter-state sale of electricity. 8. The contention of the petitioner can be summarized in its own words as under: "18. It is submitted that in the instant case, the Petitioner supplies power to the seven North Eastern States, namely, Assam, Meghalaya, Manipur, Nagaland, Arunachal Pradesh, Mizoram and Tripura. In addition to the same, the Petitioner also sells power outside the State at the power exchange or through bilateral contracts etc. Since the Petitioner's Project is located in the State of Tripura, therefore, the sale of power within the State of Tripura shall fall within Entry 53 and it is within the legislative competence of the State to tax such sale of power. Sale of power to the other six North Eastern States shall fall within Entry 54 and will be subject to Entry 92A of List I and cannot be taxed by the Government of Tripura. Similarly, sale of power outside the State through merchant sale is also subject to Entry 92A of List I and cannot be taxed by the Government ....
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....re for the purpose of deciding the present lis. Even if the ratio culled out in paragraph 24 of the judgment of the Hon'ble Apex Court in NTPC supra is applied to the post 101st Constitutional Amendment of 2016 read with Taxation Laws (Amendment) Act, 2017, imposition of tax on sale or purchase of goods including electricity is not subjected to any limitation as was existing then vide Entry 54 List II prior to the 101st Constitutional (Amendment) Act, 2016. Hence, in any view of the matter Writ Petitioner's planks of attack against the Tripura Electricity Duty Act, 2019 fail and the Writ Petition is liable to be dismissed." 10. Before we proceed to analyze the legal position, it may be recorded that as clearly emerging from the affidavit filed on behalf of the respondents and as was argued before us by the learned Advocate General, the stand of the State is clear. It was not canvassed before us that the sale of electricity by the petitioner to the purchasers outside the State was not an inter-State sale. The stand of the Government is that the same can be taxed under Section 4(4)(d) of E.D. Act, 2019 and that on account of constitutional amendments it is open for the State legisla....
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....ws for levying tax on sale or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter-State trade or commerce. We will refer to this judgment at much greater length later on since this is not the only ground on which the Supreme Court had come to the conclusion that the State legislation levying tax on inter-State sale of electricity was beyond its legislative competence. 12. At this stage, we may refer to early decisions in the field of relevant tax statutes and the legislative changes which some of these leading judgments of the Supreme Court brought about and which would enable us to appreciate the ratio of the decision in case of National Thermal Power Corporation Ltd. (supra) in proper perspective and it would also enable us to examine the Constitutional and legislative changes in relation to the GST regime. In case of Bengal Immunity Company Limited vrs. State of Bihar and others reported in AIR 1955 SC 661 the question of the authority of the State of Bihar to levy tax on the sales made by the appellant-company in the course of inter-State trade or commerce came up for consideration. The Constitution Bench of the Supreme Court ....
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....Jamshedpur to West Bengal. 13. In case of Commissioner of Sales Tax, Madhya Pradesh, Indore vrs. Madhya Pradesh Electricity Board, Jabalpur reported in (1969) 1 SCC 200, a three Judge Bench of the Supreme Court had held that electricity is goods for the purpose of imposition of sales tax. 14. With this background, we will shortly refer to the decision of Supreme Court in case of National Thermal Power Corporation Ltd. (supra) at much greater length. Before that, however, we may take note of the applicable provisions of the Constitution as they stood when the Supreme Court rendered the said decision. Part XI of the Constitution pertains to relations between the Union and the States. Chapter I of Part XI pertains to legislative relations. Article 245 contained in this chapter reads as under: "245. Extent of laws made by Parliament and by the Legislatures of States.-(1) Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. (2) No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-terr....
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.... course of inter-State trade or commerce. 19. We have already reproduced Entry 53 of List II and unamended Entry 54 of the said list. 20. In background of such Constitutional provisions, the Supreme Court in case of National Thermal Power Corporation Ltd. (supra) tested the powers of the State legislature to levy duty on inter-State sale of electricity. It was a case in which the State of Andhra Pradesh was levying electricity duty on the sale of electricity by the NTPC to the Electricity Boards situated outside the State of Andhra Pradesh. This was challenged by NTPC as without jurisdiction. Similarly the State of Madhya Pradesh had also demanded electricity duty from NTPC on the electricity generated by it at the two stations situated within the State which was fed into Northern grid and supplied to several States outside the State of Madhya Pradesh. The Supreme Court referred to and affirmed the view of the earlier three Judge Bench in case of Madhya Pradesh Electricity Board, Jabalpur (supra) that electricity is goods. It referred to the decision in case of 20th Century Finance Corporation Limited and another vrs. State of Maharashtra reported in (2000) 6 SCC 12 and observed ....
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....ger Bench in Bengal Immunity Co. Ltd.(supra) and the Constitution Bench decision in Ram Narain Sons Ltd. v. CST [AIR 1955 sc 765] 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 the Seventh Schedule has been couched. The dimension given to the field of legislation by the language of an entry in List II of the Seventh Schedule shall always remain subject to the limits of constitutional empowerment to legislate and can never afford to spill over the barriers created by the Constitution. The power of the State Legislature to enact law to levy tax by reference to List II of the Seventh Schedule has two limitations: one, arising out of the entry itself, and the other, flowing from the restriction embodied in the Constitution. It was held in Tata Iron and Steel Co. Ltd. v. S.R. Sarkar [AIR 1961 SC 65] that field of taxation on sale or purchase taking place in the course o....
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.... an inter-State sale into an intra-State sale or create a territorial nexus to tax an inter-State sale unless permitted by an appropriate Central legislation. But this is exactly what the definition of "consumer" in Section 2(a) of the M.P. Electricity Duty Act, 1949 has done. The definition of consumer has been artificially extended to include any person who receives electrical energy (without regard to its consumption) and also to include a person who, receiving the electrical energy in bulk, forwards it onwards for distribution, (without regard to the fact whether it is transmitted outside the State and whether the electricity is or is not consumed within the State). The same definition has been adopted in the M.P. Upkar Adhiniyam, 1981. This definition of consumer shall have to be read down as including within it only such persons who receive the electricity for consumption or distribution for consumption within the State. Without such reading down, the definition of "consumer" would be rendered ultra vires of Articles 286 and 269 of the Constitution read with Section 3 of the Central Sales Tax Act, 1956." The decision of Supreme Court in case of National Thermal Power Corpora....
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....he Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State. (2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce." Under clause (1) of Article 246-A thus notwithstanding anything contained in Articles 246 and 254, and, subject to clause (2), the Parliament and the State Legislature would now have the power to make laws with respect to goods and services tax imposed by the Union or the State. Thus irrespective of the different taxing entries in Lists I and II the Union as well as the State legislature could frame laws for imposing goods and services tax. However, significantly clause (2) of Article 246-A still retained the exclusive power of Parliament to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce. Explanation to Article 246-A provides that the provisions of the said Article shall in respect of goods and services tax referred to in clause (5) of Article....
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...., subject to the provisions of Entry 92-A of List I is now replaced by an expression namely, taxes on the sale of petroleum crude, high speed diesel, motor spirit, natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods. Two significant things that need to be noted in this change are that Entry 54 which previously included sale or purchase of all kinds of goods other than newspapers, is now confined to only six products, i.e. the enumerated petroleum products and alcoholic liquor for human consumption. The second change was that reference to this legislative power being subject to the provisions of Entry 92-A of List I was deleted. However, the same language which is used in Entry 92-A namely, where the sale or purchase takes place in the course of inter-State trade or commerce was incorporated in Entry 54 itself for exclusion of power of the State legislature. 28. Parallel to these Constitutional amendments, certain significant changes were also made in CST Act under The Taxation Laws (Amendment) Act, 2017. Clause (d) ....
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....were various taxes levied by the Central as well as the State Governments. There is cascading effect of taxes as taxes levied by the Central Government are not available for set off. To remove these difficulties all the various taxes were sought to be subsumed by a single tax called the goods and services tax which will be levied on supply of goods or services or both. Central Goods and Services Tax Bill was, therefore, presented which proposed to confer power on the Central Government for levying goods and services tax on the supply of goods or services or both which takes place within a State. The Act would, authorise levying of tax on all inter-State supplies of goods or services or both, except supply of alcoholic liquor for human consumption at notified rates not exceeding specified limit. Section 9 which is a charging provision provides for levy of tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption. Under section 174 the Act repealed the Central Excise Act, 1944, the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, the Additional Duties of Excise (Go....
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....a). 33. In our opinion, this reading of the situation has many flaws. Firstly, Entry 54 which was previously made specifically subject to Entry 92-A of the Union list, has now been substantially amended in two respects. Instead of previously covering all kinds of goods other than newspapers, Entry 54 is now confined to six items, i.e. five specified petroleum products and alcoholic liquor for human consumption. Secondly, the phraseology used in Entry 92-A is now incorporated in Entry 54 itself namely excluding the cases of (which are included in entry 92A) sale in course of inter-state trade or commerce. Perhaps, this is one of the reasons why the Parliament did not think it necessary to use the expression "subject to Entry 92-A of List I" in Entry 54. Surely, the State legislature cannot frame a law for taxing inter-State sale of electricity with reference to Entry 54 since in its amended form now this entry confines the power of the State legislation to only six specified items. 34. This of course is one part of the discussion. The learned Advocate General is correct in pointing out that Entry 54 of List II having undergone a major change, the logic adopted by the Supreme Court....
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....o 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." 36. In the later decision in case of Jindal Stainless Limited and another vrs. State of Haryana and others reported in (2017) 12 SCC 1 which was a nine Judge Bench judgment of the Supreme Court in which speaking for the majority T.S. Thakur, C.J. had reiterated this settled constitutional principle. To this judgment we would refer at a slightly later stage in another context. However, for the present, we may notice that in the said decision in paragraph 25 and sub paragraph which follows the said paragraph (in SCC) the learned Judge had listed the constitutional limitations on the power of the State legislatures to levy taxes and to enact legislations in the fields reserved for them....
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....er to levy tax on inter-State supply of goods or services is retained by the Parliament and also the power to frame the law specifying as to when supply of goods, or of services can be said to have taken place in the course of inter-State trade or commerce. Article 286 which pertains to restrictions as to imposition of tax on the sale or purchase of goods, before the amendment in the year 2016 under clause (1) provided that no law of the State shall impose or authorize the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State; or (b) in the course of import of the goods into or export of the goods out of the territory of India. Clause (2) of Article 286 provided that except in so far as the Parliament may by law provide no law of the State shall impose or authorize to impose 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. After the 101st amendment language used in this Article has undergone changes. Clause (1) now provides that no law of a State shall impose or authorize the imposition of a tax on the supply of goods or of services or both,....
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....heory as noted earlier has been rejected by the Supreme Court in number of decisions. Perhaps the contention of the State also is that since Entry 54 no longer refers to term "goods", the State legislature is freed from its limitation to levy tax on inter-State sale of goods other than the six goods, i.e. 5 specified petroleum products and alcoholic liquor for human consumption referred to in Entry 54. Again there is an inherent fallacy. Term "goods" has been defined in the Constitution under clause (12) of Article 366 as to include all materials, commodities and articles. Electricity continues to be treated as goods for the purpose of this clause also. Further, sub-section (24) of Section 2 of IGST Act provides that words and expressions used and not defined in the said Act but defined in the CGST Act shall have the same meaning as assigned to them in the said Act. In turn, CGST Act defines term "goods" in sub-section (52) of Section 2 as to mean every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of sup....
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.... process, earlier judgment in case of Atiabari Tea Company Ltd. (supra) was overruled. This would negate the argument of the counsel for the petitioner that the law in question breaches the constitutional principle of free inter-State trade and commerce. However, in the present case, the State does not claim to levy entry tax but seeks to tax the inter-State sale of electricity which as we have noted more than once, was held impermissible by Supreme Court in case of National Thermal Power Corporation Ltd. (supra) . We, therefore, hold and declare that Section 4(4)(d) of the E.D. Act, 2019 is unconstitutional and ultra vires the power of the State legislature. 41. Final relief that can be granted to the petitioner must be subject to the well established principle of unjust enrichment. In large number of decisions, the Supreme Court has laid down that whenever a question of refund of tax or duty arises, the petitioner before the Court can claim such refund only to the extent it has borne the element of duty or tax, as the case may be. If the petitioner has already passed on the burden of tax to other person or ultimate consumer, refunding the duty even on a declaration of the taxing....
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....owing observations may be noted: "475. Lastly, it is necessary to consider an important issue raised by the assessees on the payment of tax/refund of tax in case the validity of the legislations is upheld or otherwise as the case may be. It has come on record that many entry tax legislations of the State are enacted pursuant to Bhagatram [1995 Supp (1) SCC 673] and Bihar Chamber of Commerce [(1996) 9 SCC 136]. But Jindal Stainless Ltd. (2) [(2006) 7 SCC 241] which we have now overruled, has led to a scenario of discordant judicial pronouncements, whereby some High Courts have struck down the impugned legislation as being non-compensatory, while the others have upheld the laws declaring them compensatory. In some States, the High Courts have passed interim orders directing the petitioners to pay 33% of the demand and in some cases 50% of the demand. When the matters were admitted by the Court, interim orders were passed directing the assessees to pay 50% of the demand. But, this Court cannot lose sight of the fact that the assessees have not pleaded and produced evidence to establish that they have not passed on the tax burdens to the consumers. In absence of such a submission, th....
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....x from consumers/customers after obtaining interim orders from this Court, they will pay the said amounts to the respective State Governments." From the above decision in Godfrey Phillips India Ltd., it is clear that even when the legality of a tax has been challenged successfully, there can be no question of the State tax being retained by the dealer/manufacturer notwithstanding its illegality. 481. It is well settled that a claim of refund can be allowed only when the claimant establishes that he has not passed on the tax burden to the consumers. No refund can be granted so as to cause windfall gain to any person when he has not suffered the burden of tax. The possibility of the tax burden having been passed on to the consumers by the assessees cannot be ruled out in the present case. Applying the law laid down above to the present case, it emerges that the assessees cannot claim refund irrespective of whether the impugned legislations are declared valid or unconstitutional. Unless the assessees establish that they have not passed on the tax burden to the consumers, they cannot make a claim for refund and unjustly enrich themselves." 43. The petitioner, therefore, can claim ....