The several writ petitions were filed under articles 226 & 227 of the constitution of India, praying to issue an appropriate writ or order declaring Karnataka electricity (taxation on consumption) (Amendment) Act, 2013, section 5 and section 6 of the amendment act, as it attempts to levy tax on captive consumption, auxiliary consumption and inter-state sale of electricity, as discriminatory, arbitrary and unconstitutional and thereby strike down the same, was merged together and the same was dismissed.
Brief facts of the case
The petitioners are public limited companies registered under the provisions of the Companies Act, 1956. The petitioners assert that they have developed, designed, engineered, financed, constructed, operating and maintaining captive electric power generating stations at various places in Karnataka. The respondent/Additional Chief Electrical Inspector has demanded the electricity tax on electricity generated and consumed by these petitioners from 19.03.2015.
Being aggrieved by the same the petitioners have challenged the Constitutional validity of Sections 3 and  and Sections 4 of the 1959 Act amended by Sections 5 and 6 of the Karnataka Electricity [Taxation on Consumption] [Amendment] Act, 2013 insofar as levy of tax on consumption of electricity by captive generative units is concerned inter alia assailing the notification bearing No.EN 27 EBS 2013, Bengaluru dated 24.11.2014 published in the Karnataka Gazette dated 19.03.2015 whereby the rate of electricity tax to be collected as Electricity Tax on Captive Consumption and Auxillary consumption of electricity generated by the captive power generating plant/co-generation plant is fixed and the consequential demand notices issued.
The Karnataka Electricity [Taxation on Consumption] Act, 1959 [‘Act, 1959’ for short] was promulgated to collect tax on consumption of electricity on 04.08.1959. Section 3 which is the charging section, was amended vide Karnataka Ordinance No.8 of 2003, came to be succeeded by the Karnataka Act No.5 of 2004. The Act was given retrospective effect from the date on which the Ordinance was promulgated i.e., from 16.10.2003 and the levy in terms of the Amended Act was in force during the period from 16.10.2003 to 01.10.2004. The imposition of tax on captive generation effected by way of the said amendment was questioned before the Court in Biocon Ltd., V/s. The state of Karnataka and Others1 case. The Division Bench of the Court has upheld the Amendment Act of 2003, confirming the levy of tax on consumption of electricity which is now pending before the Hon’ble Apex Court but no interim order staying of the order of the division bench is granted.
Arguments before the Court
Learned senior counsel Sri Uday Holla for the petitioners submitted that the Act, 2013 falls outside the legislative competence of the State Government. The Taxation on Consumption and Sale is nothing but Taxation on Generation. The Scheme of the 2013 Amendment and the Rules clearly show that the incidence of taxation i.e., the taxable event is the generation of electricity and not consumption. Taxation on generation is within the Union’s Legislative Competence. “Captive consumption” and “Auxiliary Consumption” are the subjects that do not come under the legislative competence of the State under Entry 53 of List II of the Seventh Schedule to the Constitution pertaining to the taxes on the consumption and sale of electricity, but comes within the legislative competence of the Union under Entry 84 of List I dealing with goods manufactured or produced in India.
On the pretext of levying tax on consumption indeed tax is levied on the generation of electricity. What is not impermissible directly cannot be made indirectly. The levy of tax on consumption is nothing but indirectly taxing the generation of electricity which is beyond the purview and competence of the State. Learned senior counsel placing reliance on the judgment in the case of M.P. Cement Manufacturers Association V/s. State of M.P. and Others,2 submitted that the imposition envisaged was on the production of electricity units. The charge is on the generation and not on the sale or consumption of electricity. It was argued that sub-section  of Section 3 of the Madhyapradesh Upkar Adhiniyam, 2001 is akin to the provisions of Section 3 and 4 of the Amendment Act, 2013. Learned senior counsel has referred to a catena of judgments which shall be discussed infra.  2 SCC 249
Learned Additional Advocate General Sri Dhyan Chinnappa submitted that in view of the Constitutional validity of Sections 3 and  of the Amendment Act, 2013 being already upheld by this Court in the case of Vijaya Steels Limited Vs. Bangalore Electricity Supply Company Limited3, further considered and reiterated in the case of ACC Limited V/s. The State of Karnataka and Others,4 the challenge to the Constitutional validity of Section 4 of the Amendment Act, 2013 is a mere formality since Section 4 of the Act, 2013 contemplates payment of tax in terms of Section 3 of the Act. Learned counsel argued that the incidence of tax is on the consumption not on the generation of electricity. The imposition of tax on consumption is held to be valid by the Division Bench of this Court in the case of Biocon1 supra relating to the earlier Amendment Act 4/2003. In view of the aforesaid W.P.No.14434 of 2016 and allied matters (D.D.4.10.2016) W.P.No.12927/2017 [D.D.21.11.2019] decision, the provisions of Section 4 being identical requires to be upheld. It was submitted that the provisions of Madhyapradesh Upkar [Sanshodhan] Adhyadesh, 2001 certainly relates to the levy of tax on the event of generation of electricity, to cure the said defect, the explanation was introduced by Sanshodhan Adhiniyam, 2003. In such circumstances, the Hon’ble Apex Court has held that the explanation cannot override the main provision. On the interpretation of the language employed in the main provision, Section 3 of the [Sanshodhan] Adhyadesh, 2001, it was observed that the State lacks competence in imposing the electricity tax on the generation of electricity which squarely falls in the domain of the Parliament.
Decision of the Court
In view of the Constitutional validity of subsections  and  of Section 3 of the Act, 2013 being upheld by the Court, now the challenge would only revolve around Section 4 of the Act, 2013.
As aforesaid, Section 4 of the Act, 2013 deals with the payment of tax. In terms of sub-section  of Section 4, the incidence of tax is on consumption. The consumption of electricity relates to every person generating electricity by himself, and or who supplies electricity free of charge or otherwise to any other person through his own system.
The electricity tax is payable as per Section 3, the charging Section. Section 4 is the payment of tax to be made by a different class of persons. In the case of Biocon1, the Division Bench of this Court while dealing with the levy of tax on consumption has categorically observed that such levy is permissible. The State has legislative competence to impose the consumption tax under Entry 53 of List II to the Seventh Schedule to the Constitution of India. The very question in as much as the levy of tax on consumption by the producers of electricity was considered, analyzed and decided. The consumers also the producers of electricity are not exonerated from the levy of tax since electricity cannot be stored. Production and consumption being simultaneous, the argument that tax levied is in fact on production only and not on consumption, was negated.
Thus, the challenge made to Sections 3 and  as well as Section 4 of the Act is no more Res Integra in view of the judgments of our Hon’ble High Court referred above. For the aforesaid reasons, the amended Sections 3, 3 and 4 of the Act, 2013 are validly enacted by the State Legislature and held to be intra vires the Constitution. Accordingly, the Notification dated 24.11.2014 impugned as well as the consequential demand notices are held to be justifiable. Thus writ petitions stand dismissed.
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