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Judgment
K. Sreedhar Rao, J.—Petitioner is a power generating company. In respect of each month''s tax liability under the Electricity (Taxation on Consumption) Act of 1959 (for short, hereinafter called as the ''Act 1959''), separate assessments are made and demand notice is issued for payment of tax in respect of supply of energy by the petitioner to two private companies. The petitioner aggrieved by the said demands has filed the above writ petitions. The petitioner entered into an agreement with the first respondent dated 05th May 2000 vide Annexure-''D'' for generating power by setting up wind energy plant at Gogudda, Gopalpura Village, Hiriyur Taluk, Chitradurga District. The petitioner also entered into an agreement with KPTCL pursuant to Clause 4 of Annexure-''D'' for transmission and supply of energy vide Annexure-''E'' dated 17.07.2000. The terms of Annexure-''E'' permit the petitioner to supply energy to industrial consumers with whom the KPTCL has finalized the energy selling agreements. It is pursuant to Annexure-''E'', the petitioner is selling energy to two industrial consumers with whom KPTCL has an agreement. It is the contention of the respondents that the petitioner although a generating company when supplying energy to the two private industrial consumers is liable to pay tax under the Act 1959. The petitioner, however seriously disputes the liability to pay the tax under the Act 1959.
The Indian Electricity Act of 1910 a pre-constitutional statute regulated the activities of generation, transmission and supply of energy. The Indian Electricity Act of 1910 was found to be inadequate to the changing needs. Therefore. Electricity (Supply) Act of 1948 was enacted. With the advent of globalization, an era of intensive private sector participation in power generation began. The compelling need for drastic reformation with regard to power generation and supply, tariff and creation of independent regulatory body was felt, in order to answer the said needs, Karnataka Electricity Reform Act of 1999 (for short ''Act of 1999'') is enacted. Later on, the Indian Electricity Act of 2003 (for short ''Act of 2003'') came to be enacted.
The Section 70 of Act of 1999 declares that the provisions of Act are supplemental to Act of 1999 and Electricity (Supply) Act, 1948 to the extent the provisions, are not in conflict with the said two Central enactments. In the event of conflict, it declares that provisions of Act of 1999 would prevail.
The Electricity Act of 2003, however repeals Electricity of Act of 1910. The Act of 2003 came into effect from 26.05.2003.
The Sections 3 and 4 of Electricity (Taxation on Consumption) Act of 1959 are as follows:-
Levy of tax on consumption of energy.-Subject to the provisions of this Act, there shall be levied and paid to the State Government on the units of energy consumed every month, a tax (hereinafter referred to as "electricity tax") calculated at a rate not exceeding twelve paise per unit of energy as may, by notification, be specified by the State Government, and different rates may be specified in respect of different classes of consumers:
Provided that where the units of energy supplied to a consumer for non-domestic purposes are not determined by a meter, but.-
(a) the units of energy consumed are determined on the basis of any formula adopted by the licensee, the electricity tax shall be levied and paid on the units of energy determined on the basis of such formula; or
(b) where flat rates are charged by the licensee for the supply of energy to any consumer, the electricity tax shall be levied and paid as follows.-
Payment of electricity tax.-
(1) Every licensee shall collect and pay to the State Government at the time and in the manner prescribed, the electricity tax payable under this Act on the units of energy supplied by him to consumers. The tax so payable shall be a first charge on the amounts recoverable by the supplier for the energy supplied by him and shall be a debt due by him to the State Government.
Provided that where the licensee has been unable to recover the amounts due to him for the energy supplied by him he shall not be liable to pay the tax in respect of the energy so supplied.
(2) A licensee may be generated a rebate of such amount, as may from time to time be determined by the State Government regard being had to the cost of collection of the electricity tax incurred by such licensee:
Provided that the amount of rebate shall not exceed two per cent of the electricity tax collected by the licensee.
(3) Every person, who consumes energy generated by himself, or who supplies energy to any other person free of charge shall pay, or collect and pay, as the case may be, to the State Government, at the time and in the manner prescribed, the electricity tax payable u/s 3 on the units of energy consumed by himself or supplied to such other person.
(4) When any consumer fails or neglects to pay at the time and in the manner prescribed, the amount of electricity tax due from him, the licensee or, as the case may be the person supplying energy free of charge, may without prejudice to the right of the State Government to recover the amount u/s 7, after giving not less than seven clear day''s notice in writing to such person, cut off supply of energy to such person; and he may, for that purpose, exercise the power conferred on a license by sub-section (1) of Section 24 of the Indian Electricity Tax, 1910, for the recovery of any charge or sum due in respect of energy supplied by him.
(5) Nothing in this section shall apply.-
(a) to any person who generates energy for the purpose of supplying it for the use of vehicles or vessels;
(b) to the consumption of energy generated by the means of generators not exceeding ten kilowatts in capacity.
In the instant case, the petitioner is a generating company and also under the agreement with KPTCL is supplying power to the two industrial consumers as per the contract with KPTCL. It is the contention of the respondents that the petitioner is a licensee within the definition of Section 2(iii) of the Electricity Act of 1959. Therefore, is obliged to collect tax from the consumer as per Section 3 and pay the same to the Government as required U/s. 4 of the Act.
The crux of the issue in these petitions revolves around the question whether the petitioner is a licensee within the definition of Section 2(3) of the Act of 1959 and whether the petitioner is liable to pay the electricity consumption tax as required U/Ss. 3 & 4 of the Act of 1959.
The provisions of Section 28(I) of Electricity Act, 1910 which is germane for consideration is extracted hereunder:
Sanction required by non licensees in certain cases:- (1) No person, other than a licensee, shall engage in the business of supplying energy to the public except with the previous sanction of the State Government and in accordance with such conditions as the State Government may fix in this behalf, and any agreement to the contrary shall be void.
The provisions of Section 43-A of Electricity (Supply) Act of 1948 are extracted hereunder for convenient reference:
43-A: Terms, conditions and tariff for sale of electricity by Generating Company: (1) A Generating Company may enter into a contract for the sale of electricity generated by it-
(a) with the Board constituted for the State or any of the States in which a generating station owned or operated by the company is located:
(b) with the Board constituted for any other State in which it is carrying on its activities in pursuance of sub-section (3) of Section 15-A; and
(c) with any other person with consent of the competent Government or Governments.
The provisions of Section 28 mandates that a person other than licensee, shall not engage in the business of supplying energy to the public except with the previous sanction of the State Government. The provisions of Section 43-A(1)(c) declare that, a generating Company may enter into contract for the sale of electricity generated by it with any other person with consent of the competent Government or Governments. The reference to Section 43-A of Electricity (Supply) Act, 1948 is only for academic consideration. The only pertinent provision to assess the liability would be the applicability of Section 28 of the Indian Electricity Act, 1910 vis-�-vis Section 2(3) of the Act of 1959 to know whether the petitioner has obtained sanction of the State Government for supply of electricity to the public. The petitioner''s liability to pay tax under Sections 3 & 4 of the Act would arise if he is a licensee within the definition of Section 2(3) which reads as follows:-
2(3) "Licensee" means.-
(a) the State Electricity Board constituted u/s 5 of the Electricity (Supply) Act, 1948 (Central Act LIV of 1948);
(b) any person licensed under Part II of the Indian Electricity Act, 1910 (Central Act IX of 1910), to supply energy and includes any person who has obtained the sanction of the State Government u/s 28 of the said Act; and
(c) the State Government when it is engaged in the business of supplying energy;
The State Government has entered into an agreement with the petitioner vide Annexure-''D'' The Clause 4 of the said agreement reads thus:
The Company shall pay wheeling and banking charges to Karnataka Power Transmission Corporation Limited at 2% of generation at Wind Energy Project A separate agreement will be entered into between the Company and the Karnataka Power Transmission Corporation Limited, in respect of wheeling and banking, sale of energy, minimum demand, power cut etc. The banking agreements will be on water year basis with one month grace period.
The KPTCL pursuant to the terms in the Clause 4 has entered into an agreement vide Annexure-
''E'' which permits the petitioner to sell the energy to the industrial consumers with whom the KPTCL has agreement. In the context stated above, it is necessary to find out whether the agreement at Annexure-''D'' satisfy the requirements of Section 28 to state that the petitioner was granted sanction for supply of energy to the public.
The provisions of Section 58(3)(b) of the Karnataka Electricity Reform Act, 1999 reads as follows:
58(3)(b): In respect of matters provided in Sections 3 to 11, 28, 36(2), 43-A, 50 and 51 of the Indian Electricity Act, 1910, to the extent this Act has made specific provisions, the provisions of the Indian Electricity Act, 1910 shall not apply in the State.
The provisions of Section 19(1) of Karnataka Electricity Reform Act, 1999 reads as follows:
Grant of licenses by the Commission: (1) The Commission may on an application made in such form and on payment of such fee as may be specified by regulations, grant a license authorising any person to:
(a) transmit electricity in a specified area of transmission; and/or
(b) supply electricity in a specified area of supply or supply in bulk to the licensees or any person.
In the first place, after enactment of Karnataka Electricity Reforms Act, which has received the ascent of the President takes away the jurisdiction of the State Government U/s. 28 of the Electricity Act of 1910 to give sanction for supply of energy to the public. Under the Karnataka Electricity Reforms Act, it is the Commission, which is empowered to grant license for supply of energy. Therefore, as on the date when the petitioner commenced the generation and supply of electricity, Section 28 of Electricity Act of 1910 was not applicable to the petitioner''s case.
Even Section 14 of the Electricity Act of 2003 empowers the appropriate commission to grant license for transmission and distribution. The State Government is no more an authority competent to grant license.
That apart, the agreement at Annexure-''D'' entered into by the Government with the petitioner also does not satisfy the requirements of Section 28 of Electricity Act of 1910 because under the said agreement, no sanction is given by the State Government for the supply of electricity by the petitioner to the public. Clause-4 of the agreement permits the petitioner to enter into a separate agreement with the KPTCL for wheeling and banking, sale of energy, minimum demand, power cut, etc. The sale of energy employed in Clause-4 should be understood in the context to mean the sale of energy to the KPTCL. Clause-4 does not indicate in any manner that the sanction is given by the Government to the sale of energy by the petitioner to the public. The agreement entered into by the KPTCL and the petitioner at Annexure-''E'' permits the sale of energy by the petitioner to the industrial consumers with whom the KPTCL has an agreement. Therefore, the wholesome reading of the agreement at Annexures-''D'' and ''E'' it nowhere suggests that the Government has granted sanction U/s. 28 to the petitioner for supply of energy. In that view, the petitioner is not a licensee within the definition of Section 2(3)(b). Therefore, the petitioner is not liable to pay tax U/s. 4 of the Act of 1959. In that view of the matter, writ petitions are allowed.
Before parting with the case, it is rather impelling to point out the serious anomaly in the taxation policy U/s. 4(3) of the Act 1959. When the provisions of Electricity Act 1910 was in force, the person who supplies electricity to the public had to take necessary sanction from the Government and such a person was a licensee within the definition U/s. 2(3)(b) of the Act 1959 in view of the repeal of Electricity Act 1910 and the Electricity Act of 2003 has obviated the need of taking sanction from the Government for supply of electricity to the public. The power is now given to the commission to accord license for distribution and supply of electricity. The definition 2(3)(b) has now become obsolete and irrelevant. Therefore, generating company selling power to the public under the contract with the KPTCL now stands exempted from paying tax under the Act 1959.
The provisions of Section 4(3) as of now stands makes a person liable to pay tax if he generates electricity and uses for himself or generates electricity and gives free supply to others. But to exempt a person who generates and selling electricity to other from paying tax is a serious legislative anomaly and to be remedied forthwith by legislative amendment to the Act 1959. In the present scenario, private generating companies who are selling electricity under the agreement with the KPTCL to the public would not be liable to pay tax, which causes a huge loss of revenue.
The Registrar General is directed to send a copy of the order to the Chief Secretary in order to impress the Government to bring out amendment to Section 4(3) and to the definition U/s. 2 of the Act 1959 to envelope the private companies which generate electricity and sell the electricity to the public under an agreement to KPTCL are also be brought to tax.