2002 Supreme(SC) 527

2002(3) Supreme 400
Supreme Court of India
(From Andhra Pradesh High Court)
S.P. Bharucha, CJI., R.C. Lahoti, N. Santosh Hegde, Mrs. Ruma Pal, and Arijit Pasayat, JJ.
State of A.P. —Appellant
versus
National Thermal Power Corporation Ltd. & Ors. —Respondents
Civil Appeal No. 3112 of 1990
With
T.C (C) No. 3 of 1998
Decided on 22-4-2002
Counsel for the Parties :
For the Appearing Parties : Soli J. Sorabjee, Attorney General, Harish N. Salve, Solicitor­ General, Mrs. K. Amareswari, G.L. Sanghi, K.K. Venugopal, C.S. Vaidyanathan, T.L.V. Iyer, Ranjit Kumar, A.S. Nambiar, Sr. Advocates, Mrs. R. Madhavi Latha, K. Subba Rao, T.V. Ratnam, Manish Singhvi, S.K. Dhingra, Prakash Shrivastava, S.K. Agnihotri, Ms. Malini Poduval, Ms. Lansinglu Rongmei, Ms. Indu Malhotra, Vikas Mehta, Ms. Pooja Vij, Sidharth Bhatnagar, Mrs. Meenakshi Sakhardande, Ms. Aprajita Singh, Sidhartha Chouwdhury, Sidharth Goswami, Ms. Gayatri Goswami, Preetesh Kapoor, Krishnan Venugopal, Varun Goswami, S.N. Terdol, V.G. Pragasam, Ms. Santha Vasudevan, P.K. Manohar, A.S. Bhasme, Sanjay K. Visen and Manoj K. Mishra, Advocates.

Important Point
Andhra Pradesh Electricity Duty Act, 1939 and M.P. Electricity Duty Act, 1949 can levy duty on intra-State sale of electricity but sales of electricity by NTPCL, the respondent 1, to the Electricity Boards situated outside A.P. or M.P. can be construed only as inter-State Sale and is covered by CST Act, 1956 and State Legislature is incompetent to levy duty on its sale—under their enactments A.P. High Court was right in its holdings that there can be no State Tax on inter-State power sale.

Headnote:(i) The Andhra Pradesh Electricity Duty Act, 1939—Section 3—Levy of Duty in certain sales of electrical energy—M.P. Electricity Duty Act, 1949—Definition of ‘‘consumer’’ including ‘‘distributor of electrical energy’’—M.P. Upkar Adhiniyam, 1981—Section 31(1) —Demand of Duty on—Power sold to Electric Boards of other States—Constitution of India—Articles 246, 269 and 286—Seventh Schedule List -1 (Union List) Entry 92A, List-II (State List)—Entries 52, 53 and 54 (after 6th amendment to Constitution and 46th amendment)—Legislative History—The Central Sales Tax Act, 1956—Sections 2(d), 3 and 6—Central Sales Tax (Amendment) Act, 1972—Effect—Inter-State sale of electrical energy comes under it.

       Held : 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 20th Century Finance Corporation Ltd. & Anr. vs. State of Maharashtra - (2000) 6 SCC 12 and earlier in Shiv Dutt Rai Fatch 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 hereinabove. 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 and Reasons for this amendment was so stated "Exemption from Central sales-tax, Act on inter-State sales of electrical energy is now dependent on the exemption from tax by a State Government on local sales of electrical energy. It is now proposed to provide specifically that inter-State sale of electrical energy would not be liable to Central Sales-tax." (see Gazette of India Extraordinary Part II, at page 522). The purpose behind referring to this amendment and the SOR is that in the understanding of the Parliament also the inter-State sale of electrical energy was liable to Central Sales-tax under section 6 of the Act and but for the amendment such tax was capable of being levied by the Central Government. (Para 19)

       (ii) Constitution of India—Article 366(12)—Definition of goods—Means all kinds of movable property—It includes electrical energy which has two special attributes—One, it cannot be stored like other goods (Para 20)—Two, its generation or production coincides almost instantaneously with its consumption (Para 21)—Effect on sale—Constitution of India—List-II—Entries 53 and 54—To be read harmoniously—Generation of power in one State and supply in another—Whether inter-State sale? (Yes)—No State Tax on inter-State power sale.

       Held : With 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, 4 the conflict, if any, between Entry 53 and Entry 54 ceases to exist and the two can be harmonized and read together. (Para 23)

       In view of Section 3 of the Central Sales Tax, 1956 all that has to be seen is whether the sale or purchase (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. If the transaction of sale satisfies any one of the two requirements it shall be deemed to be a sale or purchase of goods in the course of inter-State trade or commerce and by virtue of Articles 269 and 286 of the Constitution the same shall be beyond the legislative competence of a State to tax without regard to the fact whether such a prohibition is spelled out by the description of a legislative entry in Seventh Schedule or not. (Para 26)

       We are dealing with the case of electricity as goods, the property whereof, as we have already noted, is that the production (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 wherefrom 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. (Para 29)

       (iii) Inter-State Sale and Intra-State Sale—Difference—Former comes under Union List—Later under State List—Sale of Electricity by NTPCL—It generates electricity in A.P. or M.P. but supplies to other States—Whether inter-State Sale or intra-State Sale? (The former)—Result—High Court was right in holding that State Legislature is incompetent to levy tax on it—States’ argument cannot be accepted as it will give rise to multiple taxation affecting free-flow of trade—Appeal dismissed—Transferred writ petition allowed—Demands raised quashed—Order accordingly.

       Held : 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, delivery and consumption. The inter-State movement of electricity is pursuant to contracts of sale. Such sales can be held only as inter-State sales. Though it may be permissible to fix the situs of sale either by appropriate State legislation or by Judge made law as held by the majority opinion in 20th Century Finance Corporation case, we would like to clarify that none of the two can artificially appoint a situs of sale so as to create territorial nexus attracting applicability of tax legislation enacted by any State Legislature and tax an inter-State sale in breach of Section 3 of the CST Act read with Articles 286(2) and 269(1) and (3) of the Constitution. No State legislation, nor any stipulation in any contract, can fix the situs of sale within the State or artificially define the completion of sale in such a way as to convert 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 Clause (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 transmitted outside the State and whether the electricity is or is not consumed within the State). The same definition has been adopted in 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. Yet another reason why we cannot accept the line of reasoning advanced on behalf of the States of Andhra Pradesh and Madhya Pradesh is that the same runs counter to the scheme of constitutional provisions and specially the Sixth Amendment. As has been found by the Division Bench of Andhra Pradesh High Court in its impugned judgment, if the reasoning suggested on behalf of the State of A.P. was accepted, the State where the dealer supplying the electricity is located and the electricity originates for sale, as also the States in which the purchaser of electricity is located and it is delivered, shall both subject the electrical energy to taxation, by relying on the theory of territorial nexus. Such a situation would be the one which was obtaining in the country with respect to sales tax prior to coming into force of the Constitution and which led to complications and difficulties in administration of sales tax legislation and therefore, was taken care of by the Sixth Amendment. Such multiple taxation would result in hampering free movement of electricity between the States, and therefore, would be prejudicial to freedom of trade, commerce and intercourse throughout the territory of India, and for the unity and integrity of the country. That would give rise to the same situation which was sought to be remedied by the Constitution and the Sixth Amendment. On behalf of the States of A.P. and M.P., it was submitted that subject of electricity has been specifically dealt with by Articles 287 and 288 of the Constitution and by implication the Articles, other than 287 and 288, should be read as not dealing with electricity. This submission is stated only to be rejected. These articles make some provisions for electricity and water or electricity in the special context dealt with by those articles and do not exclude applicability of other articles where electricity has been dealt with as goods. For the foregoing reasons, we are of the opinion that no fault can be found with the judgment of the Andhra Pradesh High Court which is affirmed and Civil Appeal No. 3112 of 1990 is dismissed with costs. Civil Writ Petition T.C. No.3 of 1998 is allowed with costs and the demand raised by the Chief Electrical (Electricity Duty) and Chief Electrical Inspector, Government of M.P. vide its letter dated 30.11.1995 is directed to be quashed. (Paras 30, 31, 32, 33 & 34)