IMPORTANT POINT
Section 3(2) of the Madhya Pradesh Upkar Adhiniyam, 1981 as introduced by the Amendment Act, 2001 and amended in 2003 is declared ultra vires the Constitution as being outside the legislative competence of the State.

Headnote:(i) Madhya Pradesh Upkar Adhiniyam 1981-Section 3(2)-M.P. Upkar (Sanshodhan) Adhiniyam, 2001-M.P. Upkar (Sanshodhan) Adhiniyam, 2003-Validity of-Levy of cess @ 20 paise per unit on captive power producer on total units of electrical energy-Appellant, an association of cement manufacturers and owners of captive power plants challenging legislative competence of State-Under Section 3 of Upkar Adhiniyam, 1981, an energy development cess is levied on every distributor of electrical energy on sale or supply of electricity-By amendment in 2001, Section 3 of 1981 Adhiniyam was substituted to provide for payment of an Energy development cess by producers of electricity-Charge on generation and not on sale or consumption of electricity-Whether State was competent to impose such a levy-(No)-Constitution of India-Entry 84, List I, Entry 53, List II.
       Held : A plain reading of Sub-Section (2) of Sub-Section 3 introduced by the amendment to the 1981 Adhiniyam makes it clear that the levy of cess was "on the electrical energy produced". The phrase "whether for sale or supply" merely clarified that all electricity produced irrespective of its destination would be liable to cess at the specified rate. The use of the word "whether" after the phrase "energy produced" means that the cess would apply on units produced whichever of the alternatives mentioned after the word "whether", namely, sale or supply or consumption is the case. There is no reason to assume that the words used did not reflect the intention of the Legislature. The imposition envisaged was on the production of electricity units. The charge was on generation and not on the sale or consumption of electricity. There is a conscious linguistic departure from the language used in Section 3 of the Electricity Duty Act, 1949 and indeed the language used in Section 3(1) of the same Act where the cess is levied on the total units of electrical energy sold or supplied by distributors of electrical energy. When dealing with producers under sub-Section (2) of the same section, the cess is required to be paid "on the total units of electrical energy produced". If, as is contended by the respondents, the incidence of levy under Section (1) and sub-section (2) were identical, the same language should have been used in both sub-sections. The deliberate change in language reflects an intention to alter the subject matter of levy as far as producers were concerned. (Para 13)
       There can, in the circumstances, be no doubt that the levy was sought to be imposed on the generation of electricity by the amendment, a levy which the State admittedly was incompetent to impose. (Para 16)
       (ii) Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000-Section 12(3)-Prior consultation by State Government with Commission in relation to any policy directive affecting Electricity Industry-Importance of-Consequence of non-consultation would not be an incompetent piece of legislation-It will serve as an inbuilt safeguard against a challenge under Article 14 of the Constitution.
       Held : In our opinion, the consequence of non-consultation in terms of Section 12(3) of the Sudhar Adhiniyam would not be an incompetent piece of legislation but a legislation introduced in breach of a salutary requirement to consult an expert statutory body. The statutory requirement for consultation with a body of experts before proposing legislation will serve as an in-built safeguard against a challenge under Article 14 of the Constitution apart from anything else. Nevertheless, we do not propose to decide- whether by reason only of such non-consultation, Section 3(2) of the 1981 Adhiniyam is violative of Article 14, nor do we propose to decide whether the cess of 20 paise is excessive, nor the other grounds urged by the appellants pertaining to Article 14. We have referred to the provisions of Sudhar Adhiniyam so that the State Government may in future act in consonance with Section 12(3). (Paras 37 & 38)

JUDGMENT

Ruma Pal, J.-Delay condoned.

Leave granted in special leave petitions.

2. The constitutional validity of the amendment to the Madhya Pradesh Upkar Adhiniyam 1981 (the 1981 Adhiniyam) is the subject matter of challenge in these matters. The amendment was initially made by an ordinance promulgated on 29th June 2001 by the State Government and entitled the "Madhya Pradesh Upkar (Sanshodhan) Adhyadesh, 2001" (hereinafter referred to as the `Ordinance ). By the amendment, a cess @ 20 paise per unit was imposed on the captive power producer on the total units of electrical energy produced. The Act which has subsequently replaced the Ordinance is known as the Madhya Pradesh Upkar (Sanshodhan) Adhiniyam, 2001 (hereinafter referred to as the Amending Act ). The provisions of the 2001 Ordinance and Act are identical.

3. The appellant in the first matter is an association representing the interest of its members who are cement manufacturers and owners of captive power plants. The connected appeals are by the captive power producers themselves. The amendment has been challenged broadly speaking on three grounds : first - that by the amendment the Legislature sought to impose a cess on the production of electrical energy which it was legislatively incompetent to do because any tax legislation on the production of electricity is covered exclusively by Entry 84 of List-I to the Seventh Schedule of the Constitution; second- that the Ordinance was passed without fulfilling the mandatory pre-condition of consultation with the Electricity Regulatory Commission as provided under Section 12(3) of the Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000; third- that the levy was violative of Article 14 of the Constitution. Virtually the same arguments were raised before the High Court.

4. The respondents are the State of Madhya Pradesh and the Madhya Pradesh State Electricity Board (MPSEB). They have submitted that the word production in the impugned amendment had been used in conjunction with the phrase "whether for sale or supply to..." and was intended to relate only to sale and consumption of electricity. An Explanation was introduced by the Madhya Pradesh Upkar (Sansodhan) Adhiniyam, 2003 to clarify the ambiguity and to make it clear that the levy imposed by the 2001 amendment was on the electric energy sold or supplied by or from captive power units. It was submitted that the doubt, if any, should be resolved in favour of upholding the constitutional validity of the amendment. It was also contended that Entry 53 of List II was wide enough to cover the exercise of power of the State Legislature in introducing the impugned amendment. On the question of non-compliance with the provisions of Section 12 (3) of the Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000, it is stated that the Sudhar Adhiniyam was enacted on 3rd July 2001 whereas the impugned ordinance was promulgated on 29th June 2001 and as such, Section 12(3) had no application. The further argument is that Section 12(3) of the Sudhar Adhiniyam could not be construed as a restraint on the Legislature as no Legislature can bind any future legislative action of the Legislature. The third contention on this aspect is that the Courts could not review the legislative process. On the question of violation of Article 14, it is submitted that a cess is a tax which may constitutionally be levied on the capacity of a particular class of assessees to pay. It is submitted that the appellants cannot be equated with the MPSEB and that in any event there was no pleading to justify any finding on the issue of discrimination.

5. The High Court dismissed the writ petitions. According to the High Court the levy imposed by the impugned amendment was on sale and consumption of electricity and that "by mere use of word "production" in Section 3(2) it does not cease to be cess on the consumption of electrical energy". According to the High Court, "production is simply a measure of tax for the purpose of calculation

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2003 Supreme(SC) 1231

IMPORTANT POINTSection 3(2) of the Madhya Pradesh Upkar Adhiniyam, 1981 as introduced by the Amendment Act, 2001 and amended in 2003 is declared ultra vires the Constitution as being outside the legislative competence of the State.

Cases Referred (11)

IMPORTANT POINT
Section 3(2) of the Madhya Pradesh Upkar Adhiniyam, 1981 as introduced by the Amendment Act, 2001 and amended in 2003 is declared ultra vires the Constitution as being outside the legislative competence of the State.