Judgment

KHANNA, J. (for himself and on behalf of V. R. Krishna Iyer J.):- This appeal by certificate under Article 133 (1) (a) of the Constitution has been filed by the State of Mysore and the Electrical Inspector to the Government of Mysore against the judgment of Mysore (now Karnataka) High Court whereby that court in a petition under Article 226 of the Constitution quashed the demand made by the appellant State calling upon the West Coast Papers Mills Ltd. respondent company to pay electricity tax under the Mysore Electricity (Taxation on Consumption) Act, 1959 (Mysore Act No. 14 of 1959) (hereinafter referred to as the Act). The two questions which arise for determination in this case are :

(1) Whether electricity tax is chargeable on the quantity of electrical energy lost in the course of transmission; and

(2) Whether the respondent company is liable to pay electricity tax on the quantity of electrical energy used by it for generation of further electrical energy. The High Court answered both the questions in favour of the respondent company and quashed the demand which included tax on the above two counts. The State, it was held, was at liberty to make a fresh assessment of the electricity tax payable by the respondent company "without taking into account transmission losses and, the quantity of electrical energy used for generation of further electrical energy". The State was also directed to refund the excess amount realised by it from the respondent company or to adjust it towards the electricity tax lawful due from the respondent company for subsequent years.

2. The respondent company is manufacturing paper and other products at Dandeli. Since the Mysore State Electricity Board was not in a position to supply the entire quantity of electricity required by the respondent company, the company started generating electricity by installing turbine and other machinery. On 18-6-1966 the appellants made demand of Rs. 3,53,953.45 as arrears of electricity tax under the Act from the respondent company for the period from July 1959 to March 1966. On August 29, 1966 the respondent company filed writ petition challenging the demand notice on the ground that the demand was illegal and unjustified.

3. Before dealing with the respective contentions, it may be pertinent to set out the relevant provisions. A State legislature is competent to impose tax on consumption or sale of electricity under Entry 53 of List II of Seventh Schedule to the Constitution. The Mysore Legislature has enacted the Act in exercise of the power conferred by the above entry. Section 2 of the Act contains definitions. Clause (1) of that section gives the definition of consumer as under :

"(l)"consumer" includes a local authority, company or other person to whom energy is supplied by a licensee on payment of charges or otherwise, and a licensee or other person who consumes energy generated by himself, but does not include a licensee to whom energy is supplied by the State Electricity Board for supply to others, and the word "consume" with its grammatical variations shall be construed accordingly;

Explanation :- Where a licensee to whom energy is supplied by the State Electricity Board for supply to others, himself consumes any part of the energy, he shall be deemed to be a consumer in respect of energy so consumed."

Section 3 of the Act contains the charging provision, and material part of it at the relevant time read as under :

"Subject to the provisions of the 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 three naye 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 :"

Section 4 deals with the payment of electricity tax. Sub-sections (i) and (3) of that section read as under :

"(1) Every licensee shall coll