No Acts & Articles mentioned in this case
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4842 OF 2017
(ARISING OUT OF SLP(CIVIL) NO.34384 OF 2016)
ESSAR STEEL INDIA LTD.
AND ANR. … APPELLANT(S)
VERSUS
STATE OF GUJARAT AND ANR. … RESPONDENT(S)
J U D G M E N T
ASHOK BHUSHAN,J.
1.This appeal has been filed against the Division
Bench judgment of Gujarat High Court dated
07.09.2016 dismissing Letters Patent Appeal of the
appellants affirming the judgment of Learned Single
Judge dated 25.02.2010. Special Civil Application
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was filed by appellant challenging the order dated
24.09.2099 passed by the State Government as well as
the demand notice dated 06.10.2009. Learned Single
Judge dismissed the Writ Petition.
2. Brief facts of the case which are necessary to be
noticed for deciding this appeal are:
The appellant no.1 is duly incorporated
company under the provisions of Companies Act, 1956
engaged in business of manufacturing and selling
steel products. The appellant no.2 is also a duly
incorporated company under the provisions of
Companies Act, 1956, which is a generating company
selling/supplying electrical energy. The appellant
no.1 company set up its gas based steel plant at
Hazira, in the year 1990 or thereabout for
production of HBI. It also set up a 20 MW Open Cycle
Power Plant for captive consumption of power for its
HBI plant. On the application made by the appellant
no. 1 Company, the State Government granted
exemption from payment of electricity duty for a
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period of 10 years commencing from 21.07.1990 with
respect to the said Open Cycle Power Plant.
Subsequently, the appellant no.1 Company converted
the said Open Cycle Power Plant of 20 MW into 30 MW
Combined Cycle Mode Power Plant by adding steam
turbine. Consequent upon such conversion, the
appellant no.1 company was granted by the State
Government exemption from payment of electricity
duty for a period of 15 years commencing from
21.07.1990. In the year 1991, the appellant no.1
company also desired to put up a composite plant
after making substantial investment for production
of both HBI and HRC. Therefore, in or about the year
199192, the appellant no.1 company thought of
setting up another Captive Power Plant of 300 MW of
capacity in Combined Cycle Mode at Hazira for
meeting its requirement of more power. The appellant
thought of doing so, in view of the benefits
available to the Captive Power Plant at the relevant
time. The Government of Gujarat and the Gujarat
Electricity Board granted in principle approval to
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the appellant no.1 company for setting up the said
Captive Power Plant of 300 MW. There was, however, a
change in the Power Policy of Government of India,
in the year 199192, which allowed the participation
of private sector in power generation. Government of
Gujarat also, with a view to give effect to that
policy, issued a Notification dated 27.02.1992 under
Section 3 of the Bombay Electricity Duty Act,
1958(hereinafter referred to as 1958 Act). The
appellant no.1 Company, therefore, abandoned its
plan to set up the said Captive Power Plant of 300
MW in Combined Cycle Mode and in place and instead
thereof, promoted and incorporated a separate
generating company under the name and style of
“ESSAR Power Limited”, the appellant no.2 is a
Special Purpose Vehicle promoted by the appellant
no.1 company for supply of power to the appellant
no.1 company as well as to the Gujarat Electricity
Board.
Page 5 5
3. The Government of Gujarat issued an Order
dated 16.06.1995 agreeing in principle to the demand
of appellant no.2 to set up 510 MW generating
station at Hazira. The appellant no.2 started
production of electricity w.e.f. 08.08.1995. The
appellant no.1 held equity shares of 42% of
appellant no.2 company. Out of 515 MW, 300 MW
capacity has been allocated to GEB (Gujarat
Electricity Board) which constitute 58% of the
installed capacity, remaining capacity of 215 MW
which constitute 42% to the ESSAR Group of company
as per the stipulation contained in the Power
Purchase Agreement dated 30.05.1996.
4. The appellant no.1 had filed an application
dated 15.03.2001 seeking exemption from payment of
electricity duty under the notification dated
27.02.1992 issued under Section 3(3) of the Bombay
Electricity Act, 1958 (hereinafter referred to as
Act 1958). Another application dated 12.04.2001 was
sent by appellant no.1 to the Commissioner of
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Electricity seeking exemption from electricity duty
for a period of 15 years under Section 3(2)(vii)(a)
(i) of 1958 Act. The State of Gujarat Vide Order
dated 23.12.2002 rejected the request for exemption
under Section 3(2). The Order dated 23.12.2002 was
challenged in the High Court Wherein High Court vide
Order dated 17.03.2003 left open to the Government
to take a fresh decision. The State Government again
by Order dated 23.01.2006 rejected the application
of appellant no.1 for grant of exemption for payment
of electricity duty for 215 MW power generation
equivalent to 42% of the total generation. The Writ
Petition was again filed challenging the Order dated
23.01.2006 in which High Court set aside the Order
dated 23.01.2006 and directed the Government to pass
a fresh Order. The State Government passed the
detailed Order dated 24.12.2009 rejecting the claim
of appellant no.1 for exemption of payment of
electricity duty both under Section 3(2)(vii)(a)(i)
as well as under notification dated 27.02.1992.
After decision dated 24.09.2009 recovery notice
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dated 06.10.2009 was issued for payment of
electricity duty amounting to Rs.562/ Crores
together with interest totaling Rs.1038.27/ Crores
for the period of April 2000 to August 2009. The
Order of State Government dated 24.09.2009 was
challenged by the appellants before the High Court
by means of Special Civil application no. 10946 of
2009. Learned Single Judge dismissed the Writ
Petition vide its judgment dated 25.02.2010
aggrieved against which Letters Patent Appeal was
filed by the appellants. In Letters Patent Appeal,
an interim order was granted on conditions:
i)The appellant shall pay a sum of Rs.50
Crores against the outstanding dues of
electricity by 30.04.2010 in two
installments of Rs.20 Crores each.
ii)The appellant no.1 shall further pay from
01.05.2010 a sum of Rs.15 Crores every
month against the outstanding dues of
electricity.
Page 8 8
5. The Letters Patent Appeal ultimately came to
be dismissed by Division Bench on 07.09.2016 against
which judgment the present appeal has been filed.
6. We have heard Shri Mihir Joshi, Senior
Advocate for the appellants and Shri C.A.Sundram,
Senior Advocate appearing for the respondents.
7. Learned Counsel for the appellants contends that
the issue is squarely covered in its favour by a
decision of this Court in A.P. Gas Power
Corporation Ltd. Versus AP State Regulatory
Commission and another, (2004) 10 SCC 511, wherein
it was held, inter alia, that the electricity
generated by a Special Purpose Vehicle and consumed
by the participating member to the extent of its
equity contribution would amount to captive
consumption of electricity. The High Court in the
impugned judgment, however, distinguished the
aforesaid judgment of this Court on the ground that
in that case the parties were governed by a
Memorandum of Understanding (“MoU”) which was not
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there in the present case and secondly, on the
ground that ESIL was purchasing 215 MW of power from
EPL.
8. It is further submitted that rejection of the
application on the ground that same was not made in
the prescribed form under Rule 11 of Bombay
Electricity Duty Rules, 1968 is erroneous and had
the rejection being only on the ground of nonfiling
the application at the first stage same could have
been done since the State had power to condone the
delay. Alternatively, the appellant was entitled for
exemption under notification dated 27.02.1992 by
reason of the fact that ESIL was jointly generating
electricity with EPL and had also purchased the
generating sets by making payments of the purchase
price to the vendors during the period prescribed.
It is further contended that in the similar
circumstances the Government of Gujarat had extended
the benefit of exemption from payment of electricity
duty to GIPCL and therefore, ESIL who is similarly
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situated cannot be deprived of benefits of
exemption.
9. Learned Counsel appearing for the State
refuting aforesaid submission contends that
Government as well as High Court has rightly
rejected the claim of exemption of duty. The
appellant neither fulfills the statutory
requirements under Section 3(2) nor fulfill the
conditions of the notification dated 27.02.1992.
ESSAR Power and ESSAR Steel are separate and
independent legal entities. ESSAR Steel is not
generating energy. ESSAR Steel is not generating
either singly or jointly with either GEB or its
successor entity, Gujarat Urja Vikas Nigam Limited
or even with ESSAR Power. ESSAR Power is not
generating energy for its own use. ESSAR Power
Limited has established 515 MW power station, out of
which 300 MW capacity has been allocated to Gujarat
Electricity Board (GEB). Thus 58% of the installed
capacity is allocated to GEB and in relation to such
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capacity; ESSAR Power Limited generates and sells
electricity as a generating station and not as a
captive Power Plant of GEB. The remaining capacity
of 215 MW, which constitutes 42%, is for ESSAR Group
of Companies, as per the stipulation contained in
the Power Purchase Agreement dated 30.05.1996
entered into between ESSAR Power and GEB as well as
the Power Purchase Agreement dated 29.06.1996
entered into between ESSAR Power and ESSAR Steel.
The clauses in each of these agreements is clearly
inconsistent with ESSAR Power being treated as
captive generation and use within the scope of
Section 3(2)(vii) of the 1958 Act. The appellant has
rightly been denied the benefit of exemption as
claimed under the notification dated 27.02.1992. The
condition of the notification dated 27.02.1992
specifically states that the generating set or sets
shall have to be purchased or installed or
commissioned during the period beginning from
01.01.1991 and ending on 31.12.1992. This does not
cover order placed for the purchase of generating
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set. Since ESSAR Steel has merely placed the order
for generating set but neither purchased nor
installed or generated within the period specified
in the aforesaid notification, it is not fulfilling
this condition and hence not entitled for benefits
of the said notification. In case of purchase,
property in goods is transferred to the owner, here,
in given case, property in goods cannot be
considered as transferred when same is simply
ordered.
10. Learned Counsel for the parties have placed
reliance on various judgments of this Court in
support of their respective submission which shall
be referred to while considering the submissions in
detail.
11. We have considered the submissions of Learned
Counsel for the parties and perused the records.
12. From the facts which have come on the record
it is clear that appellant no.1 had claimed
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exemption from duty under the provisions of Section
3(2)(vii) as well as under the notification issued
under Section 3(3) of 1958 Act for different period
which exemption was earlier granted. Details of
benefit of exemption availed by appellant no.1 has
been extracted by Division Bench of High Court in
Para 5.4 of the judgment. It is useful to extract
the table quoted in the judgment which is quoted
below to the following effect:
Sr.
No.
Date of
Application
seeking
exemption
from Duty
Prescribed
Form No.
for making
application
Applicable
provision for
exemption under
GED Act, 1958
Source of
electricity
supply
Date of
Issue of
Certificate
of
Exemption
Exemption
period
(1) (2) (3) (4) (5) (6) (7)
1.21.7.1990Form ‘E’Sec. 3(2) (vii) (a)
(ii)
20 MW
+ 1380 KVA
+ 590 KVA
+ 1500 KVA
of
Self-generating
sets of ESSAR
Steel
1.9.199521.7.1990
to
29.9.1999
2.30.7.1990Form 'F' Sec. 3(2) (vii)
(b)
GEB
connection No
HT 159
28.1.199219.12.1991
to
26.3.1995
Page 14 14
3.May, 1995Form 'F'Notification dt.
30.6.1993 issued
under
Sec. 3(3)
GEB
connection No
HT 0159/ HT
10029
+ 215 MW
from ESSAR
Power
(exclusively for
HRC Project)
6.9.199531.3.1995
to
30.3.2000
4.30.1.1996Form E Sec. 3(2) (vii) (a)
(i)
20 MW
(existing)
+ 11 MW i.e.
Co- generation
plant
26.11.199815.12.1995
to
29.9.2004
13. In the present case, no application in the
prescribed form as per Rule 11 of the Rules was
filed by the appellant no.1 and for the first time
the appellant had come up with an application dated
15.03.2001 seeking an exemption under notification
dated 27.02.1992 and subsequently on 12.04.2001 has
again claimed exemption under Section 3(2)(vii)(a)
(i) of 1958 Act. The exemption from payment of duty
as claimed by the appellant is in two parts.
Firstly, under Section 3(2)(vii)(a)(i) of 1958 Act
and secondly, under the notification dated
27.02.1992. We proceed to examine both the claim
separately.
Page 15 15
Claim under Section 3(2)(vii)(a)(i)
14. Section 3 of 1958 Act deals with “duty on
units of energy consumed”. SubSection 2 enumerates
various circumstances under which duty shall not be
leviable on the units of energy consumed. Section
3(2)(vii)(a)(i) and 3(3) is quoted below:
“3. Duty on units of energy
consumed... ... ...
(2) Electricity duty shall not
be leviable on the units of energy
consumed.........
(vii) for motive power and
lighting in respect of premises
used by an industrial undertaking
for industrial purpose, until the
expiry of the following period,
that is to say
(a)In the case of an industrial
undertaking which generates
energy either singly or
jointly with any other
industrial undertaking for
its own use or as the case
may be, for the use of
industrial undertakings
which are jointly generating
the energy.
(i) Fifteen years from
the date of
commencement of the
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Bombay Electricity
Duty (Gujarat
Amendment) Act,
1983(hereinafter in
this subsection and
subsections (2A) and
(2AA) referred to as
“the commencement
date”) or the date of
starting the
generation of such
energy whichever is
later in such
generation of energy
is by back pressure
turbine or if such
generation of energy
is obtained by
cogeneration.
(3) The State Government may, by
notification in the Official
Gazette, and subject to such terms
and conditions as may be specified
therein, reduce the rate of duty or
remit the duty in respect of
......”
15. The keywords in the statutory scheme are
“generates energy either singly or jointly with any
other industrial undertaking for its own use or as
the case may be, for the use of industrial
undertaking which are jointly generating the
energy.” We have to look into the facts of the
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present case to find out as to whether the statutory
conditions enumerated above are satisfied in the
facts of the present case or not. The appellant no.1
is a separate registered company which holds 42%
equity shares of the appellant no.2. The appellant
no.2 has been constituted as a Special Purpose
Vehicle for generating electricity. The appellant
no.2 is a generating company within the meaning of
Section 2(4A) of Electricity (Supply) Act, 1948. The
submission which has been pressed by the counsel for
the appellant is that both the appellant no.1 and
appellant no.2 are generating energy jointly for the
use of industrial undertaking which are jointly
generating the energy.
16. As noted above, there is a Power Purchase
Agreement dated 30.05.1996 and 01.06.1996 which
contains various conditions for sale of electricity
by appellant no.2. The State Government in its order
dated 24.09.2009 has extracted the recitals in Power
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Purchase agreement dated 01.06.1996 which are to the
following effect:
“...WHEREAS the Company is a
Generating Company as defined under
clause 4(A) of Section 2 of the
Electricity (Supply) Act, 1948
AND WHEREAS the Company has
substantially implemented a 515 MW
combined Cycle Generating Station
at Hazira Dist. Surat, Gujarat of
which it has already commissioned 3
x 110 MW Gas Turbine Generating Set
an aggregate generating Capacity of
330 MW.
AND WHEREAS the Company is setting
up the said Generating Station and
has been permitted as a special
case to supply power to its sister
concerns viz. ESSAR Steel Ltd. and
ESSAR Oil Ltd, hereinafter jointly
and severally referred to as ‘ESSAR
Group Companies’.
AND WHEREAS ESTL which is engaged
in the manufacture of Steel
products at Hazira, intends to
purchase electrical output
generated by the Generating Station
equivalent to 138 MW capacity in
the Open Cycle mode and 215 MW
capacity in Combined Cycle mode
operation (hereinafter collectively
or severally referred to as the
‘Allocated Capacity’) on the terms
and conditions set forth in this
Agreement.
Page 19 19
16. Article 3 of the PPA dated
01.06.1996 between ESSAR Power
Limited and ESSAR Steel Limited
reads as under:
3.1 ALLOCATION OF CAPACITY
The allocation of capacity shall
be as under:
(a) During Open Cycle mode operation
prior to commissioning of the
Combined Cycle mode operation the
Company shall allocate:
138 MW to the ESTL; and
192 MW to GEB
(b)During Combined Cycle mode
215 MW to the ESTL; and
300 MW to GEB
.......... ..................”
17. Even assuming appellant no.1 and appellant
no.2 are jointly generating the energy for the use
of industrial undertaking which are jointly
generating the energy, the Gujarat Electricity Board
to whom 300 MW has been allocated cannot be held to
be industrial undertaking which is jointly
generating the energy with appellant. The Statutory
scheme for grant of exemption has to be strictly
construed. The appellant no.2 is not jointly
generating energy with Gujarat Electricity Board and
it is selling the energy to the extent of 300 MW to
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Gujarat Electricity Board. The conditions of the
statutory provisions of Section 3(2)(vii)(a) are not
fulfilled. The High Court has further held that both
ESL and EPL being distinct separate legal entities
merely because ESL might have 42% shares holding in
EPL, it cannot be said that ESL is generating
electricity jointly with EPL and EPL is generating
electricity jointly with ESL for use of electricity
by ESL.
18. The statutory conditions for grant of
exemption as contained in Section 3(2)(vii)(a) can
neither be tinkered with nor diluted. Learned
Counsel for the appellant contends that the State
Government had granted permission to the ESSAR Power
Plant to set up a generating station as a special
case and to supply power generated by it to its
sister concerned i.e. ESSAR Steel and ESSAR Oil as a
special case. The letter of the State Government
dated 05.06.1995 further stated that if there is any
excess power generated by EPL, the same may be
Page 21 21
purchased by the Board at the price decided by the
Board. It is useful to extract the letter of
permission dated 05.06.1995 issued by the State
Government which was to the following effect:
"The Govt. has considered all the
aspect on the above matter and after
careful consideration, has decided
to agree in principle to the demand
of ESSAR Power Limited to set up a
generating station as a special
case, and to supply power generated
by it to its sister concern, i.e.
ESSAR Gujarat, ESSAR Steels and
ESSAR Oil again as a special case
only subject to fulfillment of
requirements of legal provisions as
laid down under Section 15A and
18A of the Electricity Supply Act
and with the express condition that
the power generated through this
subject shall never as sold outside
the State or to any other person
except as mentioned above. Moreover,
in case, the power generated by EPL
is to be wheeled, GEB shall decide
the wheeling rate according to the
sound commercial principles. In
addition to this, if there is any
excess power generated by EPL, the
each may be purchased by the Board,
at a price decided by the Board
subject to the norms laid down by
GoI from to time.
Page 22 22
It is, therefore, requested that
GEB may take further necessary action
in the matter.”
19. We have noticed above that Power Purchase
Agreement allocated the energy to the Gujarat
Electricity Board to the extent of 58% and 42% power
supply was to be given to sisters concern i.e. ESSAR
Gujarat, ESSAR Steel and ESSAR Oil as a special
case. It is well settled that taxing statute are to
be strictly construed specifically the exemption
notification. It has been held that the statutory
provisions providing for exemption has to be
interpreted in the light of words employed in it and
there cannot be any addition or substraction from
the statutory provision. This Court in Commissioner
of Central Excise, SuratI versus Favourite
Industries, 2012 (7) SCC 153, while considering
exemption notification issued under Central Excise
Tariff Act, 1985 laid down following in paragraph 35
to 40:
"35. The notification requires to be
interpreted in the light of the
Page 23 23
words employed by it and not on any
other basis. There cannot be any
addition or subtraction from the
notification for the reason the
exemption notification requires to
be strictly construed by the courts.
The wordings of the exemption
notification have to be given its
natural meaning, when the wordings
are simple, clear and unambiguous.
36. In Commr. of Customs v. Rupa &
Co. Ltd., this Court has observed
that the exemption notification has
to be given strict interpretation by
giving effect to the clear and
unambiguous wordings used in the
notification. This Court has held
thus: (SCC pp. 41314, para 7)
“7. … However, if the interpretation
given by the Board and the Ministry
is clearly erroneous then this Court
cannot endorse that view. An
exemption notification has to be
construed strictly but that does not
mean that the object and purpose of
the notification is to be lost sight
of and the wording used therein
ignored. Where the wording of the
notification is clear and
unambiguous, it has to be given
effect to. Exemption cannot be
denied by giving a construction not
justified by the wording of the
notification.”
(emphasis supplied)
Page 24 24
37. In CCE v. Rukmani Pakkwell
Traders, this Court has also held:
(SCC p. 804, para 5)
“5. … It is settled law that
exemption notifications have to be
strictly construed. They must be
interpreted on their own wording.
Wordings of some other notification
are of no benefit in construing a
particular notification.”
(emphasis supplied)
38. In Kohinoor Elastics (P) Ltd. v.
CCE this Court has held: (SCC p. 533,
para 7)
“7. … When the wordings of the
notifications are clear and
unambiguous they must be given
effect to. By a strained reasoning
benefit cannot be given when it is
clearly not available.”
(emphasis supplied)
39. In Compack (P) Ltd. v. CCE, this
Court has observed thus: (SCC p.
306, para 20)
“20. Bhalla Enterprises laid down a
proposition that notification has to
be construed on the basis of the
language used. Rukmani Pakkwell
Traders
16
is an authority for the
same proposition as also that the
wordings of some other notification
are of no benefit in construing a
particular notification. The
notification does not state that
exemption cannot be granted in a case
where all the inputs for manufacture
Page 25 25
of containers would be base paper or
paperboard. In manufacture of the
containers some other inputs are
likely to be used for which MODVAT
credit facility has been availed of.
Such a construction, as has been
suggested by the learned counsel for
the respondents, would amount to
addition of the words ‘only out of’
or ‘purely out of’ the base paper and
cannot be countenanced. The
notification has to be construed in
terms of the language used therein.
It is well settled that unless
literal meaning given to a document
leads to anomaly or absurdity, the
golden rule of literal interpretation
shall be adhered to.”
(emphasis supplied)
40. In CCE v. Mahaan Dairies, this
Court has held: (SCC p. 800, para 8)
“8. It is settled law that in order
to claim benefit of a notification,
a party must strictly comply with
the terms of the notification. If on
wording of the notification the
benefit is not available then by
stretching the words of the
notification or by adding words to
the notification benefit cannot be
conferred. The Tribunal has based
its decision on a decision delivered
by it in Rukmani Pakkwell Traders v.
CCE. We have already overruled the
decision in that case. In this case
also we hold that the decision of
the Tribunal is unsustainable. It is
accordingly set aside.”
(emphasis supplied)”
Page 26 26
20. The statutory provisions of Section 3(2)vii(a)
thus have to be strictly construed and in event the
condition of generating energy jointly with any
other industrial undertaking is not fulfilled, the
claim has to be rejected.
21. Learned Counsel for the appellant submits
appellant is claiming exemption from excise duty
only to the extent of its shareholdings i.e. 42%.
The object for grant of exemption to the industrial
undertaking which generates energy either singly or
jointly is for the use of industrial undertaking
which are jointly generating the energy. When in
the present case, 58% of the energy generated has
been allocated to Gujarat Electricity Board with
whom appellant No. 2 is not jointly generating the
energy, the Statutory provisions has to be strictly
construed and when energy being generated is used by
industrial undertaking which is not jointly
generating the energy the claim is not covered under
Section 3(2)(vii)(a).
Page 27 27
22. Learned Counsel for the appellant has also
referred to the judgment of this Court in State of
U.P. and Ors. versus Renusagar Power Company &
Ors., 1988(4) SCC 59. In the above case, M/s
Renusagar Company had obtained a sanction to engage
in the business of supply of electricity to M/s
Hindustan Aluminium Corporation Ltd. In the above
case, this Court took the view that corporate Veil
should be lifted and Hindalco and Renusagar may be
treated as one concern and the Renusagar Powers
Plant must be treated as the owned source of
generation of Hindalco. Following was held in
paragraph 67:
"67. In the aforesaid view of the
matter we are of the opinion that
the corporate veil should be lifted
and Hindalco and Renusagar be
treated as one concern and
Renusagar’s power plant must be
treated as the own source of
generation of Hindalco and should be
liable to duty on that basis. In the
premises the consumption of such
energy by Hindalco will fall under
Section 3(1)(c) of the Act. The
learned Additional AdvocateGeneral
for the State relied on several
Page 28 28
decisions, some of which have been
noted.”
23. In the present case, there is no dispute to
the fact that appellant No.2 was created as a
Special Purpose Vehicle by appellant No.1 itself.
Had appellant No.2 would have been supplying energy
to appellant No.1 only, the claim deserved
consideration. But present is a case where the
appellant no.2 is supplying energy to industrial
undertakings with whom it is not jointly generating
the energy. Judgment of this Court in State of U.P.
and Renusagar Company, thus, has no application in
the facts of present case.
24. Learned Counsel for the appellant has placed
reliance on judgment of this Court in A.P. Gas
Power Corporation Ltd. Versus A.P. State Regulatory
Commission & Another, 2004 (10) SCC 511. In the
above case, the State Government of Andhra Pradesh
and Andhra Pradesh Electricity Board had mooted the
idea of setting up of 3 X 33 MW gasbased Combined
Page 29 29
Cycle Power Station for establishing a generating
station. It was decided to invite private
participation in the venture. A Memorandum of
Understanding dated 17.10.1988 and on 19.04.1997 was
entered according to which Andhra Pradesh State
Electricity Board had to have 26% shares in the new
company to come up as A.P.GPCL and rest of the
participating industries were to have different
percentage of shares and the power so generated by
company was to share proportionately among the
shareholding participating companies and their
sister concerns. The question which fell for
consideration before this Court was as to whether
A.P.GPCL was required to take a license under the
law for utilization/sale and supply of power
generated by the participating industries, their
sister concerns and the companies to whom shares of
APGPCL were transferred by the participating
industries.
Page 30 30
25. This Court after noticing the contents of
various clauses of Memorandum of Understanding and
the provisions of Indian Electricity Act, 1910 and
Andhra Pradesh Electricity Reform Act, 1998, laid
down following in paragraph 36 and 37:
“36. From the perusal of para 4
of the Memorandum of Understanding
it is clear that a participating
industry has been given a right to
transfer its share of energy and
power to its sister concern. The
term “sister concern” has been
explained as “a concern under the
same group.” There is no further
clarification or clue as to which
are those concerns which may be
considered under the same group.
The expression “sister concern”
used in para 4 of the Memorandum of
Understanding certainly does not
mean a concern which is owned or is
a subsidiary of the participating
industry. It would be a concern or
unit different from the
participating industry and not a
part of it. Maybe,that the same
group may manage two different
independent units carrying on the
same nature of activities. They may
be addressed as sister concerns but
would definitely have separate
entity and identity of their own.
Consumption of power, generated by
a generating company, by a concern
which may be under the same group
as any of the participating
Page 31 31
industry cannot be said to be
consumption or use of the power by
the participating industry itself.
In absence of the element of
selfconsumption by the generating
company, it would not fall in the
category of “captive consumption”.
It would surely be a supply to a
nonparticipating industry and in
that event it would be necessary to
have a licence under the relevant
provisions of law. If there is such
a legal requirement, merely an
agreement amongst certain parties
would not exclude the application
of law. Provisions of law
regulating the situation would
prevail over any kind of agreement
amongst some individuals as a group
or otherwise. We are, therefore, of
the view that such a clause in the
Memorandum of Understanding would
not do away with the requirement of
having a licence for supply of
electricity generated by A.P.GPCL
to such concerns which may be under
the same group as the participating
industries but not the
participating industries
themselves.
37. To support the view taken by
us, a decision of this Court
referred to by the respondents may
be cited as in State of U.P. Vs.
Renusagar Power Co. This case,
however, was decided in a slightly
different fact situation. M/s
Hindustan Aluminium Corporation
Ltd. was established in 1959 on
assurance of providing cheap
Page 32 32
electricity to it. In the year
1964, however, M/s Renusagar Power
Co. Ltd. was established as a
wholly owned and subsidiary of M/s
Hindustan Aluminium Corporation
Ltd. It was generating electricity,
but incorporated separately and had
its own separate Memorandum of
Understanding and Articles of
Association. To raise the revenue
for the State, the U.P. Electricity
(Duty) Act, 1952 was enforced to
levy a duty on the consumption of
electricity. Several amendments
were, however, incorporated from
time to time and ultimately a
provision was inserted providing
that there would be levied and paid
to the State Government a duty
called electricity duty on the
energy sold to a consumer by a
licensee/Board/the Central
Government. The duty on consumption
of electricity was leviable even
though it may be from his own
source of generation. Renusagar
Power Co. Ltd. had also obtained a
licence under Section 28 of the Act
of 1910. In such circumstances, it
was held that even though Renusagar
Power Co. Ltd. was a subsidiary
company owned by M/s Hindustan
Aluminium Co. Ltd., yet it would
amount to supply of electricity by
a licensee to a consumer in view of
the provisions of the U.P. Act of
1952 which levied duty on
consumption of electricity. The
situation in the case in hand is
similar only to the extent that the
participating industries and the
Page 33 33
sister concerns are different
entities and separately
incorporated. Distinction may be
there in view of the statutory
provisions intervening under the
U.P. Act of 1952 but that is not
material for this case.”
26. Ultimately, the appeal was partly allowed and
judgment of the High Court was modified vide
paragraph 57 of the judgment which is to the
following effect:
“57. We, therefore, hold that no
licence is necessary for
utilization of energy generated by
A.P.GPCL and utilized by the
participating industries and the
concerns holding shares of A.P.GPCL
transferred to them by the
participating industries to the
extent of value of the shares so
transferred. It would, however, be
necessary to have a licence for
supply of energy to the sister
concerns. In the result, the
appeals are partly allowed and the
judgment and order passed by the
High Court stands modified in the
manner indicated above. Parties to
bear their own costs.”
Page 34 34
27. The judgment of Andhra Pradesh Gas Power
Corporation Limited is clearly distinguishable and
does not help the appellant in present case. In the
aforesaid case the energy was utilized by the
participating industries and the concerned holding
shares of A.P.GPCL but supply of energy to the
sister concerned was required to have license.
Present is a case where Gujarat Electricity Board
who has been allocated 300 MW is not a participating
industry nor appellant no.2 is jointly generating
the energy with Gujarat Electricity Board, even if
it is held that the appellant no.1 to the extent it
holds 42% equity shares of appellant no.2 is jointly
generating the energy. The Gujarat Electricity Board
which has been allocated 58% of electricity
generated can not be said as the industrial
undertaking jointly generating the energy.
28. The judgment of this Court in Gujarat Urja
Vikas Nigam Ltd. Versus ESSAR Power Limited,
2016(9) SCC 103, has also been referred to. The
Page 35 35
above case was a case where parties to the present
appeal were at issue and appeal was filed by Gujarat
Urja Vikas Nigam, successor of Gujarat Electricity
Board under Section 125 of the Electricity Act
against the Order of Appellate Tribunal of
electricity. The appellant had filed the petition
before the Gujarat Electricity Regulatory Commission
for adjudication of the dispute arising out of Power
Purchase agreement. The appellant had sought
compensation for wrongful allocation of electricity
by EPL to the sister concerned i.e. ESSAR Steel
Limited in preference to the appellant. The
Commission had occasion to examine various clauses
of Power Purchase Agreement dated 30.05.1996 between
the parties. This Court rejected the contention of
the EPL that it could sell power to ESL beyond its
allocated capacity. In the paragraph 22 of the
judgment following was held:
“22. The agreement clearly
contemplates the proportion of
allocation of a capacity. EPL has
to fuel and operate the generating
Page 36 36
station to meet the requirement of
electric output that can be
generated corresponding to the
allocated capacity. The appellant
has to pay annual fixed cost as
determined in terms of Clause 7.1.1
of Schedule VII of the agreement.
The Commission is thus, right in
observing that once the entire
capacity has been allocated in two
parts in a particular proportion,
the contention of EPL that it could
sell power to ESL beyond the
allocated capacity could not be
accepted. EPL was under obligation
as per Schedule VI to declare
weekly schedule of the capacity
available and the dispatch
instructions were to be issued on
the basis of the said declaration.
It could not thus be said that EPL
had no obligation to declare the
capacity and the obligation of
GUVNL to issue dispatch
instructions was not dependent on
declaration of the available
capacity by EPL. Contrary view of
the Tribunal is clearly erroneous.
In para 45 and 46 and elsewhere in
its judgment, the Tribunal erred in
holding that there was no
obligation to declare available
capacity on proportionate basis.
The finding of the Commission in
paras 9.5 to 9.12 of its order
quoted above is the correct
interpretation of the agreement. We
hold accordingly.”
Page 37 37
29. In the above case the question of exemption in
excise duty within meaning of Section 3(2) of 1958
Act had not arisen nor the question was considered
whether EPL can be held to be generating energy
jointly with appellant no.1 and Gujarat Electricity
Board. For the issues which have arisen in the
present case, the above judgment does not render any
help.
30. Learned Counsel for the appellant has
submitted that the High Court had rejected the claim
of payment only on the ground that there is no such
Memorandum of Understanding between EPL and ECL as
was found in A.P. Gas Power Limited (Supra). The
High Court although has noted the fact that in the
present case there is no such Memorandum of
Understanding between EPL and ECL but the judgment
of the High Court is not based only on the above
premise rather High Court has clearly found that
conditions stipulating under Section 3(2)(vii)(a)(i)
of 1958 Act are not satisfied, hence, appellant no.1
Page 38 38
is not entitled for exemption. High Court has
elaborately considered all the submission raised by
the appellant and rightly came to the conclusion
that conditions as enumerated in Section 3(2)(vii)
(a) are not fulfilled. We do not find any error in
the aforesaid finding of the High Court.
Claim under notification dated 27.02.1992
31. The notification dated 27.02.1992 was issued
in exercise of power conferred by Section 3(3) of
Bombay Electricity Act, 1958. The relevant part of
the notification dated 27.02.1992, is as follows:
“NOTIFICATION
Sachivalaya Gandhinagar
27
th
February, 1992
BOMBAY ELECTRICITY DUTY ACT, 1958
No. GHC/92/10/JCP/1188/2594/K
In exercise of the powers conferred
by Sub Section (3) of the Section 3
of the Bombay Electricity Duty
Act,1958(Bom. XL of 1958), the
Government of Gujarat hereby
remitted with effect on and from
the date of publication of this
notification in the Official
Page 39 39
Gazette. In the whole of the State
of Gujarat, the Electricity Duty
payable under item (6) of Part I of
Schedule II to the said Act, on the
energy consumed for motive power
and lighting for Industrial
purposes by industrial under
takings which generate energy
jointly for their own use either by
establishing an independent joint
company solely for this purpose or
on prorata cost sharing basis, for
a period of ten years from the date
of commissioning of the generating
sets subject to the following terms
and conditions namely:
(a)The generating set or sets shall have
been purchased and installed or
commissioned during the period
beginning from 1
st
January, 1991 and
ending on 31
st
December, 1992.
Providing that such generating act or
sets shall not have been previously
used in the State.
************”
32. The claim raised by the appellant under the
above said notification was specifically dealt by
the High Court and the Government. The condition
which was found lacking for applicability of the
notification was that generating sets were not
purchased or installed or commissioned during the
Page 40 40
period from 01.01.1991 to 31.12.1992. The High Court
has recorded categorical finding that the generating
sets have been commissioned in the month of August
1995. It is useful to refer to paragraph 12.0 of the
judgment of Division Bench which is to the following
effect:
“12.0.Now, so far as the
alternative claim of the appellants
to grant the exemption for a period
of 10 years under the Notification
dated 27.02.1992 is concerned, on
considering Notification dated
27.02.1992, it appears that the
conditions precedent laid down in
the said notification cannot be
said to have been compiled by the
appellants more particularly
appellant No.1 – ESL. For claiming
the benefit of notification dated
27.02.1992 it is to be established
that the generating set or sets
have been purchased/installed or
commissioned during the period
beginning from 01.01.1991 and
ending on 31.12.1992. From the
record it appears that the
generating sets have been
commissioned in the month of August
1995, the appellants have failed to
establish that the generating sets
were even purchased during the
aforesaid period. It cannot be
disputed that in a taxing statute
more particularly with respect to
the exemption from payment of duty,
Page 41 41
all the conditions which can be
said to be statutory are required
to be fulfilled and unless and
until all the conditions stipulated
in the exemption notification are
satisfied and/or compiled with,
there shall not be any exemption
under the notification. In the
present case, admittedly, the
generating sets in question have
been commissioned in the month of
August 1995. The appellants have
failed to establish that they even
purchased the generating sets
during the period beginning from
01.01.1991 to 31.12.1992. More
placement of order for purchase
cannot amount to actual purchase of
the generating sets.”
33. Another reason given by the High Court was
that no application was made within 180 days of
application of the notification dated 27.02.1992 or
even from the date of installation of generating
sets i.e. August 1995. Even if the second reason
given by the High Court is ignored, nonfulfillment
of condition no.(a) of notification dated 27.02.1992
clearly entailed rejection of claim under
notification dated 27.02.1992. There is no
foundation or basis laid down even in this appeal to
Page 42 42
assail the finding recorded by the High Court that
generating set was not purchased from 01.01.1991 to
31.12.1992.
34. We thus do not find any error in rejection of
claim of appellant under the notification dated
27.02.1992.
35. The High Court has rightly negatived the claim
of the appellant under Section 3(2) as well as under
the notification dated 27.02.1992 issued under
Section 3(3). We do not find any merit in this
appeal, the appeal is accordingly dismissed.
......................J.
(A. K. SIKRI)
......................J.
(ASHOK BHUSHAN)
NEW DELHI,
MAY 02, 2017
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