http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 13

CASE NO.:

Appeal (civil) 1998 of 2002

PETITIONER:

M.P. Cement Manufacturers' Association

RESPONDENT:

State of Madhya Pradesh & Ors.

DATE OF JUDGMENT: 09/12/2003

BENCH:

RUMA PAL & P.VENKATARAMA REDDI

JUDGMENT:

J U D G M E N T

WITH

CIVIL APPEAL Nos.1999-2006, 2253-2254, 2538 OF 2002,

CIVIL APPEAL No.9658 OF 2003 @ SLP (C) No.13153

OF 2002, CIVIL APPEAL No.9659 OF 2003 @ SLP (C)

No.1609 OF 2003, CIVIL APPEAL No.9660 OF 2003 @

SLP (C) No.11939 OF 2003, WRIT PETITION (C) No.356 OF

2002 AND WRIT PETITION (C) No.236 OF 2003.

RUMA PAL, J.

Delay condoned.

Leave granted in special leave petitions.

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"

(hereafter 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.

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 \026 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 \026 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 13

Sudhar Adhiniyam, 2000; third \026 that the levy was violative of

Article 14 of the Constitution. Virtually the same arguments

were raised before the High Court.

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 conjuction with the phrase

"whether for sale or supply to \005." 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.

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 of the amount of cess to be paid by the

Captive Power Producer whose plant is located in the factory

premises and whatever electrical energy is generated is

consumed in the same premises and on the units so

consumed". The High Court concluded that in substance, the

impugned cess is on energy consumed and so falls under Entry

53, List II, and was not excise duty even if the measure of both

is at the same stage.

On the argument alleging violation of Section 12(3) of the

Sudhar Adhiniyam, it was held:

"We find that imposition of cess was under

consideration of the State for some time past. It

was discussed with the Industry and formed part of

Captive Power Policy before Ordinance was

promulgated. In case the Respondents wanted to

rush through the measure, it could be done long

back. It is not incumbent for the Government to

discuss a matter with public before it is legislated.

Therefore, the Ordinance could be promulgated at

any time, the Government deemed necessary to do

so. Moreover, the Bill was presented before the

Legislature, which had passed it".

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 13

The plea of violation of Article 14 was negatived because

a valid distinction could be drawn between MPSEB and captive

power generating concerns like the appellants. The cess of 20

paise per unit was held not to be confiscatory and as such not

violative of Article 14.

LEGISLATIVE COMPETENCE

The two competing entries in the Seventh Schedule to the

Constitution are Entry 84 of List-I and Entry 53 of List-II. They

respectively read:

"List-I

"84. Duties of excise on tobacco and other goods

manufactured or produced in India except \026

(a) alcoholic liquors for human consumption.

(b) opium, Indian hemp and other narcotic drugs

and narcotics, but including medicinal and

toilet preparations containing alcohol or any

substance included in sub-paragraph (b) of

this entry.

List-II

"53. Taxes on the consumption or sale of

electricity".

Electricity is goods [See Commissioner v. MPEB {(1969)

1 SCC 200, 204]. Thus, the levy of excise duty on the

production of electricity which falls within the phrase "other

goods manufactured" in Entry 84 of List-I" is within the

exclusive jurisdiction of Parliament and the State has the

competence to levy tax only on the sale and consumption of

electricity1. This position is accepted by the respondents.

The Madhya Pradesh Electricity Duty Act , 1949 provides

for the levy of a duty on the consumption or sale of electrical

energy and under Section 3 of this Act , subject to certain

statutory exceptions, every distributor and every producer of

electrical energy is required to pay a monthly duty "on the

electrical energy sold or supplied to a consumer or consumed

by himself, for his own purpose or for purposes of his township

or colony". Under the Upkar Adhiniyam, 1981, an energy

development cess is levied under Section 3 on every distributor

of electrical energy at a rate of one paisa per unit "on the total

energy sold or supplied to a consumer or consumed by himself

or his employees during any month". The similarity in the

phraseology used in both these statutes in describing the

incidence of tax \026 namely sale or supply of electricity \026 is

significant.

By the impugned amendment in 2001, Section 3 of the

1981 Adhiniyam was substituted to provide for payment of an

Energy development cess by producers of electricity as well.

While setting out the substituted section, we have highlighted

those portions of the section which were introduced by way of

amendment.

"3. Levy of energy development cess \027 (1) Every

distributor of electricity energy shall pay to the State

Government at the prescribed time and in the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 13

prescribed manner an energy development cess at

the rate of one paise per unit on the total units of

electrical energy sold or supplied to a consumer or

consumed by himself or his employees during any

month:

Provided that no cess shall be payable in respect of

electric energy, -

(i) (a) sold or supplied to the Government of

India for consumption by that Government;

or

(b) sold or supplied to the Government of

India or a railway company for

consumption in the construction,

maintenance or operation of any railway

administered by the Government of India:

(ii) sold or supplied in bulk to a Rural Electric Co-

operative Society registered under the

Madhya Pradesh Co-operative Societies Act,

1960 (No. 17 of 1961).

Explanation: For the purpose of this sub-

section 'month' means such period as may be

prescribed.

2. Every producer producing electrical

energy by his captive power unit or diesel

generator set of capacity exceeding 10 Kilowatt

in total shall pay to the State Government an

energy development cess at the rate of 20 paise

per unit on the total units of electrical energy

produced whether for sale or supply to a

consumer or for consumption by himself or his

employees during any month:

Provided that no cess shall be payable in

respect of electrical energy produced by \026

(i) the Government of India for consumption

by that Government;

(ii) the Government of India or a railway

company for consumption in the

construction, maintenance or operation of

any railway administered by the

Government of India;

(iii) the State Government for consumption by

that Government;

(iv) a Rural Electric Co-operative Society

registered under the Madhya Pradesh Co-

operative Societies Act, 1960 (No. 17 of

1961);

(v) the local bodies including Municipal

bodies and Panchayats for consumption in

public street lamp or lamps in any market

place or water works or any other places of

public resort maintained by such bodies:

Provided further that the amount of energy

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 13

development cess shall be collected by the

Madhya Pradesh State Electricity Board

and the amount so collected shall be made

available to the State Government.

(3) The proceeds of the cess under sub-section

(1) and (2) shall first be credited to the Consolidated

fund of the State and the State Government may at

the commencement of each financial year, after due

appropriations has been made by law, withdraw

from the Consolidated Fund of the State an amount

equivalent to the proceeds of cess realized by the

State Government in the preceding financial year

and shall place it to the credit of a separate fund to

be called the Energy Development Fund and such

credit to the said fund shall be an expenditure

charged on the Consolidated Fund of the State

Government of Madhya Pradesh.

(4) The amount in the credit of the funds shall, at

the discretion of the State Government be utilised

for:-

(a) research and development in the field of

energy including electrical energy as well as

other conventional and non-conventional

sources of energy;

(b) improving the efficiency of generation,

transmission, distribution and utilisation of

energy including reduction of losses in

transmission and distribution;

(c) research in design, construction,

maintenance, operation and materials of the

equipment used in the field of energy with a

view to achieve optimum efficiency, continuity

and safety;

(d) survey of energy sources including non-

perennial sources to alleviate energy

shortage;

(e) Energy conservation programmes;

(f) Extending such facilities and services to the

consumers as may be deemed necessary;

(g) Creation of a laboratory and testing facilities

for testing of electrical appliances and

equipments and other equipments used in the

field of energy;

(h) Programmes of training conducive to achieve

any of the above objectives;

(i) Transfer of Technology in the field of Energy;

(j) Any purpose connected with improvement of

generation, transmission, distribution or

utilisation of electrical and other forms of

energy, as the State Government may, by

notification, specify.

Explanation: In this sub-section 'energy'

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 13

includes all conventional and non-

conventional forms of energy.

(5) If any questions arises as to whether the

purpose for which the fund is being utilised is a

purpose falling under sub-section (4) or not, the

decision of the State Government thereon shall be

final and conclusive."

The High Court's decision was given with reference to this

amendment.

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.

Our interpretation of sub-section (2) of Section 3 is

buttressed by and in keeping with the language and effect of

the proviso to the said sub-section. It has been held that the

normal function of the proviso is to except something out of the

enactment or to qualify something enacted therein which but for

the proviso would be within the purview of the enactment2. The

proviso to Section 3(2) excepts "electrical energy produced"

from payment of the cess in five cases. This would show that

the general application of Section 3(2) to which an exception

was being carved by the proviso was in respect of the

production of electrical energy. Were it not for the exception in

the proviso to Section 3(2), what would be subjected to tax

would be electrical energy produced by the five categories

mentioned under the proviso. Although in categories (i), (ii), (iii)

and (v) the exemption is granted with reference to the utilisation

of the electrical energy produced, under exception (iv) \026

significantly, all electrical energy produced by a Rural Electrical

Co-operative Society registered under the M.P. Co-operative

Societies Act, 1960 is exempted. The difference of language

between the proviso to sub-section (2) of Section 3 and the

proviso to sub-section (1) of Section 3 is also telling. Under the

proviso to sub-section (1), the exception is of electrical energy

sold or supplied to specified authorities.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 13

That the intention of the Legislature was to levy cess on

the production of electricity is also borne out from the

Statement of Objects and Reasons which accompanied the Act

which replaced the Ordinance. It says:

"With a view to impose cess on the electricity

generated by the producers from their Captive

Power Plants/Diesel Generating Sets for self

consumption or for sale at the rate of 20 paise per

unit on all generated electricity units, it has been

decided to amend the Madhya Pradesh Upkar

Adhiniyam, 1981 (No. 1 of 1982) suitably."

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 impose3.

The interpretation of the amendment by the High Court

and as canvassed by the respondents that the cess was

actually on sale and consumption and that production was

merely the measure of tax is unacceptable. Such a

construction is contrary to the express words of the statute.

Doubtless, while considering a challenge to the constitutionality

of a statutory provision, the Court will lean in favour of

upholding its validity. {See: State of Karnataka v. Ranganatha

Reddy [(1977) 4 SCC 471]}. But this does not mean that in this

process of leaning the Court must perform verbal gymnastics to

overcome a patent lack of legislative competence. As said by

the Constitution Bench of this Court in Madhuram Agrawal V.

State of Madhya Pradesh [(1999) 8 SCC 667]:

"The intention of the legislature in a taxation statute

is to be gathered from the language of the

provisions particularly where the language is plain

and unambiguous. In a taxing Act it is not possible

to assume any intention or governing purpose of the

statute more than what is stated in the plain

language. It is not the economic results sought to

be obtained by making the provision which is

relevant in interpreting a fiscal statute. Equally

impermissible is an interpretation which does not

follow from the plain, unambiguous language of the

statute. Words cannot be added to or substituted

so as to give a meaning to the statute which will

serve the spirit and intention of the legislature."

Although a dispute was sought to be raised by the

appellants as to whether electricity can be stored or not, (this

despite the decision to the contrary by the Constitution Bench

of this Court in State of Andhra Pradesh v. National Thermal

Power Corpn. Ltd. [(2002) 5 SCC 203], it is not necessary to

enter into this controversy for the purpose of deciding this issue

as it is the common case of the parties before us that between

the generation and consumption of electricity there will be

transmission loss and the amount of electricity generated need

not necessarily be the amount of electricity consumed/sold. In

any event, the practice which is actually followed in metering

the generated electricity would not make the incidence of tax

different. "The method of collection does not affect the essence

of the duty, but only relates to the machinery of collection for

administrative convenience. Whether in a particular case the

tax ceases to be in essence an excise duty, and the rational

connection between the duty and the person on whom it is

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 13

imposed ceased to exist, is to be decided on a fair construction

of the provisions of a particular Act"4. Section 3(2) of the

amendment speaks of cess on electrical energy generated and

that must be taken as conclusive of the object and nature of the

levy.

Had matters stood there, the appeals would have had to

be allowed and the decision of the High Court reversed. But

after the decision of the High Court, there was a further

amendment effected to the 1981 Adhiniyam by the Madhya

Pradesh Upkar (Sanshodhan) Adhiniyam, 2003. The 2003

amendment introduced an Explanation at the end of Section 3

of sub-Section (2). The Explanation is as follows:-

" Explanation \026 For the purpose of this sub-section,

the Cess shall be levied on units of electrical energy

sold or supplied from captive power units or Diesel

Generator sets to a consumer or consumed by the

Producer or his employees.".

The issue now is \026 can the 2003 Explanation cure the

2001 levy?

The legislature has the power to validate an invalid levy

and to do so retrospectively. The proscription provided in the

context of judicially invalidated legislation would not apply as

the 2001 amendment had not, till the promulgation of the 2003

Act, been held to be invalid by any Court. The legislature can

also change the character of the tax or duty from impermissible

to permissible but the tax or levy should be within its legislative

competence5. However, in our view, these principles would not

apply to the 2003 Amendment since it is in the form of an

Explanation to Section 3(2). The object of an Explanation to a

statutory provision has been culled out from the earlier judicial

decisions and succinctly restated in S. Sundaram Pillai & Ors.

v.V.R. Pattabiraman & Ors. [(1985) 1 SCC 591 at 613].

" Thus, from a conspectus of the authorities referred

to above, it is manifest that the object of an

Explanation to a statutory provision is \026

a) to explain the meaning and intendment of the

Act itself,

b) where there is any obscurity or vagueness in

the main enactment, to clarify the same so as

to make it consistent with the dominant object

which it seems to subserve,

c) to provide an additional support to the

dominant object of the Act in order to make it

meaningful and purposeful,

d) an Explanation cannot in any way interfere

with or change the enactment or any part

thereof but where some gap is left which is

relevant for the purpose of the Explanation, in

order to suppress the mischief and advance

the object of the Act it can help or assist the

Court in interpreting the true purport and

intendment of the enactment, and

e) it cannot, however, take away a statutory right

with which any person under a statute has

been clothed or set at naught the working of

an Act by becoming an hindrance in the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 13

interpretation of the same."

According to the appellants, since Section 3(2) continued

to remain the charging Section, the effect of the Explanation

could be construed either as replacing the impost under Section

3(2) or as an alternative cess or as being an additional cess.

The first construction had not been argued by the respondents.

The second alternative would give the assessing officer an

impermissible discretion and the third alternative would mean

that the vice of constitutional incompetence would continue to

attach to the impugned levy.

The respondents have argued that the decision of the

High Court with regard to the interpretation put to Section 3(2)

is correct. Indeed, they could hardly contend otherwise. We

have not agreed with the interpretation of Section 3(2) put by

the High Court judgment. Section 3(2) continues to be the

charging Section. The Explanation, according to the

respondents served the purpose of merely clearing up any

ambiguity in Section 3(2) and reaffirmed the object of the cess

levied thereunder.

The expression used by the Explanation is "for the

purpose of sub-section (2) of Section 3, the cess shall be levied

on units of electrical energy sold or supplied". Since the

purpose of sub-section (2) of Section 3 continues to be a levy

on production, the word 'levied' in the context would at the

highest mean 'assessment' and not 'imposition'. It is not the

respondents' case that any new or additional or alternative cess

was sought to be introduced by the Explanation. Thus despite

the Explanation, the charge in Section 3(2) continues to be on

the production of the electrical energy units and nothing else.

The proviso to sub-section (2) of Section 3 continues to except

electrical energy produced from the cess in certain cases. The

Explanation, if it is read with the main provision, introduces

certain contradictions and vagueness. A charging provision

should be explicit, certain and clear in order to bind the subject.

The outcome of the introduction of the Explanation to an

otherwise unchanged Section 3(2) is a singularly ill drawn

provision. The 2003 amendment was obviously introduced for

the purpose of rectifying the obvious error in Section 3(2), an

object which cannot be achieved by introducing an Explanation

since an Explanation cannot be read as changing or as

interfering with the incidence of the levy. It is not for us,

particularly when legislative clarity is required since the

statutory provision imposes a tax, to untangle the legislative

confusion.

The legislature could have avoided the controversy, if it

had wished to make the incidence of tax explicitly on sale or

consumption, by the simple expedient of so providing. The

Legislature in its wisdom did not choose to do so. To use the

words voiced by Jessel M.R.6:

"I must say that whoever is responsible for drafting

\005.. of this Act \005. has taken a great deal of trouble

to raise a very difficult question, when he might with

the greatest ease by using appropriate and well-

known terms have avoided any question whatever."

We are, therefore, of the opinion that the cess chargeable

at all material times under Section 3(2) is only on the production

of electrical energy units as far as producers of electricity for

captive consumption are concerned and the Explanation does

not serve to change the character of the tax from an

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 13

impermissible to a permissible levy.

SECTION 12(3) OF THE SUDHAR ADHINIYAM

The challenge to Section 3(2) of the 1981 Adhiniyam on

the ground of violation of Section 12(3) of the Madhya Pradesh

Vidyut Sudhar Adhiniyam, 2000 (hereinafter referred to as

'Sudhar Adhiniyam') is not necessary to be decided in view of

our interpretation of the Section and the finding that it was an

incompetent piece of legislation. However, since the scope of

Section 12(3) of the Sudhar Adhiniyam has been argued in

depth, we think it appropriate not to leave the dispute

unanswered.

The Sudhar Adhiniyam was published in the Madhya

Pradesh Gazette (Extra-Ordinary) on 20.2.2001 after receiving

the assent of the President. It came into force on 3.7.2001. By

the Sudhar Adhiniyam, the State Electricity Regulatory

Commission has been set up and various provisions have been

made for the following avowed objects:

"(i) restructuring of the Electricity Industry;

(ii) rationalisation of Generation, Transmission,

Sub-Transmission, Distribution and Supply of

Electricity in the State;

(iii) Regulating the licensing of transmission and

supply of electricity;

(iv) regulating the purchase, Transmission, Sub-

Transmission, Distribution, Supply and utilisation of

electricity;

(v) providing quality of service and the tariff and

other charges considering the interest of the

consumers and utilities;

(vi) taking measures conducive to the

development and management of the electricity

industry in the State in an efficient, economic and

competitive manner."

Section 12(3), which is allegedly violated by the

respondent \026 State, reads as under:

"12 (3). The State Government shall consult the

Commission in relation to any policy directive which

it proposes to issue or any legislation is proposed to

be enacted affecting the Electricity Industry it shall

duly take into account the recommendation if any,

given by the Commission within such reasonable

time as the State Government may specify."

There can be no doubt, in view of the authoritative

pronouncement of the law in Maharaj Umeg Singh and

Others v. The State of Bombay and Others [(1955 (2) SCR

164] that a State legislature cannot be fettered from exercising

its plenary powers of legislation within the ambit of the

legislative heads specified in the lists (II) & (III) of the 7th

Schedule to the Constitution, unless the prohibition is contained

in the Constitution itself. It had been argued in Maharaj Umeg

Singh's case that agreements of merger entered into by the

Rulers of the respective States with the Dominion of India and

the collateral letters of guarantee passed by the Ministry of

States precluded the State legislature from denying the rights

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 13

under these two instruments. The argument was negatived

saying:

"Once the topic of legislation was comprised within

any of the entries in the Lists II & III of the Seventh

Schedule to the Constitution the fetter or limitation

on such legislative power had to be found within the

Constitution itself and if there was no such fetter or

limitation to be found there the State Legislature

had full competence to enact the impugned Act no

matter whether such enactment was contrary to the

guarantee given, or the obligation undertaken by

the Dominion Government or the Province of

Bombay or even the State of Bombay".

Unlike the decision in Maharaj Umeg Singh's case, the

so-called legislative 'fetter' in the case before us is itself

contained in valid legislation viz. the Sudhar Adhiniyam, 2000.

The State was competent to enact the Sudhar Adhiniyam,

2000. The respondents have not urged to the contrary. So

now we have two pieces of legislation viz. the Sudhar

Adhiniyam, 2000 and the Amendment Act of 2001, both

enacted by the State which are both equally valid.

The first question, therefore, is \026 whether Section 12(3)

does in fact impose any fetter on the power of State to

legislate? Sub-section (3) refers to "any policy directive which it

proposes to issue" or "any legislation proposed to be enacted

affecting the Electricity Industry ". It does not stop the State

from enacting the legislation but merely states that prior to any

legislation being proposed, the Government shall "duly take into

account the recommendation, if any, given by the Commission".

It was and is open to the State Legislature to repeal this law.

As long it continues to be operative, it must be assumed that it

was not a mere exercise in futility and some effect must be

given to the words of the sub-section (3) of Section 12. As we

read the sub-section, it is a mandate to the policy makers who,

before proposing legislation, are required to consult the State

Regulatory Commission.

Under the Sudhar Adhiniyam, the State Commission is a

juristic entity [Section 3(1)]. The Members of the Commission,

according to Section 5 of the Sudhar Adhiniyam, shall be

persons of ability, integrity and standing who have adequate

knowledge and experience of, or have shown capacity in

dealing with problems relating to engineering, economics,

commerce, finance, law, administration or management\005".

Under Section 9 of the Sudhar Adhiniyam, the Commission has

been vested with the powers inter alia \027

(a) to regulate the purchase, distribution, supply

and utilization of electricity, the quality of

service, the tariff and charges payable

considering the interest of the consumer and

the Electricity Industry both;

(c) to determine the tariff for electricity,

wholesale, bulk, grid or retail in accordance

with the provisions of this Act.

In particular the Commission has been given the power to

determine the tariff under Section 26 of the Sudhar Adhiniyam,

2000. For discharging its functions, the Commission has been

given wide ranging powers to carry out the objects for which it

has been set up including the powers of a Civil Court in certain

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 13

specified matters [Section 10].

It is true that the Sudhar Adhiniyam, 2000 although

published in the Official Gazette prior to the promulgation of the

impugned Ordinance, came into force after such promulgation.

Nevertheless, the Act which replaced the Ordinance was

introduced as a Bill when the Sudhar Adhiniyam was operative

and was certainly in place when the Explanation was added to

Section 3(2) in 2003. There was admittedly no consultation by

the State Government with the Commission at any stage

though the levy of cess by the impugned legislation affects the

electricity industry.

We are not concerned with why the legislature provided

for this mandate of prior consultation but the importance of

consultation at a pre-decisional stage has been recognised by

Narayanan Sankaran Mooss v. The State of Kerala and

another [(1974) 2 SCR 60, page 70]:\027

"\005 First impressions and provisional judgments

have a tendency to become ultimate ideas and final

judgments. They would settle unconsciously on the

investigator's mind as the imperceptible dust-

particles on an optical lens. They would dim his

understanding and obfuscate his observation.

Facts which will dovetail with them would arrest his

attention; facts which will conflict with them would flit

his observation. If by any chance he happens to

notice refractory facts, he would seek to reconcile

them with his first impressions and provisional

judgment. This understanding of human psychology

seems to have persuaded Parliament to interpose

the condition of the Board's consultation to the

Government's action. The Board is an independent

body. It consists of three members. One of them is

a technical expert, the other is financial expert, and

the third an administrative expert. While

considering the facts presented to it by the

Government and by the licensee in his explanation,

the Board will undoubtedly act with an open and

unconditioned mind and will be able to offer

unbiased counsel to the Government\005."

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 \027 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).

An additional challenge has been raised to the

constitutional validity of sub-sections (3), (4) and (5) of Section

3 in Civil Appeal No.2003 of 2002 alleging violation of Articles

202, 204, 207, 260 and 267 of the Constitution.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 13

In order to appreciate the submission, we may

recapitulate briefly the effect of these sub-sections. Under sub-

section (3), the proceeds of the cess levied under sub-section

(1) and (2) are required to be credited to the Consolidated Fund

of the State. The State Government may then withdraw an

amount equivalent to the proceeds of cess realised in the

preceding financial year and place it to the credit of a separate

fund called the Energy Development Fund. Such credit to the

fund would be an expenditure charged on the Consolidated

Fund. The State Government has also the discretion to use the

amount in the credit for the various purposes specified in sub-

section (4). A further discretion is given to the State

Government under sub-section (5) to finally and conclusively

decide whether the funds were in fact being utilised for a

purpose falling under sub-section (4).

Apart from the submission that the respondents had not

disclosed any information as to what had been done by the

State after collecting the cess from its consumers and how the

cess collected in fact been utilised since 1981 although called

upon to do so, it is argued by the appellants that no fund could

be earmarked or appropriated or expended from the

Consolidated Fund of the State except in accordance with the

provisions of Articles 196, 198, 199 and 200 of the Constitution

which requires the expenditure to be passed by the State

Legislature and it cannot be left to the State Executive to

determine the expenditure at its discretion. This argument was

raised before the High Court but not dealt with. Nor do we do so

since we have upheld the appellants' contentions on the very

imposition of the cess under Section 3(2).

In the circumstances, we allow the appeals. Section 3(2)

of the 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. As far the amounts collected by the respondents under

Section 3(2) are concerned, the collection was in a sense

protected by the decision of the High Court. The 'protection'

became precarious when this Court while granting leave on the

special leave petitions on Ist March, 2002 had refused interim

relief stating that the question of refund with interest was an

issue to be decided at the final hearing. In the circumstances,

we direct that the respondents will be liable to refund the cess

collected after Ist March, 2002 to the appellants together with

interest at 9% p.a. There will however be no order as to costs.

WRIT PETITION (C) Nos.356 OF 2002 AND 236 OF 2003.

In terms of our above judgment, the writ petitions stand

disposed of accordingly.