When Consumer Purchases Electricity From Open Access Source, Electricity Tax Payable On That Rate : Karnataka High Court

Company's submissions:

Senior Advocate Gurudas Kannur, appearing for the company submitted "Apart from electricity supplied by the licensee i.e., Hubli Electricity Supply Company Limited (HESCOM), it is also supplying energy from the energy exchange every month which is called as purchase of electricity from Open Access Source. The price paid for the purchase of electricity through Open Access Source is different than the price paid by it for the electricity sold to it by the licensee –HESCOM."

Further, it was contended that the electricity purchased from HESCOM, is liable to pay tax at the rate of 6% on the procurement price. It is stated that similarly in respect of electricity purchased from Open Access Source, electricity tax would have to be levied at the rate of 6% on the price at which the electricity was procured from the Open Access Source. But, however, HESCOM had issued a demand calling upon the petitioner to pay tax on electricity consumed at the rate of 6% on the charges that HESCOM had fixed for the sale of the units. A demand to pay a sum of `94,47,534, was made by HESCOM which was challenged before the court.

The petitioner also contended that "Since the petitioner had procured electricity at a lower rate from the Open Access Source, HESCOM could not demand tax at the rates at which it supplied. Therefore, the demand made by computing tax for electricity consumed at the rates prescribed by HESCOM would be illegal and would be liable to be quashed."

Submission of the State

Additional Advocate General K.Vidyawati appearing for the state submitted that the petition is not maintainable since the company had admittedly submitted a representation to the State Government requesting grant of 24 monthly installments for payment of arrears of tax on electricity.

On merits, it was said it is now a settled law that irrespective of source of electricity, every consumer is liable to pay tax on the electricity consumed within the State and since, admittedly, petitioner had consumed the electricity within the State of Karnataka, it was bound to pay electricity tax on the rates at which electricity had been supplied by HESCOM. She also placed reliance on the fact that the statute made it clear that whenever a consumer consumed electricity at a concessional rate or free of charge, the consumer would, nevertheless, be liable to pay electricity tax on the charges of electricity levied by the licensee to other consumers. For the purpose of calculating electricity tax, the rate at which the electricity supplied by the licensee should be taken into consideration and not at the rate at which the consumer had purchased electricity from the Open Access Source.

Court findings:

The court referring to section 3 of the Karnataka Electricity (Taxation on Consumption or Sale) Act, 1959, noted "The intent of the said Section is clear that whenever electricity is consumed by a consumer within the State of Karnataka, the consumer is bound to pay electricity tax on that on ad volorem basis at the rate of 6% on the charges payable on the electricity sold or consumed."

It added "It is to be borne in mind that the Legislature was conscious of the fact that after the electricity reforms ushered in, it was open for a consumer of electricity to either purchase electricity from a licensee such as HESCOM or from the Open Access Source. It, therefore, categorically stated in Section 3 that the tax had to be paid at 6% on the charges payable on the electricity sold or the electricity charges payable on the electricity consumed."

Further the court said "In case, the electricity procured by the licensee from Open Access Source is costlier than the electricity supplied through the licensee, obviously, higher revenue would yield to the State. The corollary of this would also have to be given effect to. In other words, if a consumer is to pay electricity tax on charges higher than the one supplied by the licensee, necessarily, whenever, the licensee procures through Open Access Source, electricity at a lower rate, the charges would have to be calculated on the rate at which the consumer had purchased the electricity."

Accordingly, the court opined "If it was the intent of the State that irrespective of the rate at which the electricity was purchased by the consumer, the rate of tax would be on the charges payable by the consumer to the licensee, then the charging Section would have clearly stated so."

The court thus held "Electricity tax would have to be levied and collected at a particular rate at which the consumers had purchased the electricity from the electricity exchange."

The bench held that the demand made by HESCOM by computing the tax at the rate at which it was selling electricity to its consumers cannot be the basis for levying and collecting the electricity tax.

Quashing the demand notice made by HESCOM, the Court directed it to calculate the electricity tax at the rate at which the petitioner had purchased the electricity from Open Access Source and issue a revised demand within a period of two weeks.

The amounts, if any, deposited by the petitioner pursuant to the interim orders of the court shall be adjusted and if there is any sum in excess, the same may be refunded to the petitioner. If, on the other hand, further sums to be paid by the petitioner, petitioner shall pay the same within a period of two weeks from the date of demand.