# INDIAN ALUMINIUM CO. ETC. ETC v. STATE OF KERALA AND ORS

- **Citation:** [1996] 2 S.C.R. 23
- **Court:** Supreme Court of India
- **Decided:** 1996-02-02
- **Case number:** Civil Appeal No. 2770 of 1996
- **Bench:** K. Ramaswamy, G.B. Pattanaik
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/indian-aluminium-co-etc-etc-v-state-of-kerala-and-ors-13922
- **Pages:** 36

## Headnote

B
Kera/a Electricity Surcharge (Levy and Collection) Act (22 of
1989)-Duty on supply of electricity-Nature of-Word 'supply' in Section
3-Should receive liberal interpretation to include sale or consumption of
electlicity as envisaged in Entry 53 of State list.
c
Section I I-Validation-Constitutionality of-Levy and collection of
surcharg~Section 11 validating levy with retrospective effect--Wl1ether
provision is an anti-judicial powe1~Held, No-It is not an incursion on
judicial power of Cowt-Section 11 is a valid piece of legislation as pmt of
D
the Act.
Section 3-1984 Act does not get eclipsed with passing of 1989 ActBoth the Acts operate harmoniously.
Constitution of India-Anicle 246, Sch. 7 List II, Entry 53-Taxes on E
consumption or sale of electricity-Wliether Kerala Electricity surcharge (Levy
and Collection) Act (22 of 1989) is one under Ently 53 of State List--Held,
yes.
The Central Excises and Salt Act, 1944 was amended to impose
Central Excise duty on electricity being supplied by State Electricity F
Boards. Consequently, to recoup that loss, the Government of Kerala
issued an order by which surcharge at the rate of 2.5 paise per unit of
electricity energy was levied on all supplies of electrical energy made by
the Kerala State Electricity Board (KSEB) either directly or through
licencees of Extra High Tension and High Tension consumers. SubG
sequently when the Government of India withdrew the levy of excise duty
on electricity, the Government of Kerala in supersession of its order dated
-
6.4.1979 notified the State Electricity Supply (Kerala State Electricity
Board and Licencees Area) Surcharge Order, 1984 effective from 1.0.1984.
Under that order all supplies of electrical energy made by KSEB were
liable to surcharge though excise duty was discontinued. The consumers H
23
24
SUPREME COURT REPORTS
[1996] 2 S.C.R.
A filed writ petitions challenging the validity of the 1984 O_i;der. Pending writ
petition, on 1.8.1988, the State Government discontinued the levy of surcharge by issuing an Ordinance called the Kerala Electricity Duty (Amendment) Ordinance, 1988 which later on became an enactment. The rate of
electricity duty was 30% of the price of energy which was revised to 10 paise
B per unit for HT consumers and 6.5 paise per unit for EHT consumers.
Subsequently the surcharge on the electricity duty of 10 paise per unit was
discontinued. On 27.9.1988, a Division Bench of the High Court in
Chakolas Spinning & Weaving Mills Ltd. v. K.S.E. Board, (1988) 2 KLT 680
issued a writ of mandamus directing refund of surcharge collected from
those writ petitioners before the High Court while holding that the levy of
C surcharge is in substance a compulsory exaction intended to enrich the
State and in effect partakes the character of a tax on electricity and that
the Government, acting as a delegate under the Kerala Essential Articles
Control Act, 1986, is not competent to impose any tax. The Kerala State
Electricity Supply (Kerala State Electricity Board and Licencees Area)
D Surcharge Order, 1984 was declared ultra vires the power of the State
Government. This judgment was confirmed by this Court dismissing the
I
E
F
Special Leave Petition in limine.
The Governor of Kerala, exercising power under Article 213 of the
Constitution issued Ordinance called the Kerala Electricity Surcharge
(Levy and Collection) Ordinance, 1989 which later on became Act 22 of
1989. Under the Act, the appellants were liable to pay 2.5 paise per unit of
electrical energy supplied. Writ petition filed by the appellants challenging
the same were dismissed. The High Court upheld the validity of the Act
and the Order. Hence these appeals by Special Leave. The appellants
contended that the Act of 1989 levying tax on supply of electrical energy
cannot be construed to be one made under Entry 53 of the State List and
tliat the word 'sale' and 'consumption' of electricity bear different connotations; that the State legislature having enacted the Electricity Dut

## Text

_Characters 0–39,806 of 91,539. This is a partial read: ask again with offset=39806 for what follows._

...........
INDIAN ALUMINIUM CO. ETC. ETC.
A
v.
STATE OF KERALA AND ORS.
FEBRUARY 2, 1996
[K. RAMASWAMY AND G.B. PATTANAIK, JJ.]
B
Kera/a Electricity Surcharge (Levy and Collection) Act (22 of
1989)-Duty on supply of electricity-Nature of-Word 'supply' in Section
3-Should receive liberal interpretation to include sale or consumption of
electlicity as envisaged in Entry 53 of State list.
c
Section I I-Validation-Constitutionality of-Levy and collection of
surcharg~Section 11 validating levy with retrospective effect--Wl1ether
provision is an anti-judicial powe1~Held, No-It is not an incursion on
judicial power of Cowt-Section 11 is a valid piece of legislation as pmt of
D
the Act.
Section 3-1984 Act does not get eclipsed with passing of 1989 ActBoth the Acts operate harmoniously.
Constitution of India-Anicle 246, Sch. 7 List II, Entry 53-Taxes on E
consumption or sale of electricity-Wliether Kerala Electricity surcharge (Levy
and Collection) Act (22 of 1989) is one under Ently 53 of State List--Held,
yes.
The Central Excises and Salt Act, 1944 was amended to impose
Central Excise duty on electricity being supplied by State Electricity F
Boards. Consequently, to recoup that loss, the Government of Kerala
issued an order by which surcharge at the rate of 2.5 paise per unit of
electricity energy was levied on all supplies of electrical energy made by
the Kerala State Electricity Board (KSEB) either directly or through
licencees of Extra High Tension and High Tension consumers. SubG
sequently when the Government of India withdrew the levy of excise duty
on electricity, the Government of Kerala in supersession of its order dated
-
6.4.1979 notified the State Electricity Supply (Kerala State Electricity
Board and Licencees Area) Surcharge Order, 1984 effective from 1.0.1984.
Under that order all supplies of electrical energy made by KSEB were
liable to surcharge though excise duty was discontinued. The consumers H
23
24
SUPREME COURT REPORTS
[1996] 2 S.C.R.
A filed writ petitions challenging the validity of the 1984 O_i;der. Pending writ
petition, on 1.8.1988, the State Government discontinued the levy of surcharge by issuing an Ordinance called the Kerala Electricity Duty (Amendment) Ordinance, 1988 which later on became an enactment. The rate of
electricity duty was 30% of the price of energy which was revised to 10 paise
B per unit for HT consumers and 6.5 paise per unit for EHT consumers.
Subsequently the surcharge on the electricity duty of 10 paise per unit was
discontinued. On 27.9.1988, a Division Bench of the High Court in
Chakolas Spinning & Weaving Mills Ltd. v. K.S.E. Board, (1988) 2 KLT 680
issued a writ of mandamus directing refund of surcharge collected from
those writ petitioners before the High Court while holding that the levy of
C surcharge is in substance a compulsory exaction intended to enrich the
State and in effect partakes the character of a tax on electricity and that
the Government, acting as a delegate under the Kerala Essential Articles
Control Act, 1986, is not competent to impose any tax. The Kerala State
Electricity Supply (Kerala State Electricity Board and Licencees Area)
D Surcharge Order, 1984 was declared ultra vires the power of the State
Government. This judgment was confirmed by this Court dismissing the
I
E
F
Special Leave Petition in limine.
The Governor of Kerala, exercising power under Article 213 of the
Constitution issued Ordinance called the Kerala Electricity Surcharge
(Levy and Collection) Ordinance, 1989 which later on became Act 22 of
1989. Under the Act, the appellants were liable to pay 2.5 paise per unit of
electrical energy supplied. Writ petition filed by the appellants challenging
the same were dismissed. The High Court upheld the validity of the Act
and the Order. Hence these appeals by Special Leave. The appellants
contended that the Act of 1989 levying tax on supply of electrical energy
cannot be construed to be one made under Entry 53 of the State List and
tliat the word 'sale' and 'consumption' of electricity bear different connotations; that the State legislature having enacted the Electricity Duty Act,
1963, imposing duty on electricity and discontinuing the levy of excise duty
G and the duty not having been passed on to the public exchequer, the Act
of 1989 was made only as a colourable device to avoid refund of excise duty
wrongly collected from the consumers; that the Act is not an amendment
to the Excise Act and if Excise Duty is construed to be a tax under Entry
53, the Electricity Duty Act, 1963 being earlier to the Act and both occupying the same field, as a special component of the tax on electricity, the later
H Act prevails over the earlier, therefore, the imposition is not a tax but duty
-
INDIAN ALUMINIUM CO. v. STATE
25
on supply of electricity and that the Act was not intended to be one made A
under Entry 53 bul one under Entry 27; that the legislature is devoid of
one power to enact Section 11 of the Act validating the levy with retrospective effect which is blatant encroachment upon judicial power of the
Courts, directly overruling the Judgment which was upheld by this Court.
The respondents submitted that the language employed and the title
to the Act are not conclusive as it is law on sale or consumption of
electricity and though the words 'sale or consumption' of electricity have
B
not expressly been used in the Act, being in the nature of a tax impost and
being a compulsory exaction for benefits to the State, it is a tax, the
legislature, therefore, enacted law under Entry 53 of List II of the 7th C
Schedule; that the legislature having competence to enact prospectively
and retrospectively, the Act is not a direct encroachment on the power of
judicial review but is one of legislative arrangement exercising its
sovereign power to amend the law and validate all past transactions and
-therefore, Section 11 is not ultra vires the Constitution; that there is no
invalidity in the impost as electricity duty, and the Electricity Duty Act and D
the Act operate harmoniously in the respectives fields without colliding in
their operation.
Dismissing the appeals, this Court
HELD : 1.1. The word 'sale or consumption' used in Entry 53 of the
State List and the Act made in exercise of the power under Article 246 (3)
of the Constitution, would receive wide interpretation so as to sustain the
constitutionality of the Act unless it is affirmatively established that the
E
Act is unconstitutional. As soon as the electrical energy is supplied to the
Consumers and is transmitted through the meter, consumption takes F
place simultaneously with the supply. There is no hiatus in its operation.
Simultaneously sale also takes place. Charge will be quantified at a later
date as per the recorded meter reading or escaped metering, as the case
may be. The word 'supply' used in the charging section 3 of the Kerala
Electricity Surcharge (Levy and Collection) Act, 1989 should, therefore, G
receive liberal interpretation to include sale or consumption of electricity
as envisaged in Entry 53 of the State List. [33-G-H]
1.2. Levy of duty goes into the public revenue. It is an impost, a
compulsory exaction for the benefit to the coffers of the public exchequer
and, therefore, it is a tax. The Act in pith and substance is a tax on sale H
26
SUPREME COURT REPORTS
[1996] 2 S.C.R.
A
or consumption of electrical energy. Therefore, the Act falls in Entry 53
and does not fall in Entry 27 of the State List of the Seventh Schedule to
the Constitution. The State legislature, therefore, validly enacted the Act
under Article 246(3) of the Constitution. (41-B]
B
Bisra Stone Lime Company Ltd. & Anr. Etc. v. 01issa State Electlicity
Board & Anr., (1976) 2 SCR 307; CIT v. K Slinivasan, (1972) 4 SCC 5261;
C. Rajagopalachariar v. State of Madras, AIR (1960) Mad 543; Sarojini Tea
Co. Pvt. Ltd. v. Collector of DiblUgarh, (1992) 2 SCC 156 and A.B. Abdul
Kadir & Ors. Etc. v. State of Kerala, (1976) 2 SCR 690, referred to.
C
2.1. The adjudication of the rights of the parties is the essential
judicial function. Legislature has to lay down the norms of conduct or
rules which will govern the parties and the transactions and require the
court to give effect to them. The Constitution delineated delicate balance
in the exercise of the sovereign power by the Legislature, Executive and
D Judiciary. In a democracy governed by rule of law, the Legislature exercises
the power under Article 245 and 246 ·and other companion Articles read
with the entries in the respective Lists in the Seventh Schedule to make
the law which includes power to amend the law. Courts in their concern
and endeavour to preserve judicial power equally must be guarded to
maintain the delicate balance devised by the Constitution between the
E three sovereign functionaries. In order that rule of law permeates to fulfil
constitutional objectives of establishing an egalitarian social order, the
respective sovereign functionaries need free-play in their joints so that the
march of social progress and order remain unimpeded. The smooth
balance built with delicacy must always be maintained. In its anxiety to
F
safeguard judicial power, it is unnecessary to be overjealous and conjure
up incursion into the judicial preserve invalidating the valid law competently made. The Court, therefore, nee~s to carefully scan the law to find
out: (a) whether the vice pointed out by the Court and invalidity suffered
by previous law is cured complying with the legal and constitutional
requirements; (b) whether the Legislature has competent to validate the
G law; (c) whether such validation is consistent with the rights guaranteed
in Part III of the Constitution. The Court does not have the power to
validate an invalid law or to legalise impost of tax illegally made and
collected or to remove 'the norm of invalidation or provide a remedy. These
are not judicial functions but the exclusive province of the Legislature.
H Therefore, they are not the encroachment on Judicial power. In exercising
/
INDIAN ALUMINIUM CO. v. STATE
27
legislative power, the Legislature by mere declaration, without anything A
more, cannot directly overrule, revise or override a judicial decision. It can
render judicial decision ineffective by enacting valid law on the topic within
its legislative field fundamentally altering or changing its character
retrospectively. The changed or altered conditions are such that the previous decision would not have been rendered by the Court, if those conditions had existed at the time of declaring the law as invalid. It is also
emppwered to give effect to retrospective legislation with a deeming date
or with effect from a particular, date. The Legislature can change the
character of the tax or duty from impermissible to permissible tax but the
tax or levy should answer such character and the Legislature is competent
B
to recover the invalid tax validating such a tax on removing the invalid C
base for recovery from the subject or remfer the recovery from the State
Ineffectual. It is competent for the legislature to enact the law with
retrospective effect and authorise its agencies to levy and collect the tax
on that basis, make the imposition of levy collected and recovery of the tax
made valid, notwithstanding the declaration by the Court or the direction D
given for recovery thereof. The legislature cannot directly overrule the
decision or make a direction as not binding on it but has power to make
the decision ineffective by removing the base on which the decision was
rendered, consistent with the law of the Constitution and the legislature
must have competence to do the same. [55-C-F, 56-A-D]
Shri Prithvi Cotton Mills Ltd. & Anr. v. Broach Borough Municipality
E
& Ors., (1970] 1 SCR 388; Patel Gordhandas Hargovindas v. Municipal
Commissioner, Ahmedabad, [1964] 2 SCR 608; State of Orissa v. Oriental
Paper Mills Ltd., AIR (1961) SC 1438; State of Bombay v. United Motors
India Ltd., [1953] SCR 1063; Mis Mis1i Lal Jain v. State of Orissa & Anr., F
[1977] 3 SCC 212; Mis Tirath Ram Rajindra Nath, Lucknow v. State of U.P.
&Anr., [1973] 3 SCC 585; 17ie Govt. of A.P. & Anr. v. Hindustan Machine
Tools Ltd., AIR (1975) SC 2037; l.N. Saksena v. The State of M.P., [1976]
3 SCR237; Hmi Singh & Ors. v. The Military Estate Officer andAnr., [1973]
1 SCR 515; A.B. Abdul Kadir & Ors. Etc. v. State of Kera/a, (1976] 2 SCC
690; A.B. Abdulkadir & Ors. v. 17ie State of Kera/a & Anr., [1962] Supp. 2 G
SCR 741; Central Coal Fields Ltd. v. Bhubaneswar Singh, [1984] 4 SCC 429;
Bhuvneswar Singh & Ors. v. Union of India, [1994] 6 SCC 77; Udai Ram
-Shanna v. Union of India, [1968] 3 SCR 41; Krishna Chandra Ganjopadhayaya v. Union of India, [1975] Supp. SCR 151; Hindustan Gum and
Chemical Ltd. v. State of Haryana, [1985] Supp. 2 SCR 630; Utkal Contrac- H
28 .
SUPREME COURT REPORTS
[1996) 2 S.C.R.
A
tors and Joine1y Pvt. Ltd. v. State of 01issa, [1988) 1 SCR 314; State of Olissa
& Anr. v. Gopal Chandra Rath & Ors., [1995) 6 SCC 242; Janapada Subha,
Clzlzindwara Etc. v. The Central Provinces Syndicate Ltd. & Anr. Etc., (1970)
3SCR145;Amalgamated Coalfields Ltd. v. Thelanapada Sabha Chindwara,
[1963) Supp. 1 SCR 172; The Municipal Corporation of the City of
B Ahmedabad & Anr. v. The new Shrock Spg. & Wvg., Co. Ltd. Etc. Etc., [1970)
2 SCC 280; New Manek Chowk Spinning & Weaving Mills Co., Ltd. & Ors.·
v. Municipal C01poration of the City of Ahmedabad & Ors., [1967) 2 SCR
678; State of Tamil Nadu & Anr. v. M. Rayappa Counder, AIR (1971) SC
231; Madan Mohan Pathak v. Union of India & Ors. Etc., [1978) 3 SCR
334; The Life Insurance C01poration of India v.D.J. Bahadur& Ors., [1981)
C 2SCR1083;A.V. Nachane &Anr. v. Union of India &Anr., [1982) 2 SCR
246; D. Cawasji & Co. Mysore v. State of Mysore & Anr., [1984) Supp. SCC
490; State of Ha1yana & Ors. v. Kamal Co-op. Fanners Society Ltd. & Ors.,
[1993) 2 SCC 363; In Re Cauve1y Water Disputes T1ibunal, [1993) Supp. 1
SCC 96 and S.R. Bhagwat & Ors. v. State of Mysore, [1995) 4 SCC 16,
D referred to.
2.2. In the instant case, the duty was collected under an order made
in exercise of Section 3 of the Essential articles Act and it was held to be
not a tax but a duty for the benefit of KSEB. That duty being a compulsory
exaction for the benefit ~f public exchequer is a tax. Duty on supply of
E electricity was declared to be additional burden and a levy within Entries
26 and 27 of List II, subject to Entry 33 of List III (Concurrent List). Duty
is an additional burden and partakes the character of a tax. Entry 53 of
List II (State List) empowers the State Legislature to impose tax on
consumption or sale of electricity. It is, therefore, a compulsory exaction
F
for the benefit of the Revenue. Therefore, it is an additional tax in the form
of a duty under the Act. The vice pointed out in Chakolas case has been
removed under the Act. Consequently, Section 11 validated the invalidity
pointed out in Chakolas case removing the base. In the altered situation,
the High Court would not have rendered Chakolas case under the Act. It
has made the writ issued in Chakolas case ineffective. Instead of refunding
G the duty illegally collected under invalid law, Section 11 validated the
illegal collections and directed the liability of the past transaction as valid
under the Act and also fastened liability on the consumers. In other words,
the effect of Section 11 is that the illegal collection made under invalid law
is to be retained and the same shall now stand validated under the Act.
H Thus considered, Section 11 is not an incursion on judicial power of the
\
(
.,.
INDIAN ALUMINIUM CO. v. STATE
29
Court and in a valid piece of legislation as part of the Act. [56-H, 57-A-CJ A
2.3. Under the Electricity Act which admittedly has been enacted
under Entry 53 of the State List, the rate of duty, as amended, is 10 percent.
Under the Act duty is an additional impost in the nature of compulsory
exaction for the benefit of public exchequer. Levy and collection of addiB
tional duty is not discontinued. The Act is a complete code in itself and
operates retrospectively. Therefore, both the Acts operate harmoniously
and do not collide in their operation since 1963 Act is the principal Act
and the Act is in addition to, but not in substitution of the principal Act.
Therefore, 1963 Act does not get eclipsed with the passing of the Act of
1989. [57-G-H]
C
3. When the vires of an enactment is challenged, it is very difficult to
ascertain the limits of the legislative power. Therefore, the controversy must
be resolved as far as possible, in favour of the legislative body putting the
most liberal construction upon the relevant legislative entry so that it may D
have the widest amplitude. The Court is required to look at the substance of
the legislation. It is equally settled law that in order to determine whether a
tax statute is within the competence of the legislature, it is necessary to
determine the nature of the tax and whether the legislature had power to
enact such a law. The primary guidance for this purpose is to be gathered
from the charging section. It is the substance of the impost and not the form E
that determines the nature ofihe tax. In all cases, therefore, the name given
by the legislature in the impugned enactment is not conclusive on the
question of its competence to make it. It is the pith and substance of the
legislation which decides the matter which needs to be decided with reference to the provisions of the statute itself. [37-C-D, HJ
F
Navinchandra Mafatlal v. The Commissioner of Income Tax, Bombay,
[1995) 1 SCR 829; Banarsi Das Etc. v. The Wealth Tax Officer; Spl. Circle,
Meerut, AIR (1965) SC 1387 Baldeo Singh v. Commissioner of Income Tax
Delhi and Ajmer, AIR (1966) AC 736; M/s. Bumiah Construction Co. v. The
State of 01issa & Ors., AIR (1962) SC 1320; The Madurai District Central G
Co-operative Bank Ltd. v. The Third Income Tax Officer, Madurai , AIR
(1975) SC 2016; Hoechst Phamiacecuticals Ltd. & Anr. Etc. v. State of Bihar
& Ors., [1983) 3 SCR 130; District Board, Delira Dun v. Damodar Dutt, ILR
(1944) All. 611; Pandit Ram Narain v. State of U.P. & Ors., (1956) SCR 664;
. Chaturbhai M. Patel v. Union of India & Or.r.;-AIR (1960) SC 425; Northern H
\
-
30
SUPREME COURT REPORTS
[1996] 2 S.C.R.
A India Caterers (India) Ltd. v. Lt. Govemor of Delhi, [1979) 1 SCR 557 and
Mis Gannon Dunkerley & Co. & Ors. v. State of Rajasthan & Ors., [1993) 1
sec 364, referred to.
B
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2770 of
1996 Etc. Etc.
From the Judgment and Order dated 22.11.94 of the Kerala High
Court in O.P. No. 5957 of 1889.
K.K. Venugopal, M. Pathros Matthai, R.F. Nariman, K. Sukumaran
·
T.L. Iyer and G. Viswanath Iyer, K.R. Nambiar, K.V. Vishwanathan, Shaju
C Francis, C.N. Sreekumar, M. L. Lahoty, Prem Sunder Jha, Pawan Sharma
Ms. Sangeeta Pandey, R.B. Hathikhanawala, G. Prakash, M.T. George,
T.G.N, Nair, for the appearing parties.
D
E
The Judgment of the Court was delivered by
RAMASWAMY, J. Leave granted in all the special leave petitions.
This batch of appeals by special leave arises from common judgment
dated November 22, 1994 of the Kerala High Court made in O.P. No. 5957
of 1987 and batch.
By Section 36 of Finance Act 1978, the Central excise and Salt act,
1944 [for short the "Excise Act) was amended to impose central excise duty
on electricity under Item 11-E in the 1st Schedule to the Excise Act and
fixed 2 paise per kilo watt of electricity .unit. Consequently, the Ker ala State
Electricity Board (KSEB) was liable to pay excise duty on electricity
F generated and produced by it. To recoup that loss, the Government of
Kerala, exercising its power under Section 3 of the Kerala Essential Articles Control (Temporary Powers) Act 1961, issued an order. By clause
( 4) of the said order, surcharge at the rate of 2.5 paise per unit of electrical
energy was levied on all supplies of electrical energy made by the KSEB
either directly or through licensees of Extra High Tension (EHT) and
G High Tension (HT) consumers. Thereunder, the licensees were allowed to
retain 1 % of the Amount collected as collection charges. On October 1,
1984, the Government of India had withdrawn the levy of excise duty on
electricity. The Government of Kerala in supersession of its Order dated
April 6, 1979 had notified the State Electricity Supply (Kerala State
H Electricity Board and Licensees Area) Surcharge Order, 1984 ·effective
I
INDIAN ALUMINIUM CO. v. STATE [K. RAMASWAMY,J.)
31
from October 1, 1984. Under clause (4) of the said Order all supplies of A
electrical energy made by KSEB either directly or through licensees, were
liable to surcharge at the rate fixed at 2.5 paise per unit. In the explanatory
note it was stated that though excise duty was discontinued, the State
Government desired to continue the levy of surcharge. The EHT and HT
consumers had filed writ petitions challenging the validity of the 1984
Order. Pending writ petitions, on August 1, 1988, the State Government
discontinued the levy of surcharge with effect from that date by issuing an
Ordinance called the Kerala Electricity Duty (Amendment) Ordinance,
B
1988 which later on became an enactment. The rate of electricity duty was
30% of the price of energy. Later, it was revised to 10 paise per unit of
HT consumers and 6.5 paise per unit for EHT consumers. After a representation was made through the Association of the HT and EHT consumers, the Government of Kerala decided to discontinue the surcharge
on the electricity duty of 10 paise per unit.. On September 27, 1988, a
Division Bench of the High Court in Chakolas Spinning & Weaving Mills
c
Ltd. v. KS.E. Board, (1988) 2 KLT 680 held that the levy of surcharge is D
in substance a compulsory exaction intended to enrich the coffers of the
State and in effect partakes the character of a tax on electricity. The
Government, acting as a delegate under the Kerala Essential Articles
Control Act, 1986 (Act 16 of 1986), is not competent to impose any tax. A
writ of mandamus was issued directing refund of surcharge collected from
those writ petitioners before the High Court. The Kerala State Electricity E
supply (Kerala State Electricity Board and Licensees Area) Surcharge
Order, 1984 was declared ultra vires the power of the State Government.
The said judgment was confirmed by this Court dismissing the Special
Leave Petition in limine.
At this stage, it may be necessary to mention that the Essential
Articles (Control) Act, 1963 was amended and act 13 of 1988 was enacted.
It is also relevant to note that exercising the power under Entry 53 of list
F
11 of the seventh schedule, the Kerala State legislature had enacted Kerala
Electricity Duty Act, 1963 and Rules were made to levy electricity duty at
varying rates. Orders were passed by this Court on April 13, 1989 dismissG
ing the SLP (C) Nos. 4256-66 of 1989. The Governor of Kerala, exercising
power under Article 213 of the Constitution issued Ordinance called the
Kerala Electricity Surcharge (Levy and Collection) Ordinance, 1989 which
later on became enactment, viz., Act 22 of 1989 (for short, "the Act").
Under the Act, the appellants are liable to pay 2.5 paise per unit of H
32
SUPREME COURT REPORTS
[1996) 2 S.C.R.
A
electrical energy supplied. The appellants challenged the same by filing the
writ petitions. The High Court upheld the validity of the Act and the Order.
Thus these appeals by special leave.
Shri K.K. Venugopal learned senior counsel for the first appellant
B contended that the Act levii;:s tax on supply of electrical energy. It is not a
tax either on sale or consumption of electrical energy. Entries 26 and 27
of List II (State List) of the Seventh Schedule to the Constitution empower
the State legislature, subject to Entry 33 of List III (ConcurrenJ List) to
enact law empowering levy of surcharge on supply and distribution of
goods and trade and commerce therein. Entry 53 of the State List emC powers the State legislature to enact the law on sale or consumption of
electricity. Having made the law under Entry 26 or 27, using the appropriate language for levy and collection of excise duty on supply of
electricity, the Act cannot be construed to be one made under Entry 53 of
the State List. He further contended that the word 'supRly' has its own
D connotation. Equally, 'sale' and 'consumption' of electricity bear different
connotations. The State legislature having enacted the Electricity Duty Act,
1963, imposes duty on electricity @ 30% and reduced it to 10% by later
amendment and discontinued the levy of excise duty from August 1, 1988,
and the so-called duty not having been passed on to the public exchequer,
the Act was made only as a colourable device to avoid refund of excise.
E duty to the tune of Rs. 15 crores wrongly collected from the consumers.
1
The Act admittedly is not an amendment to the Excise Act. The excise
duty is levied on supply of electricity. If excise duty is construed to be a
tax under Entry 53, the Electricity Duty Act, 1963 being earlier to the Act
and both occupying the same filed, as a special component of the tax on
p
electricity, the later act prevails over the earlier. Therefore, the State
legisl~ture did not intend to have the earlier enactment, viz., Electricity
Duty Act, superseded by the Act which imposes levy of only 2.5 paise per
unit of electrical energy. Therefore, the imposition is not a tax but a duty
on supply of electricity. This deduction could be drawn from the language
employed in the Act itself. Otherwise, nothing prevented the legislature to
G use such a language as impost on sale and consumption of electricity. The
express language employed shows that they intended to levy duty on supply
of electricity. The Act was not intended to be one made under Entry 53
but one under Entry 27. He sought support from previous judgments of
this Court upholding the power of the legislature under Entries 21 and 26
H imposing duty on supply of electric energy in 1968 Order From the State
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INDIAN ALUMINIUM CO. v. STATE [K. RAMASWAMY, J.]
33
of Kerala and under similar provisions in other States.
A
Shri R.F. Nariman, learned counsel for some other appellants contended that the legislature is devoid of power to enact Section 11 of the
Act validating the levy with retrospective effect which is blatant encroachment upon judicial power of the Courts. Judicial review being basic structure of the Constitution, Section 11 is ultra vires the Constitution. Even B
assuming that it could enact a law after Chakolas' case (supra), it could do
so only prospectively but it could not nullify the writ of mandamus issued
by the High Court. The law is anti judgment validation directly overruling
the judgment which was upheld by this Court. Therefore, Section 11 is
unconstitutional. He contended that after M.M. Pathak's case (infra), the C
legislature has no power to amend the law.
Shri K.V. Vishwanathan, learned counsel for some other appellants
contended that the effect of Section 11 would be that any judgment to be
rendered by the Court in future would be nullified and in effect would
tantamount to legislative declaration prohibiting judicial review, a basic D
•' feature of the Constitution. In other words, the legislature adjudicates upon
the disputes and given a legislative declaration of the law which is impermissible under the scheme of the distribution of the sovereign powers
between the legislature, the executive and the judiciary.
Shri T.L. Vishwanatha Iyer, learned senior counsel for the State
contended that the language employed and the title of the Act are not
conclusive. Legislature derives power from Entry 53 to make the Act. It is
law on sale or consumption of electricity. In Chakolas case (supra) the
Division Bench of the High Court declared that impost is compulsory
exaction for the benefits tO the State and had declared that the executive
was not competent to issue the predecessor Order under the Essential
Articles (Control) Act. Section 3 thereof had not given express power to
E
F
the Government to levy and collect excise duty. Consequently, the levy was
declared ultra vires. The legislature acted thereon and enacted the Act.
Though the words "sale or consumption" of electricity have not expressly G
been used in the Act and repeated as excise duty on supply of electricity
duty, being in the nature of a tax impost and being a compulsory exaction
for benefits to the State, it is a tax. The legislature, therefore, enacted law
under Entry 53 of List II of the 7th Schedule.
There is no hiatus between supply and consumption of electricity. As H
34
SUPREME COURT REPORTS
[1996] 2 S.C.R.
A soon as the electrical energy passes of from the meter of the consumer,
electricity is consumed. From the moment of consumption it becomes sale.
It is, therefore, in substance a tax on consumption and sale electricity. He
further contended that the legislature having competence to enact the law,
equally has power to enact prospectively and retrospectively. The foundaB tion that it is a duty levied under the Order, as held in Chakolas case, had
been removed making it a tax, the base of invalidity pointed out by the
Court had been removed by enacting the Act and having removed the vice
the Act has given retrospective effect to it. It is not a direct encroachment
on the power of judicial review but is one of legislative arrangement
exercising its sovereign power to amend the law and validate all past
C transactions. Therefore, Section 11 is not ultra vires the Constitution.
The legislature did not put any express embargo on the power of
judicial review nor a declaration to that effect finds place in any of the
provisions of the Act. Though it is open to the judiciary to declare the law,
D the effect thereof could suitably be removed. Resultantly, there is no
invalidity in .the impost as electricity duty. The Electricity Duty .Act and
the Act operate in the same field. The former as principal Act; the Act is
in the nature of an enactment imposing tax on duty. Both operate harmoniously in the respective fields without colliding in their operation.
E
Shri G. Vishwanatha Iyer for the Board contended that the KSEB
had been receiving substantial financial assistance from the Government
and the impost and the collection of the tax went to the credit of the public
exchequer except 1 % in the form of collection charges which goes to the
account of KSEB. Instead of granting refund to the appellants .the State
F
retrospectively enacted the law. The validation Act merely intended to
retain the collection already made not only from the appellants but also
from every other consumer. Retrospective validation was .made to avoid
cumbersome process of refund and recollection. There is no embargo on
the exercise of the power of judicial review either by this Court or the
High Court.
G
The primary question, therefore, is: whether the impugned Act
enacted by the State legislature is one under Entry 53 of the State List, viz.,
"Taxes on the consumption or sale of electricity". Indisputably, the title of
the Act as well as the charging Section 3 employ the words "duty on supply
H of electricity. Under Article 246(3) of the Constitution, every State legisla-
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INDIAN ALUMINIUM CO. v. STA TE [K. RAMASWAMY, J.]
35
ture has explicit power to make law for that State with respect to the A
matters enumerated in List II (State List) of the Seventh Schedule to the
Constitution. The State's power to impose tax is derived from the Constitution. The Entries in the three Lists of the Seventh Schedule are not power
of legislation but merely fields of legislation. The power is derived under
Article 246 and other related Articles. If the Constitution. The legislative
fields are of enabling character designed to define and delimit the respective areas of legislative competence of the respective legislatures. There is
neither implied restriction imposed on the legislature nor is any duly
prescribed to exercise that legislative power in a particular manner. But
the legislature must be subject to the limitations prescribed under the
Constitution.
In Navinchandra Mafatlal v. The Commissioner of Income-Tax, Bombay, [1955] 1 SCR 829 at 836-37, the controversy was whether the expresB
c
sion "capital gain" used in the income-tax Act, inserted by Section 12B of
Income-tax Act, 1922 and Government of India Act, 1935, includes "inD
come" under Entry 54 of List I (Union List). A Constitution Bench of this
Court had held that the cardinal rule of interpretation is that the words
should be read in their ordinary, natural and grammatical meaning subject
to this rider that in construing the words in a constitutional enactment
conferring legislative power, the most liberal construction should be put
upon the words so that the same may have effect in their widest amplitude. E
It was accordingly held that the "capital gain" is an income under that Act.
In Banarasi Das Etc. v. The Wealth Tax Officer, Spl. Circle, Meernt,
AIR (1965) SC 1387 at 1389, another Constitution Bench, interpreting the
word 'individuals' as used in Entry 86 of List I and the Wealth Tax Act, F
while dealing with the question whether Hindu family would include an
individual, this Court reiterated that the words used in the Entries of the
Seventh Schedule must receive their widest interpretation. It was further
held that it would be unreasonable to approach the task of interpretation
in a narrow or restrictive manner.
In Baldeo Singh v. Commissioner of Income-tax Delhi & Ajmer, AIR
(1966) SC 736 at 742 interpreting the provisions of Income-tax Act, 1922
this Court had held that payment of dividend is a form of income. The Act
was made to prevent avoidance of super-tax. Therefore, the entries in that
G
Act and the words used thereunder must be construed liberally to prevent H
36
SUPREME COURT REPORTS
[1996] 2 S.C.R.
A
avoidance of the tax.
B
In Mis Bunnah Constmction Co. v. The State of Orissa & Ors. AIR
(1962) SC 1320, after this Court had decided in State of Olissa v. Oriental
Paper Mills Ltd., AIR (1961) SC 1438, the Orissa Sales Tax Act, 1947 was
ainended and Section 14 restricting grant of refund of tax inappropriately
and illegally collected, was challenged. This Court had held that "if the
power to legislate in respect of tax comprehends the power to legislate "in
respect of refund of tax improperly or illegally collected", imposition of
restrictions on the exercise of the right to claim refund will not be beyond
the COltlpetence of the Legislature. Granting refund of tax improperly or
C illegally collected and the restriction on the exercise of that right are both
ancillary or subsidiary mattes relating to the primary heard of tax on sale
of goods". The provisions of Section 14 of the Act were, therefore, not held
ultra vires the State Legislature.
D
In The Madurai District Central Co-operative Bank Ltd. v. The T7iird
Income Tax Officer, Madurai, AIR (1975) SC 2016, when the annuity
scheme was enacted in the Finance Act, competence of the Parliament in
that regard was questioned. This Court had that Income-tax Act is a
permanent statute. Finance Act passed every year prescribes the rates at
which the tax is to be charged under the income-tax Act. The annuity is
E
only one of the benefits for deduction of the income-tax in calculation of
the income chargeable to tax. While so interpreting, this Court had given
wide interpretation and upheld the power of the Parliament under Article
246(1) read with Entry 82 of List I.
F
In Hoechst Phannaceuticals Ltd. & Anr. v. State of Bihar & Ors.,
[1983] 3 SCR 130 relied on by Shri Venugopal, the question arose whether
levy of surcharge on sales-tax and prohibition from passing on the liability
thereof to purchasers was void in terms of the opening words of Article
246 (3) of the Constitution for being in conflict with the Drugs (Price
Control) Order made under Section 3 of the essential Commodities Act.
G In interpreting the respective legislative fields of the Parliament and the
State legislature (Concurrent List), with a view to subserve the power of
the respective legislatures to enact law, restrictive interpretation was
adopted by a three-Judge Bench of this Court. It, therefore, cannot be
understood that in respect of taxing statute, restrictive interpretation wduld
H be put up.
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INDIAN ALUMINIUM CO. v. STAIB [K RAMASWAMY, J.]
37
In view of the legal position referred to hereinbefore, it must be held A
that the words 'sale or consumption' used in entry 53 of the State list and
the Act made in exercise of the power under Article 246(3) of the Constitution, would receive wide interpretation so as to sustain the constitutionality of the Act unless it is affirmatively established that the act is
unconstitutional.
When the vires of an enactment is challenged, it is very difficult to
ascertain the limits of the legislative power. Therefore, the controversy
must be resolved as far as possible, in favour of the legislative body putting
B
the most liberal construction upon the relevant legislative entry so that it
may have the widest amplitude. The Court is required to look at the C
substance of the legislation. It is equally settled law that in order to
determine whether a tax statute is within the competence of the legislature,
it is necessary to determine the nature of the tax and whether the legislature had power to enact such a law. The primary guidance for this purpose
is to be gathered from the charging section. It is the substance of the impost D
and not the form that determines the nature of the tax.
In District Board, Delira Dun v. Damodar Dutt, ILR (1944) All. 611,
the Allahabad High Court, while considering the constitutionality of
Professions Tax Limitation Act, 1941 and Section 2 thereof, had held that
the name given to a tax did not matter. What had to be considered was the E
pith and substance of it. The High Court had held that in pith and
substance the impugned tax was one which attracted the provisions of
Section 2 of that Act. That ratio was upheld by this Court in Pandit Ram
Narain v. State of U.P. & Ors., [1956] SCR 664 at 673 and it was held that
the title of the Act and the words used therein were not conclusive but the p
pith and substance of the statute needed to be looked into.
The doctrine of pith and substance, though applied in determining
the true character of the statutes under List III (Concurrent List) of the
respective legislative topics of the State legislature and Parliament, it was G
extended for consideration of the true character of the legislation even
under the same legislative list. In all cases, therefore, the name given by
the legislature in the impugned enactment is not conclusive on the question
of its competence to make it. It is the pith and substance of the legislation
which decides the matter which needs to be decided with reference to the
provisions of the statute itself.
H
A
B
38
SUPREME COURT REPORTS
[1996) 2 S.C.R.
In Chaturbhai M. Patel v. Union of India & Ors., AIR 1960 SC 425,
another Constitution Bench had held that in every case where the legislative competence of the legislature in regard to a particular enactment was
challenged with reference to the entries in the various lists, it was necessary
to examine the pith and substance of the Act and if the matter came
substantially within an item in the Central List, it could not be deemed to
come within an entry in the provincial list.
The question, therefore, is : whether in pith and substance the Act
is one imposing tax on the sale or consumption of electrical energy supplied
to the consumer? It is true that in Northem India Caterers (India Ltd. v. Lt.
C Govemor of Delhi, [1979) 1 SCR 557 and Mis. Gannon Dunkerley & Co. &
Ors. v.