# ST A TE OF A.P v. NATIONAL THERMAL POWER CORPORATION LTD. AND ORS

- **Citation:** [2002] 3 S.C.R. 278
- **Court:** Supreme Court of India
- **Decided:** 2002-04-22
- **Bench:** S.P. Bharucha Cj, R.C. Lahoti, N. Santosh Hegde, Ruma Pal, Arijit Pasayat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/st-a-te-of-a-p-v-national-thermal-power-corporation-ltd-and-ors-18604
- **Pages:** 29

## Headnote

Constitution of India, 1950:
Article 245, 248, 269(l)(g) and (3), 286, 287, 288, Seventh Schedule
List I Entry 92A, List II Entries 53 and 54-Sale of electricity occasioning
inter-State movement of electricity-Levy of tax on-Competence of State
Legi:;/ature to enact law to levy tax-Held, electricity being goods shall be
subject to provisions of Entry 92A of List I-Such sale would amount to interD State sale-Jn view of prohibition by Articles 269 and 286 such Legislation is
beyond legislative competence of State-Legislation having extra territorial
operation can be enacted only by Parliament and not by S.'ate LegislatureArticles 287 and 288 do not exclude applicability of other Articles where in
electricity has been dealt with as goods-Central Sales Tax Act, 1956-Section
53-Andhra Pradesh Electricity Duty Act, 1939-Section 3-MP. Electricity
E Duty Act, 1949-Section 2(b)-MP. Upkaar Andhiniyam, 1981-Section 3(1)-
Constitution (Sixth Amendment) Act, 1956.
7th Schedule-A piece of legislation need not necessarily fall within the
scope of one entry alone-More than one entry may overlap to cover the
F subject matter of a single piece of legislation.
G
H
7th Schedule-List I, Entry 92A, List II Entries 53 and 54-Entries
should be read together-But to the extent of sale of electricity for consumption
outside the State, the electricity being goods, shall be subject to provisions of
Entry 92A of List I.
Central Sales Tax Act, 1956-Section 3-Electricity-Sale of-Generation
of in one State-Consumption of in another State-Held, such sale on account
of instantaneous movement from one State to another would amount to interState sale-Hence, would be inter-State trade squarely covered by the Act.
M.P. Electricity Duty Act, 1949-Section 2(a) 'Consumer'-Definition
278
•
..
.. f •
-
STATE v. N.T.P.C. LTD.
279
of-Held, the definition has to be read down as including within it only such A
persons who receive the electricity for consumption or distribution for
consumption within the State-Otherwise the definition would be rendered
ultra vires Articles 286 and 269 of the Constitution read with Section 3 of
Central Sales Tax Act, 1956-MP. Upkaar Adhiniyam, 1981.
Doctrine:
B
Doctrine of Reading Down-Applicability of
The question for consideration in the present appeal was whether sales
of energy, by respondent-National Thermal Power Corporation Limited
(NTPq generated within the State of Andhra Pradesh and sold to several C
Electricity Boards situated outside the State pursuant to contracts of sales
oceasioning inter-State movement of electricity, attracted the incidence of
taxation under Section 3 of Andhra Pradesh Electricity Duty Act, 1939; and
whether the sale can be construed an inter-State sale or intra state sale.
The connected transferred petition wherein tax and cess was levied D
under M.P. Electricity Duty Act, 1949 and under Madhya Pradesh Upkar
Adhiniyam, 1981, also raised similar questions.
States contended that so far as sale of electricity is concerned, even if
such sale takes place in the course of inter-State trade or commerce, the State E
can legislate to tax such sale ifthat sale can be held to have taken place within
the territory of that State or if adequate territorial nexus is established between
the transaction and State Legislation; that omission to amend Entry 53 in
List II of 7th Schedule of the Constitution by not making it subject to the
provisions of Entry 92A of List I of 7th Schedule by Constitution's Sixth
Amendment was deliberate and, therefore, the restriction placed only in Entry F
54 by making it subject to the provisions of Entry 92A of List 3 should not
be read in Entry 53; and the subject of electricity since has been specifically
dealt with by Article 287 and 288 of the Constitution, therefore, by implieation
articles other than 287 and 288 should not be read as dealing with electricity.
Dismissing the appeal and allowing the transferred petition, the Court G
HELD: l.l. Where sale of electricity takes place in the

## Text

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A
B
c
ST A TE OF A.P.
v.
NATIONAL THERMAL POWER CORPORATION LTD. AND ORS.
APRIL 22, 2002
[S.P. BHARUCHA CJ., R.C. LAHOTI, N. SANTOSH HEGDE,
RUMA PAL AND ARIJIT PASAYAT, JJ.]
Constitution of India, 1950:
Article 245, 248, 269(l)(g) and (3), 286, 287, 288, Seventh Schedule
List I Entry 92A, List II Entries 53 and 54-Sale of electricity occasioning
inter-State movement of electricity-Levy of tax on-Competence of State
Legi:;/ature to enact law to levy tax-Held, electricity being goods shall be
subject to provisions of Entry 92A of List I-Such sale would amount to interD State sale-Jn view of prohibition by Articles 269 and 286 such Legislation is
beyond legislative competence of State-Legislation having extra territorial
operation can be enacted only by Parliament and not by S.'ate LegislatureArticles 287 and 288 do not exclude applicability of other Articles where in
electricity has been dealt with as goods-Central Sales Tax Act, 1956-Section
53-Andhra Pradesh Electricity Duty Act, 1939-Section 3-MP. Electricity
E Duty Act, 1949-Section 2(b)-MP. Upkaar Andhiniyam, 1981-Section 3(1)-
Constitution (Sixth Amendment) Act, 1956.
7th Schedule-A piece of legislation need not necessarily fall within the
scope of one entry alone-More than one entry may overlap to cover the
F subject matter of a single piece of legislation.
G
H
7th Schedule-List I, Entry 92A, List II Entries 53 and 54-Entries
should be read together-But to the extent of sale of electricity for consumption
outside the State, the electricity being goods, shall be subject to provisions of
Entry 92A of List I.
Central Sales Tax Act, 1956-Section 3-Electricity-Sale of-Generation
of in one State-Consumption of in another State-Held, such sale on account
of instantaneous movement from one State to another would amount to interState sale-Hence, would be inter-State trade squarely covered by the Act.
M.P. Electricity Duty Act, 1949-Section 2(a) 'Consumer'-Definition
278
•
..
.. f •
-
STATE v. N.T.P.C. LTD.
279
of-Held, the definition has to be read down as including within it only such A
persons who receive the electricity for consumption or distribution for
consumption within the State-Otherwise the definition would be rendered
ultra vires Articles 286 and 269 of the Constitution read with Section 3 of
Central Sales Tax Act, 1956-MP. Upkaar Adhiniyam, 1981.
Doctrine:
B
Doctrine of Reading Down-Applicability of
The question for consideration in the present appeal was whether sales
of energy, by respondent-National Thermal Power Corporation Limited
(NTPq generated within the State of Andhra Pradesh and sold to several C
Electricity Boards situated outside the State pursuant to contracts of sales
oceasioning inter-State movement of electricity, attracted the incidence of
taxation under Section 3 of Andhra Pradesh Electricity Duty Act, 1939; and
whether the sale can be construed an inter-State sale or intra state sale.
The connected transferred petition wherein tax and cess was levied D
under M.P. Electricity Duty Act, 1949 and under Madhya Pradesh Upkar
Adhiniyam, 1981, also raised similar questions.
States contended that so far as sale of electricity is concerned, even if
such sale takes place in the course of inter-State trade or commerce, the State E
can legislate to tax such sale ifthat sale can be held to have taken place within
the territory of that State or if adequate territorial nexus is established between
the transaction and State Legislation; that omission to amend Entry 53 in
List II of 7th Schedule of the Constitution by not making it subject to the
provisions of Entry 92A of List I of 7th Schedule by Constitution's Sixth
Amendment was deliberate and, therefore, the restriction placed only in Entry F
54 by making it subject to the provisions of Entry 92A of List 3 should not
be read in Entry 53; and the subject of electricity since has been specifically
dealt with by Article 287 and 288 of the Constitution, therefore, by implieation
articles other than 287 and 288 should not be read as dealing with electricity.
Dismissing the appeal and allowing the transferred petition, the Court G
HELD: l.l. Where sale of electricity takes place in the courses of interstate trade or commerce, the State cannot legislate to tax such sale. [302-B)
1.2. Electricity is dealt as goods, the property whereof, is that. the
production (generation), transmission, delivery and consumption are H
280
SUPREME COURT REPORTS
(2002] 3 S.C.R.
A simultaneous, almost instantaneous. Electricity as goods comes into existence
and is consumed simultaneously; the event of sale in the sense of transferring
property in the goods merely intervenes as step between generation and
consumption. In such a case when the generation takes place in one State
wherefrom it is supplied and it is received in another State where it is
B consumed, the entire transaction is one and can be nothing else excepting an
inter-State sale on account of instantaneous movement of goods from one State
to another occasioned by the sale or purchase of goods, squarely covered by
Section 3 of Central Sales Tax Act [304-F, G]
Commissioner of Sales Tax, Madhya Pradesh, Indore v. Madhya Pradesh
C Electricity Board, Jabalpur, [1969) 2 SCR 939 and Indian Aluminium Co. etc.
etc: v. State of Keral;i and Ors., [1966) 7 SCC 637, relied on.
Spens!ev v. Lancashire Ins. Co. 54 Wis. 433, 442, 11 NW 894, referred
to.
D
Aiyar's Law Lexicon (Second Edition, 2000), referred to.
1.3. Tax on the sale or purchase of goods including electricity but
excluding newspapers shall fall within Entry 54 and shall be subject to
provisions of Entry 92A of List I. Taxes on the consumption or sale for
consumption of electricity within the meaning of Entry 53 must be
E consumption within the State and not beyond the territory of the State. Any
other sale of electricity shall continue to be subject to the limits provided by
Entry 54. Even purchase of electricity would be available for taxation which
it would not be if electricity was not includible in the meaning of term 'goods'.
A piece of legislation need not necessarily fall within the scope of one. entry
F alone; more than one entry may overlap to cover the subject matter of a single
piece of legislation. A bare consumption of electricity even by one who
generates the same may be liable to be taxed by reference to Entry 53 and if
the State Legislature may choose to impose tax on .consumption of electricity
by the one who generates it, such tax would not be deemed to be a tax
necessarily on manufacture or production or a duty of excise.
G
[299-F, G, H; 300-A]
Jiyajee Rao Cotton Mills Ltd, Birlanagar, Gwalior v. State of Madhya
Pradesh, [1962) Supp. 1SCR282, followed.
1.4. A mere consumption of goods (other than electricity) not
H accompanied by purchase or sale would not be taxable under Entry 54 because
) -
'( ,
...
_,
STATE v. N.T.P.C. LTD.
281
it does not provide for taxes on the consumption and Entry S3 does not speak A
of goods other than electricity. Thus entries S3 and 54 can be and must be
read together and to the extent ofsale of electricity for c,onsumption outside
the State, electricity being goods, shall also be subject to provisions of Entry
92A of List I. This is the best way of reading the two entries. [300-B, CJ
Calcutta Gas Co. Ltd v. The State of West Bengal and Ors., [1962) Suppl. B
3 SCR 1, referred to.
C.P. Motor Spirit Act re. AIR (1939) FC, 131, referred to.
1.S. The prohibition which is imposed by Article 286(1) of the
Constitution is independent of the legislative entries in Seventh Schedule. Bans C
imposed by Articles 286 and 269 on the taxation powers of the State are
independent and separate and must be got over before a State legislature can
impose tax on transactions of sale or purchase of goods. Such ban would
operate by its own force and irrespective of the language in which an Entry
in List II of Seventh Schedule has been couched. The dimension given to field D
of legislation by the language of an Entry in List-II Seventh Schedule shall
always remain subject to the limits of constitutional empowerment to legislate
and can never afford to spill over the barriers created by the Constitution.
The power of State Legislature to enact law to levy tax by reference to List
II of the Seventh Schedule has two limitations: one, arising out of the entry
itself; and the other flowing from the restriction embodied in the Constitution. E
In view of Section 3 1>fthe Central Sales Tax, 1956 all that has to be seen is
whether the sale or purchase (a) occasions the movement of goods from one
State to another; or (b) is effected by a transfer of documents of title to the
goods during their movement from one State to another. If the transaction
of sale satisfies any one of the requirements it shall be deemed to be a sale or F
purchase of goods in the course of inter-state trade or commerce and by virtue
of Articles 269 and 286 of the Constitution the same shall be beyond the
legislative competence of a State to tax without regard to the fact whet(ler
such a prohibition is spelled out by the description of a legislative entry in
Seventh Schedule or not [302-C-H; 303-A)
Bengal Immunity Company Limited v. The State of Bihar and Ors., [19SS)
2 SCR 603 and Ram Narain Sons Ltd and Ors. v. Asstt. Commissioner o/Sales
Tax and Ors .• [19SS) 2 SCR 483, followed.
Tata Iron and Steel Co. Ltd Bombayv.S.R. Sarkar and Ors., (1961] l SCR
G
379 (at pages 387 and 388) and 20th Century Finance Corporation Ltd and H
282
SUPREME COURT REPORTS
[2002] 3 S.C.R.
A Anr. v. State of Maharashtra, [2000) 6 sec, referred to.
1.6. Several entries in the three lists of Seventh Schedule are legislative
heads ~r fields of legislation and not the source of legislative empowerment.
Competence to legislate has to be traced to the Constitution. The division of
powers between Parliament and the State Legislatures to legislate by reference
B to territorial limits is defined by Article 245. The subject matters with respect
to which those powers can be exercised, are enumerated in the several entries
divided into three groups as three Lists of Seventh Schedule. Residuary powers
of legislation are also vested by Article 248 in the Parliament with respect to
any matter not enumerated in any of the lists in Seventh Schedule. This
C residuary power finds reflected in Entry 97 of List I. If an entry does not
spell out an exclusion from field of legislation discernible on its apparent
reading, the absence of exclusion cannot be read as enabling power to legislate
in the field not specifically excluded, more so, when there is available a specific
provision in the Constitution prohibiting such legislation. (303-B-H]
D
The Calcutta Gas Co. Ltd v. The State of West Bengal and Ors., [1962)
Suppl. 3 SCR l, referred, to.
1.7. A legislation having extra territorial operation can be enacted only
by Parliament and not by any State Legislature; possibly the only exception
being one where extra territorial operation of a State legislation is sustainable
E on the ground of territorial nexus. Such territorial nexus, when pleaded, must
be sufficient and real and not illusory. In Entry 53, sale for consumption would
mean a sale for consumption within the State so as to bring a State Legislation
within the field of Entry 53. If sa.Ie and consumption were to take place in
different States, territorial nexus for the State, where the sale takes place,
F would be lost. Since in case of electricity the events of sale and consumption
are inseparable, any State legislation levying duty on sale of electricity by
artificially or fictionally assuming that the events of sale and consumption
have taken place in two States, would be vitiated because of extra territorial
operation of State legislation. [303-F-H; 304-A]
G
Burmah Shell Oii Storage and Distributing Co. India Ltd v. The Belgaum
Borough Municipality, [1963] Suppl. 2 SCR 216 and 20th Century Finance
Corporation Ltd and Anr. v. State of Maharashtra, [2000] 6 SCC 12, referred
to.
1.8. The contention of the States that in case of inter-State sale of
H electricity, State has power to legislate such sale if territorial nexus is established
•
STATE v. N.T.P.C. LTD.
283
between the transaction and State legislation, runs counter to the scheme of A
constitutional provisions and specially the sixth Amendment. If such contention
is accepted, the State where the dealer supplying the electricity is located and
the electricity originates for sale, as also the States in which the purchaser of
electricity is located and it is delivered, shall both subject the electrical energy
to taxation, by relying on the theory of territorial nexus. Such multiple taxation B
would result in hampering free movement of electricity between the States and
therefore, would be prejudicial to freedom of trade, commerce and inter-co11rse
throughout the territory oflndia, and for the unity and integrity of the country .
That would give rise to the same situation which was sought to be remedied by
the Constitution and the Sixth Amendment. [306-A-C]
2.1. Sale in the course of inter-State trade has three essential ingredients C
(i) there must be a contract of sale, incorporating a stipulation, express or
implied regarding inter-State movement of goods; (ii) the goods must actually
move from one State to another, pursuant to such contract of sale; the sale
being the proximate cause of movement; and (iii) such movement of goods
must be from one State to another State where the sale concludes. It follows D
as a necessary corollary of these principles that a movement of goods which
takes place independently of a contract of sale would not fall within the
meaning of inter-State sale. Similarly, if the transaction of sale stands
completed within the State and the movement of goods takes place thereafter,
it would obviously be independently of the contract of sale and necessarily
by or on behalf of the purchaser alone and, therefore, the transaction would E
not be having an inter-State element. (300-H; 301-A, B, CJ
English Electric Company of India Ltd v. Deputy Commercial Tax Officer,
(1977] I SCR 631; Union of India v. K.G. Khosla and Co. ltd, (1979] 2 SCC
242, Mis. Sahney Steel and Press Works ltd and Anr. v. Commercial Tax Officer
and Ors., (1985] 4 SCC 173; Manganese Ore (India) Ltd v. The Regional Asstt. p
Commissioner of Sales Tax Jabalpur, (1976] 4 SCC 124 and Balabhagas
Hulaschandv. State ofOrissa, (1976] 2 SCC 44, referred to.
2.2. In the instant cases, contracts have been entered into between parties
to the transaction prior to generation of electricity. The inter-State movement G
of electricity is pursuant to contracts of sale. Such sales can be held only as
inter-State sales. Though it may be permissible to fix the sites of sale either
by appropriate State legislation or by Judge made law but none of the two
can artificially appoint a situs of sale so as to create territorial nexus attracting
applicability of tax legislation enacted by any State Legislature and tax on
inter-State sale in breach of Section 3 of the Central Sales Tax Act read with H
284
SUPREME COURT REPORTS
[2002) 3 S.C.R.
A Articles 286(2) and 269(1) and (3) of the Constitution. No State legislation,
nor any stipulation in any contract, can fix the situs of sale within the State
or artificially define the completion of sale in such a way as to convert an
inter-State sale into an intra-State sale or create a territorial nexus to tax an
inter-State sale unless permitted by an appropriate central legislation.
B
(304-H; 305-A, B; 305-C-D)
3. The contention that subject of electricity has been specifically dealt
with by Articles 287 and 288 of the Constitution and so, by implication, articles
other than Articles 287 and 288 should be read as not dealing with electricity,
can not be accepted Articles 287 and 288 make some provisions for electricity
C and water or electricity in the special context dealt with by those Articles and
do not exclude applicability of other Articles to electricity where electricity
has been dealt with as goods. (306-D, E)
4. The definition of consumer under M.P. Electricity Duty Act, 1949
and under M.P. Upkar Adhiniyam, 1981 shall have to be read down as
D including within its only such person who receive the electricity for
consumption or distribution for consumption within the State. Without such
reading down, the definition of consumer would be rendered ultra vires of
Articles 286 and 269 of the Constitution read with Section 3 of the Central
Sales Tax Act, 1956. [305-E, F)
E
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3112 of
F
1990.
From the Judgment and Order dated 11.4.1990 of the Andhra Pradesh
High Court in W. P. No. 8488 of 1987.
WITH
T.C. (C) No. 3 of 1998
Soli J. Sorabjee, Attorney General, Harish N. Salve, Solicitor General,
K. Amareswari, G.L. Sanghi, K.K. Venugopal, C.S. Vaidyanathan, T.L.V.
G Iyer, Ranjit Kumar, A.S. Nambiar, R. Madhavi Latha, K. Subba Rao, T.V.
Ratnam, Manish Singhvi, S.K. Dhingra, Prakash Shrivastava, S.K. Agnihotri,
Ms. Malini Poduval, Ms. Lansinglu Rongmei, Ms. Indu Malhotra, Vikas
Mehta, Ms. Pooja Vij. Sidharth Bhatnagar, Mrs. Meenakshi Sakhardande,
Ms. Aprajita Singh, Sidhartha Chouwdhury, Sidharth Goswami, Ms. Gayatri
Goswami, Preetesh Kapoor, Krishnan Venugopal, Varun Goswami, S.N. Terdo,
H V.G. Pragasam, ~s. Santha Vasudevan, P.K. Manohar, A.S. Basme, Sanjay
..
STATE v. N.T.P.C. LTD. [R.C. LAHOTI, J.]
285
........
K. Visen and Manoj K. Mishtra, for the appearing parties .
A
Tue Judgment of the Court was delivered by
R.C. LAHOTr, J. Tue High Court of Andhra Pradesh at Hyderabad
has, by its impugned judgment dated April I I, I 990, allowed the writ petition
filed by the respondent National Thermal Power Corporation Ltd. (hereinafter B
'NTPCL', for short) and declared that the levy of duty by the State of Andhra
Pradesh on the sales of electrical energy generated by the Corporationy
respondent No. I at its thermal power station set up at Rarnagundam, within
•
the State of Andhra Pradesh, and sold to the Electricity Boards of Karnataka,
Kerala, Tamil Nadu and the State of Goa in pursuance of contracts of sales c
occasioning inter-State movement of electricity is incompetent and outside
the power of State Legislature. Consequently, the tax levied and collected has
also been held to be without authority of law, hence liable to be refunded in
accordance with law. On a prayer made by the learned Advocate General on
behalf of the State of Andhra Pradesh, the High Court certified that the case
involves a substantial question of law as to the interpretation of Constitution D
under Article 132. Tue appeal has been filed pursuant to the certificate so
granted by the High Court. On 4.10.1991, a bench of two learned Judges
...
directed the appeal to be placed for hearing before a Constitution Bench, as
~
required by Clause (3) of Article 145 of the Constitution.
At a point of time when this Court was seized of the appeal filed by E
the state of Andhra Pradesh, NTPCL moved a petition under Article 139A of
the Constitution seeking withdrawal of Writ Petition No. 1941 of 1996 NTPCL
v. State of Madhya Pradesh and Ors pending in the High Court of Madhya
Pradesh at Jabalpur to this Court. The prayer was allowed vide order dated
13.10.1997 and on receipt of the records from High Court of Madhya Pradesh F
_, {
the same has been registered here as T-C-3/1998.
The State of Madhya Pradesh and newly formed State of Chhattisgarh
•
with effect from 1.11.2000, during the pendency of the petition were noticed
and the parties thereto have been heard analogously with the hearing in C.A.
No. 3112/1990. However, for convenience sake we will refer to States of
Madhya Pradesh and Chhattisgarh as State of M.P. only as admittedly until G
the formation of new State the two power stations in question were situated
therein only.
Facts in C.A. No.311211990
Andhra Pradesh Electricity Duty Act, 1939 provides for levy of duty on H
286
SUPREME COURT REPORTS
(2002) 3 S.C.R.
A certain sales and consumption of electricity by licensees in the State of Andhra
x_
Pradesh. The definition of the term 'licensee' specifically includes the National
Thermal Power Corporation (respondent No. I) or any other Corporation
engaged in the business of supplying energy. Section 3 of the Act is the
charging section, the relevant part whereof reads as under:-
B
"3. Levy of a duty in certain sales of electrical energy.-{1) Save as
otherwise provided in sub-section (2), every licensee in the State of
Andhra Pradesh shall pay every month to the State Government in
"""f"
the prescribed manner, a duty calculated at the rate of four paise per
' ..
unit of energy, on and in respect of all sales of energy, except sales
c
to the Government of India for consumption by that Government or
sales to the Government of India or a railway company operating any
railway for consumption in the construction, maintenance or operation
of that railway effected by the licensee during the previous month, at
a price of more than twelve paise per unit and on and in respect of
D
all energy which was consumed by the licensee during the previous
month for purposes other than those connected with the construction,
maintenance and operation of his electrical undertaking and which, if
sold to a private consumer under like conditions, would have fetched
).. ...
a price of more than twelve paise per unit.
E
Provided that no duty under this sub-section shall be payable on
and in respect of sale of energy effected:-
(a) by the Andhra Pradesh State Electricity Board to any other
licensee;
(b) by the National Thermal Power Corporation to the Andhra Pradesh
F
State Electricity Board."
-.,_ '<...
A bare reading of the provision shows that duty is leviable at the
prescribed rate on 'all sales of energy' effected by the licensee during the
~
previous month at a price of more than 12 paise per unit. Duty is also
leviable on all energy consumed by the licensee. There are certain categories
G of sales and consumption saved and excluded from what would otherwise
have been dutiable .. However, in the present case, we are not concerned with
'
those exclusions, nor with levy of duty on consumption. The limited question
arising for our consideration is -
whether sales of energy by NTPCL, the
;A
respondent No. I, to several Electricity Boards situated outside the State of
H Andhra Pradesh and to the State of Goa, attract the incidence of taxation
under Section 3 of the Act.
..
...
__,
-1
STATE v. N.T.P.C. LTD. [R.C. LAHOTI, J.]
287
According to the facts found by the High Court, NTPCL, a Government A
Company, wholly owned by the Government of India, has set up several
super thermal power stations in different parts of the country normally located
near coal-pit heads. One such super thermal power station is set up in
Ramagundam in Karimnagar District of the State of Andhra Pradesh. There
are various transmission lines and sub-stations through which the power B
generated at Ramagundam station is transmitted to the purchasers. The power
generated is fed into the southern grid and is made available to the several
State Electricity Boards and the State of Goa. These facts are not in controversy
and sufficient to be taken note of for the purpose of this appeal. During the
course of hearing, by reference to certain documents, it was sought to be
pointed out where the meters are located - within the State of M.P. or within C
the territories of buyer states or at both the places, by reference to reading
whereof the quantum of energy sold, exported or imported is fixed and the
price calculated. We do not propose to state the facts and contending
submissions in that regard in details as it is unnecessary.
The controversy centres mainly around the question as to under which D
entry Andhra Pradesh Electricity Duty Act, 1939 is covered and whether the
sales of electricity by NTPCL, the respondent No. I, to the Electricity Boards
situated outside the State of Andhra Pradesh and to the State of Goa, can be
construed as inter-State sale or intra-State sale.
Facts in T-C-3198
E
The relevant facts of this writ petition are briefly set out in what follows.
The erstwhile Central Provinces and Berar Legislative Assembly enacted the
CP and Berar Electricity Duty Act, 1949 which having been adapted in the
State of Madhya Pradesh has come to be known as M.P. Electricity Duty Act, p
1949 and extends to the whole of Madhya Pradesh. The Preamble to the Act,
as amended by Madhya Pradesh Legislature, provides that it is an Act for the
levy of duty on sale or consumption of electrical energy. The expression
"distributor of electrical energy" is defined in Clause (b) of Section 2 to
specifically include therein the National Thermal Power Corporation. Section
3 provides that every distributor of electrical energy and every producer G
shall, subject to certain exceptions, pay every month to the State Government
a duty calculated at the rates specified in the table appended thereto on the
units of electrical energy sold or supplied to a consumer or consumed by
himself for his own purposes or for purposes of his township or colony
during the preceding month. The table appended to Section 3 prescribes H
')_..
288
SUPREME COURT REPORTS
[2002] 3 S.C.R.
A different rates of duty depending on the purpose for which electrical energy
x....
is sold, supplied or consumed, the details whereof are not relevant for our
purpose. There is yet another legislation, namely, the Madhya Pradesh Upkar
Adhiniyam 1981 (No. I of 1982) which provides for levy of certain cesses.
... ..
Sub-section (I) of Section 3 thereof provides that every distributor of electrical
B
energy shall pay to the State Government an energy development cess at the
rate of certain paise per unit on the total units of electrical energy sold or
supplied to a consumer or c;onsumed by himself or his employees during any
month. NTPCL has two power projects located in the State of Madhya Pradesh
-.,
(i) Korba Super Thermal Power Station at Pragati Nagar, District Bilaspur,
"'
known as Korba Station (presently in the State of Chhattisgarh) and (ii)
c Vindhyachal Super Thermal Power Station situated at Vindhya Nagar, Oistrict
Sidhi of Madhya Pradesh known as Vindhyachal Station. The electricity
generated by it at these two stations, is fed into Northern grid and supplied
to several States outside the State of Madhya Pradesh pursuant to contracts
entered into between the parties, that is, the seller and the buyers. On ·
D
30. I 1.1994, the Chief Engineer (Electricity Duty) and Chief Electrical
L-\-
Inspector, Government of Madhya Pradesh issued a letter annexed by a
tabulated statement raising a demand of Rs. 2,74,01,59,535/28 paise for the
,A
period commencing October, 1984 and expiring March, I996. The demand
.....
is on account of electricity duty at the rate of 2 paise per unit and cess at the
rate of 1 paise per unit calculated on the units sold to Electricity Boards of
E other States.
In the counter-affidavit on behalf of the States of Madhya Pradesh and
Chhattisgarh reliance has been placed on the definition of 'consumer' engrafted
into the M.P. Electricity Duty Act, I949 by M.P. Act No. 46 of I984 with
effect from I. I 0.1984 which reads as under:-
F
"Consumer" means any person who receives electrical energy sold
r"'
or supplied by a distributor of electrical energy or a producer and
includes a person receiving electrical energy in bulk for onward
~
distribution.
G
By the same amendment "distributor of electrical energy" was defined
so as to include therein NTPCL, as already stated. It is admitted by the States
of M.P. and Chhattisgarh that the power generated at the two power stations
is sold and supplied to various electricity boards/electricity departments situated
:A
in other States but as the generating stations are located in the State of
Madhya Pradesh the sale is not an inter-State sale. The situs of sale is within
H the State of M.P. Transaction of sale is complete in the State of M.P. and the
STATE v. N.T.P.C.LTD. [R.C.LAHOTI,J.)
289
buyers carry the electricity to their respective States when property in electricity A
sold has already passed to them. Reliance has been placed on the several
clauses of the bulk power supply agreement entered into between NTPCL
and buyers, one of which entered into between NTPCL and Western Region
Electricity Board (WREB) having its office at Andheri East, Bombay, has
been filed and quoted in the counter affidavit, according to which (a) Metering B
is within the State of M.P.; (b) Transmission Joss from Madhya Pradesh to
the Home State of the buyer is to the account of the buyer; ( c) Wheeling loss
\'
from Madhya Pradesh to the Home State of the buyer to the account of the
"
...
buyer; (d) Transmission charges for transmission from Madhya Pradesh to
the Home State of the buyer to the account of the buyer; ( e) Wheeling
charges from Madhya Pradesh to the Home State of the buyer to the account C
of the buyer; (f) Delivery of WREB in Madhya Pradesh; (g) NTPCL ceases
to have control over the electrical energy once it is delivered to WREB
within State of M.P.; (h) Payment made by the Bulk Beneficiaries is in
respect of quantum of electrical energy supplied/delivered at metering point
in State of M.P. Similar are the agreements entered into with other outsideState buyers.
D
..
It is not disputed that the power generated at the above said two stations
is fed into transmission system of Power Grid Corporation of India Limited
and the transmission systems of other bulk power beneficiaries wherefrom
the buyers draw the power purchased by them. Great emphasis was laid on E
the fact that the points for metering are installed within the State of Madhya
Pradesh. It was submitted that the transaction under scrutiny in the case of
State of M.P. is different from the one under scrutiny in the case of State of
Andhra Pradesh.
Relevant Provisions
We proceed to notice the relevant provisions of the Constitution and
other statutory provisions.
Changes of far reaching implications were made in the Constitution by
the Constitution (Sixth Amendment) Act, 1956 with effect from September G
11, 1956. To enable a convenient comparative reading, we set out the
provisions as under:-
"246. Subject-matter of laws made by Parliament and by the
Legislatures of States.-(1) Notwithstanding anything in clauses (2)
H
,.
290
SUPREME COURT REPORTS
[2002] 3 S.C.R.
A
and (3), Parliament has exclusive power to make laws with respect to
any of the matters enumerated in List I in the Seventh Schedule (in
this Constitution referred to as the "Union List").
(2) Notwithstanding anything in clause (3), Parliament and, subject
B
to clause (1), the Legislature of any State also, have power to
make laws with respect to any of the matters enumerated in List
III in the Seventh Schedule (in this Constitution referred to as the
•
"Concurrent List'').
-..., ...
(3) Subject to clauses (I) and (2), the Legislature of any State has
c
exclusive power to make laws for. such State or any part thereof
with respect to any of the matters enumerated in List II in the
Seventh Schedule (in this Constitution referred to as the 'State
List').
(4) Parliament has power to make laws with respect to any matter for
D
any part of the territory of India not included in a State
notwithstanding tflat such matter is a matter enumerated in the
State List."
~
+-
Seventh Schedule
.....
List I - Union List
E
xxx
xxx
xxx
92A. Taxes on the sale or purchase
of goods other than newspapers,
where such sale or purchase takes
place in the course of inter-State
F
trade or commerce. (inserted by
"~· ~
Sixth Amendment)
List II - State· List
Entry 52
G
Taxes on the entry of goods into a local area for consumption, use or
sale therein.
Entry 53
H
Taxes on the consumption or sale of electricity.
r
STATE v. N.T.P.C. LTD. [R.C. LAHOTI, J.)
291
Entry 54:
A
(Before Sixth Amendment)
(After Sixth Amendment)
54. Taxes on the sale or purchase
of goods other than newspapers
54. Taxes on the sale or
purchase of goods other than
newspapers, subject to the
provisions of entry 92Aof List I.
B
Before 11.9.56
269. The following duties and
Taxes levied taxes shall be levied
and collected and collected by the
by the Union Government
of
but assigned India but shall be
to the States
assigned to the
States in the manner
provided in clause
(2), namely :-
(a) duties
in
respect
of
succession to property other
than agricultural land;
(b) estate duty in respect of
property
other
than
agricultural land;
( c) terminal taxes on goods or
passengers carried
by
railway, sea or air.
(d) taxes on railway fares and
freights;
( e) taxes other than stamp duties
on transactions in stockexchanges and future markets;
After 11.9.56
269.(l)The following duties and taxes C
Taxes levied
shall be levied and
and collected
collected
by
the
by the Union
but assigned to
the States
Government oflndia but
shall be assigned to the
States in the manner D
provided in clause (2),
namely :-
(a) duties in respect of succession to E
property other than agricultural
land;
(b) estate
duty in
respect
of
property other than agricultural
land;
F
(c) terminal taxes on goods or passngers carried by railway, sea or
air;
(d) taxes on railway fares
and G
freights;
(e) taxes other than stamp duties on
transactions
in stock-exchange
and future markets;
H
292
SUPREME COURT REPORTS
(2002) 3 S.C.R.
A
(f) taxes on the sale or purchase
of newspapers and on
advertise-ments published
therein.
B
c
D
(2) The net proceeds in any
financial year of any such duty or
E tax, except in so far as those
proceeds represent proceeds
· attributable to States specified in
Part C of the first Schedule, shall
not form part of the Consolidated
F Fund of India, but shall be
assigned to the States within
which that duty or tax is leviable
in that year, and shall be
distributed among those States in
accordance with such principles of
G distribution as may be formulated
by Parliament by law.
H
(f) taxes on the sale or purchase
of newspapers
and
on
advertise-ments published
therein.
(g) taxes on the sale or purchase
of
goods
other
than
newspapers, where such sale or
purchase takes place in the
course of inter-State trade or
"1
commerce.
(h) taxes on the consignment of
goods
(whether
the
consignment is to the person
making it or to any other
person),
where
such
consignment takes place in the
course of inter-State trade or
commerce;
(2) The net proceeds in any financial
year of any such duty or tax, except
in so far as those proceeds represent
proceeds attributable to Union
territories shall not form part of the
Consolidated Fund oflndia, but shall
be assigned to the States within
which that duty or tax is leviable in
that year, and shall be distributed
among those States in accordance
with such principles of distribution
as may be formulated by Parliament
by law.
(3) Parliament may be law formulate
principles for determining when a
sale or purchase of or consignment
of goods takes place in the course
of inter-State trade or commerce.
STATE v. N.T.P.C. LTD. [R.C. LAHOTI, J.]
293
Before 11.9.56.
286. (I) No law of a State shall
impose or authorise the imposition
of, a tax on the sale or purchase of
goods where such sale or purchase
takes place
(a) (b)(a) outside the State; or (b)(b)
in the course of the import of the
goods into, or export of the goods
out of, the territory of India.
Explanation-For the purposes of
sub-clause (a), a sale or purchase
shall be deemed to have taken place
in the State in which the goods have
actually been delivered as a direct
result of such sale or purchase for
the purpose of consumption in that
State, notwithstanding the fact that
under the general law relating to sale
of goods the property in the goods
has by reason of such sale or
purchase passed in another State.
(2)Except in so far as Parliament
may by law otherwise provide, no
law of a State shall impose, or
authorise the imposition of, a tax on
the sale or purchase of any goods
where such sale or purchase takes
place in the course of inter-State
trade or commerce:
Provided that the President may by
order direct that any tax on the sale
or purchase of goods which was
being lawfully levied by the
After 11.9.56.
A
286. (I) No law of a State shall
impose, or authorize the imposition
of, a tax on the sale or purchase of
goods where such sale or purchase
takes place
B
(a) outside the State; or (b) in the
course of the import of the goods
into, or export of the goods out of,
the territory of India.
•
•
•
•
•
c
D
E
(2) Parliament may by law formulate
principles for determining when a
sale or purchase of goods takes place F
in any of the ways mentioned in
clause (I).
G
H
294
SUPREME COURT REPORTS
[2002] 3 · S.C.R.
A Government
of
any
State
immediately
before
the
commencement of this Constitution
shall, notwithstanding that the
imposition of such tax is contrary to
B the provisions 6f this clause,
oontinue to be levied until the thirtyfirst day of March, 1951.
(3)No law made by the Legislature
of a State imposing, or authorizing
C the imposition of, a tax on the sale
or purchase of any such goods as
have been declared by Parliament by
law to be essential for the life of the
col1lmunity shall have effect unless
it has been reserved for the
D consideration of the President and
has received his assent.
E
(3) Any law of a State shall, in so far
as it imposes, or authorizes the
imposition of,. _
(a) a tax on the sale or purchase of
goods declared by Parliament by
law to be of special importance in
inter-State trade or commerce; or
(b) a tax on the sale or purchase of
goods, being a tax of the nature
referred to in sub-clause (b ), subclause ( c) or sub-clause ( d) of
clause (29A) of Article 366,
be subject to such restrictions and
conditions in regard to the system of
levy, rates and other incidents of the
tax as Parliament may be law specify.
F
Out of the several changes introduced by the Constitution (Sixth
Amendment) Act, only a few are relevant and material for our purpose. In
Article 269, Sub-Clause (g) was added in clause (I) and a new Clause (3)
was added. The Forty-Sixth Amendment substituted the words 'sale or
purchase of, or consignment of, goods' in place of 'sale or purchase of
G goods' as was occurring in Clause (3) inserted by Sixth Amend.ment. Such
Forty Sixth Amendment has no relevance for the present controversy. In
Article 286 subsequent to the Sixth Amendment, Clause (3) has been brought
in the present form by Forty -Sixth Amendment which again is not relevant
for the present controversy. What is relevant for our purpose is the deleting ·
of former explanation appended to Clause (1) and substitution of Clause (2)
H in the present form in Article 286 by Sixth Amendment.
....
..
STATE v. N.T.P.C. LTD. [R.C. LAHOTI, J.]
295
As to the several relevant entries quoted hereinabove, it may be noted A
that Entry 92A in List-I of Seventh Schedule was added by Sixth Amendment.
Entry 54 in List-II in the present form was substituted by Sixth Amendment.
Entries 52 and 53 in List-II remain unaffected by Sixth Amendment.
The Central Sales Tax Act, 1956 was enacted to formulate principles
for determining-when a sale or purchase of goods takes place in the course B
of inter-state trade or commerce or outside a State or in the course of import
into or export from India, to provide for the levy, collection and distribution
of taxes on sale of goods in the course of inter-State trade or commerce etc.,
as the Preamble to the Act states. Clause (d) of Section 2 -:lefines 'goods'
(unless the context otherwise requires) to include all materials, articles, C
commodities and all other kinds of moveable properties, but not including
newspapers, actionable claims, stocks, shares and securities.