# STATE OF U.P. AND ORS v. RENUSAGAR POWER CO. AND OTHERS

- **Citation:** [1988] Supp. 1 S.C.R. 627
- **Court:** Supreme Court of India
- **Decided:** 1988-07-28
- **Case number:** Writ Petition No. 4521 of 1972
- **Bench:** Sabyasacht Mukharji Ands. Ranganathan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-u-p-and-ors-v-renusagar-power-co-and-others-9983
- **Pages:** 55

## Headnote

U.P. Electricify (Duty) Act, 1952-Whether Renusagar Power
Co., respondent No. I, is 'own' source of generation of electricity of
Hindalco,. respondent No. 2 under section 3(1)(c) of-Whether
Hindalco is liable to pay electricity duty on ihat.footinirWhether
corporate veil should be lifted in the facts of the case-Whether
Hindalco is entitled to exemption from levy of electricity duty under
sub-section (4) of section 3-0f.
Disallowing request for exemption from levy of electricity duty
under sub-section (4) of section 3 of the U.P. Electricity Duty Act, 1952
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('the Act'), as amended, the appellants issued notice of demand asking
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respondent No. 1, Renusagar Power Co., to pay electricity duty on the
energy supplied by it to respondent No. 2, Hindalco, for industrial
purposes. Being aggrieved by the decision of the State Government, the
..,.
respondents filed a writ petition in the High Court. The High Court
allowed the writ petition, holding that the impugned order of the State
Government was not maintainable in law, and quashing the order as
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well as the notice of demand abovesaid. The State Government was also
directed to consider the request of the respondents for exemption in
accordance with the directions issued by the High Court in the earlier
Writ Petition No. 4521 of 1972 filed by the respondents. Being
aggrieved by the decision of the High Court the appellants moved this
Court for relief.
F.
Disposing of the appeal, the Court,
HELD: Per Sabyasachi Mukharji, J.
There were two different aspects of the case to be considered. One
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was whether the respondent No. 1, the Renusagar Power Co. Ltd., was
'own' source of generation of electricity for respondent No. 2, the
Hindalco, under section 3(l)(c) of the Act. The second aspect was
whether the order passed by the State Government was in accordance
with the principles of natural justice in so far as the same were applicable to the case. [646C]
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627
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SUPREME COURT REPORTS
[1988] Supp. 1 S.C.R.
From 1952 to 1970, no duty was payable if electriciiy was
generated from own source of energy. From 1970 to 1973, duty of one
paisa was payable in respect of electricity supplied from own source of
generation. After 1973, no duty was payable in respect of electridty
supplied from own source of generation. (6460]
B
Renusagar, a 100% subsidiary of Hindalco, wholly owned and
controlled by Hindalco, was incorporated in March, 1964. Hindalco
had established the power plant through the agency of Renusagar to
avoid complications in the case of a possible take-over of the power
plant by the State Electricity Board as power generation is generally not
permitted in normal conditions in the private sector. The respondents
C highlighted that the sanction under section 28 of the Indian Electricity
Act, 1910, given to Renusagar and its amendment established that
Renusagar was not a normal type of sanction under Section 23 of ihe
1910 Act as the holder could supply power only to Hindalco. All these
steps for the expansion of the power in Renusagar so as to match the
power requirement of Hindalco's expansion were taken by Hindalco
D even though Renusagar had been incorporated. Applications for all the
necessary sanctions and permissions were made by Hindalco. Permissions and sanctions were first intimated to Hindalco even though
Renusagar was in existence. Changes in the sanctions and/or permissions were obtained by Hindalco and not Renusagar. The expansion of
the power plant in Renusagar was to exactly match the requirements of
E Hindalco for the production of Aluminium. The expansion of the power
plant in Renusagar was part and parcel of the expansion of the
aluminium plant of Hindalco. All the steps to set up the power plant in
Renusagar and its expansion were taken by Hindalco. Hindalco consumed about 255 MW power out of which 250 MW came from
Renusagar. There was only one transmission line going out of
F Renusagar and that went to Hindalco, which had complete control over
Renusagar. The

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STATE OF U.P. AND ORS.
v.
RENUSAGAR POWER CO. AND OTHERS
JULY 28, 1988
[SABYASACHT MUKHARJI ANDS. RANGANATHAN, JJ.]
U.P. Electricify (Duty) Act, 1952-Whether Renusagar Power
Co., respondent No. I, is 'own' source of generation of electricity of
Hindalco,. respondent No. 2 under section 3(1)(c) of-Whether
Hindalco is liable to pay electricity duty on ihat.footinirWhether
corporate veil should be lifted in the facts of the case-Whether
Hindalco is entitled to exemption from levy of electricity duty under
sub-section (4) of section 3-0f.
Disallowing request for exemption from levy of electricity duty
under sub-section (4) of section 3 of the U.P. Electricity Duty Act, 1952
A
B
c
('the Act'), as amended, the appellants issued notice of demand asking
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respondent No. 1, Renusagar Power Co., to pay electricity duty on the
energy supplied by it to respondent No. 2, Hindalco, for industrial
purposes. Being aggrieved by the decision of the State Government, the
..,.
respondents filed a writ petition in the High Court. The High Court
allowed the writ petition, holding that the impugned order of the State
Government was not maintainable in law, and quashing the order as
E
well as the notice of demand abovesaid. The State Government was also
directed to consider the request of the respondents for exemption in
accordance with the directions issued by the High Court in the earlier
Writ Petition No. 4521 of 1972 filed by the respondents. Being
aggrieved by the decision of the High Court the appellants moved this
Court for relief.
F.
Disposing of the appeal, the Court,
HELD: Per Sabyasachi Mukharji, J.
There were two different aspects of the case to be considered. One
G
was whether the respondent No. 1, the Renusagar Power Co. Ltd., was
'own' source of generation of electricity for respondent No. 2, the
Hindalco, under section 3(l)(c) of the Act. The second aspect was
whether the order passed by the State Government was in accordance
with the principles of natural justice in so far as the same were applicable to the case. [646C]
H
627
A
628
SUPREME COURT REPORTS
[1988] Supp. 1 S.C.R.
From 1952 to 1970, no duty was payable if electriciiy was
generated from own source of energy. From 1970 to 1973, duty of one
paisa was payable in respect of electricity supplied from own source of
generation. After 1973, no duty was payable in respect of electridty
supplied from own source of generation. (6460]
B
Renusagar, a 100% subsidiary of Hindalco, wholly owned and
controlled by Hindalco, was incorporated in March, 1964. Hindalco
had established the power plant through the agency of Renusagar to
avoid complications in the case of a possible take-over of the power
plant by the State Electricity Board as power generation is generally not
permitted in normal conditions in the private sector. The respondents
C highlighted that the sanction under section 28 of the Indian Electricity
Act, 1910, given to Renusagar and its amendment established that
Renusagar was not a normal type of sanction under Section 23 of ihe
1910 Act as the holder could supply power only to Hindalco. All these
steps for the expansion of the power in Renusagar so as to match the
power requirement of Hindalco's expansion were taken by Hindalco
D even though Renusagar had been incorporated. Applications for all the
necessary sanctions and permissions were made by Hindalco. Permissions and sanctions were first intimated to Hindalco even though
Renusagar was in existence. Changes in the sanctions and/or permissions were obtained by Hindalco and not Renusagar. The expansion of
the power plant in Renusagar was to exactly match the requirements of
E Hindalco for the production of Aluminium. The expansion of the power
plant in Renusagar was part and parcel of the expansion of the
aluminium plant of Hindalco. All the steps to set up the power plant in
Renusagar and its expansion were taken by Hindalco. Hindalco consumed about 255 MW power out of which 250 MW came from
Renusagar. There was only one transmission line going out of
F Renusagar and that went to Hindalco, which had complete control over
Renusagar. The agreement between Renusagar and Hindalco indicated
this was not a normal sale-purchase agreement between two independent persons at arms length. The price of electricity was determined
according to the cash needs of Renusagar. This covenant also showed
complete control of Hindalco over Rennsagar. All persons and anthoriG ties dealing and conversant with this matter had consistently treated
Rennsagar as own sonrce of generation of Hindalco. In the power-cnts
matter nuder section 22B of 1910 Act, 100% cut was imposed on
Hindalco on the footing that it had its own sonrce of generation. All the
authorities including the State and Board had all lllong treated
Renusagar as own source of generation of Hindalco. It was thus conH tended that Renusagar must he treated as alter ego of Hindalco,. i.e.,
STATE OF U.P. v. RENUSAGAR POWER CO.
629
own source of generation of Hindalco within the meaning of section
3( 1 )( c) of the Duty Act, and that consumption clearly fell within that
section, {653C-H; 655C-F]
'Own source of generation' is an expression connected with the
question of lifting or piercing the corporate veil. The appellants contended that in this case there was no ground for lifting the corporate
veil, urging that there was no warrant either in law or in fact to lift the
corporate veil and treat Renusagar's plant as Hindalco's own source of
generation. [657B-C]
In the expanding horizon of modem jurisprudence, lifting of
corporate veil is permissible. Its frontiers are unlimited. It must, how·
ever, depend primarily on the realities of the situation. The aim of
legislation is to do justice to all the parties. The horizon of the doctrine
of lifting corporate veil is expanding. In this case, indubitably, it is
c11rrect that Renusagar was brought into existence by Hindalco in order
to fulfil the condition of industrial licence of Hindalco through production of aluminium. It was also manifest from the facts that the model of
the setting up of power staiion through the agency of Renusagar was
adopted by Hindalco to avoid complications in case of takeover of the
power station by the State or the Electricity Boiird. All the steps for
establishing and expanding the power station were taken by Hindalco
and· Renusagar was wholly owned subsidiary of and completely controlled by Hindalco. Even the-today affairs were controlled by Hindalco.
Renusagar had never indicated independent volition. Whenever felt
necessary, the State or the Board themselves had lifted the corporate
veil and treated Renusagar and Hindalco as one concern and ttie
generation in Renusagar as the own source of generation of Hindalco.
Indubitably, the manner of treatment of the power-plant of Renusagar
as the power-plant of Hindalco and the Government taking full
advantage of the same in the case of power cuts and denial of supply of
100% power to Hindalco underlined the facts and implied acceptance
and waiver of the position that Renusagar was a power plant owned by
Hindalco. In this view of the matter, the corporate veil should be lifted
and Hindalco and Renusagar be treated as one concern and
Renusagar's power plant must be treated as the own source of generation of Hindalco and should be liable to duty on that basis. In the
premises the consumption of such energy by Hindalco will fall under
section 3(l)(c) of the Act •. l667E-H; 688A-B]
The veil of corporate personality even though not lifted sometimes
is becoming more and more transparent in modem company jurisA
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SUPREME COURT REPORTS
[1988] Supp. 1 S.C.R.
prudence. The ghost of the case of Aron Salomon v. A. Salomon & Co.
Ltd., [1897] AC 22 at 27, 30, 31, still visits frequently the hounds of
Company Law but the veil has been pierced in many cases. However,
the concept of lifting the corporate veil is a changing concept and is· of
expandinghorizon. [668C-D]
The appellant was in error in not treating Renusagar's power
plant as the power plant of Hindalco and not treating it as the own
source of energy. The respondent was liable to duty on the same and on
that footing alone; this was evident in view of the principles enunciated
and the doctrine now established by way of decision of this Court in Life
Insurance Corpn. of India v. Escorts Ltd. & Ors., [1985] Suppl. 3
S.C.R. 909, that in the facts of this case sections 3(l)(c) and 4(1)(c) of
the Act are to be interpreted accordingly. The person generating arid
consuming energy were the same and the corporate veil should be lifted.
Hindalco and Renusagar were in-extricably linked up together.
Renusagar had in reality no separate and independent existence apart
from and independent of Hindalco. Consumption of energy of Hindalco
is consumption of Hindalco from its own source of generation. Rates of
duty applicable to own source of generation had to be applied to such
consumption-I paisa per unit for the first two generating sets and nil
rate in respect of 3rd and 4th generating sets. In the facts of this case,
the corporate veil must be lifted and Hindalco and Renusagar should be
treated as one concern and the consumption of energy by Hindalco must
be regarded as consumption by Hindalco from own source of generation. The_ appeal directed against this finding of the High Court was
rejected. [668D-H; 669A-BI
Coming to the challenge to the order quashed by the High Court,
the dominance of public interest is significant according to the proviF
sions of sub-section (4) of Section 3. In view of the ceilings prescribed,
the power conferred upon the State under Section 3( 1) of the Act by
itself is valid and does not amount to excessive delegation. The primary
purpose of the Act was to raise the revenue for development projects.
Whether, in a particular situation, rural electrification and development of agriculture should be given priority or electricity or deveG lopment of aluminium industry should be given priority or which is in
public interest, are value judgments and the legislature is the best
judge. What was paramount before introduction of the development
programme and how the funds should be allocated and how far the
government considers a negligible increase and rise in the cost of
aluminium for the purpose of raising monies for other development
H activities are matters of policy to be decided by the Government. It is
STATE OF U.P. v. RENUSAGAR POWER CO.
631
true that the question regarding public interest and need to promote
indigenous industrial production was related with the question of
exemption of duty, but a matter of policy should be left to the Government. In its order, the Government had adverted itself to all the aspects
of sub-section (4) of section 3 of the Act. Certain amount of encouragement was given to Hindalco to start the industry in a backward area.
Aller considerable period, a very low rate of duty was charged. If other
sectors of growth and development are needed, for example, food,
shelter, water, rural electrification, the need for encouragement to
aluminium industry had to be subordinated by a little high cost because
it is a matter on which the Government as representing the will of the
people is the deciding factor. Price fixation, which is ultimately the
basis of rise in cost because of the rise of the electricity duty is not a
matter for investigation of Court, Sub-section ( 4) of section 3 of the Act
in the set up is quasi-legislative and quasi-administrative in so far as it
has power to fix different rates having regard to certain factors and in
so far as it has power to ;vant exemption in some cases, is quasilegislative in character. Such a decision must be arrived at objectively
and in consonance with the principles of natural justice. With regard to
the nature of the power under section 3(4) of the Act when power is
exercised with reference to any class it would be in the nature of subordinate legislation but when the power is exercised with reference to
individual it would be administrative. If the exercise of power is in the
nature of subordinate legislation the exercise must conform to the provisions of the statute. The High Court was right only to the limited
extent that all the relevant considerations must be taken into account
and the power should not be exercised on irrelevant considerations, but
singular consideration which the High Court had missed in this case is
the factors; namely, the prevailing charges for the supply of energy in
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any area, the generating capacity of any plant, the need to promote
industrial production generally or any specified class thereof and other
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relevant factors cannot be judged disjointly. These must be judged in
adjunct to the public interest and that public interest. is as mentioned
· in the preamble to raise revenue. All that the section requires is that
these factors should be borne in mind but these must be subordinate to
the executive decision o.f the need for public interest. The power
conferred on the State Government of administrative nature must be
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in accordance with the principles of natural jμstice to a limited
extent. [67·IF-G; 672D-E; 673D-H]
The exercise of power whether legislative or administrative will be
set aside if there is manifest error in the exercise of such power or the
exercise of the power is manifestly arbitrary. Similarly ,if the power has
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SUPREME COURT REPORTS
[ 1988] Supp. 1 S.C.R.
been exercised on a non-consideration or non-application of mind to
relevant factors, the exercise will be regarded as manifestly erroneous.
If a power, legislative or administrative, is exercised on the basis of
facts which do not exist and which are patently erroneous, such exercise
of power will stand vitiated. This case related to the particular facts and
circumstances of an individual-Hindalco. The facts and circumstances
of the case had been examined in consonance with the principles of
natural justice and con•idered subject to public interest. Hindalco had
made profits much more than it had before the imposition of the duty.
The adequacy of the profil• or whether it made much more profits h not
a consideration which must prevail over public interest and the Government having taken into consideration this factor, did not commit any
error and the High Court was in error in setting aside the order of the
Government. The co;t of power to a similar industry in other States was
a relevant factor and the State was under a mandatory duty to consider
the same. The State bad taken note of all these factors, and considering
the prevailing practice of levy of electricity duty in other States as well
as the provisions of section 3(4), the Government came to the conclusion
that there was no justification for allowing exemption from electricity
duty to Hindalco, and did not commit any error. The factor of assurance of cheap power by the Government did not fore-close the public
interest of raising public revenue. The impugned order did not suffer
from the vice of non-application of mind or non-consideration of the
relevant factors. The High Court was in error in interfering with the
order of the Government in the manner it did. [676G-H; 677 A-Hi 678A]
Natural justice in the sense that a party must be heard before
hand need not be directly followed in fixing the price. There is scope for
trial and error in the sphere of price fixation which is more in the
nature of a legislative measure. Judged by that standard, the impugned
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order in this case was not bad. The Government did not act in violation
either of the principles of natural justice or arbitrarily or in violation of
the previous directions of the High Court. [678F;·679D; 680C]
The High Court should have ::;lowed the ,;aim of Hindalco for the
reduced rate of bill on the basis that Renusagar Power plant was its own
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source of generation under section 3(l)(c) and the bills should have
been made by the Boari:l on that basis. The High Court was in error in
upholding the respondents' contention that the State Government acted
improperly and not in terms of section 3(4) of the Act and in violation of
the principles of natural justice. The Judgment of the High Court was
set aside to the extent indicated above and State Government's
H impugned order was restored sub,ject to the modification of the bills on
'
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STATE OF U.P. v. RENUSAGAR POWER CO.
633
the basis of own source of generation; Hindalco must be given the
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benefit of the rate applicable to its own source of generation from
Renusagar plant. [680D-F)
Per S. Ranganathan, J. (Concurring): Agreeing, his Lordship held that on the second issue it was difficult to define the precise
nature of the power conferred on the State under Section 3(4) of the
B
Electricity Duty Act, and expressed doubts whether the sub-section
could at all be interpreted as conferring a right on individual consumers
to require that, in the light of the material adduced by them, the rates
applicable to them should have been fixed differently or that they
should have been exempted from duty altogether. However, his Lordship observed that it was unnecessary to pursue this aspect further as
his Lordship agreed witl. the conclusion of Sabyasachi Mukharji, J.
that in this case the respondent's representations had been fully con-
. sidered and the requirements of natural justice had been fulfilled and
that there was no warrant to interfere with the order of the State
Government. [680H; 681A-B)
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Chiranjit Lal Anand v. State of Assam & Anr., [198S] Suppl. 2
S.C.R. 38S; State of U.P. v. Hindustan AluminWm Corpn. Llti., [1979]
J.!SCR 709; J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of
tr.P. & Ors., [1961] 3SCR18S; M/s. Girdharilal & Sons v. Balbir Nath
Mathur & Ors., [1986] 2 SCC 237 at 241, 246; State of Tam.ii Nadu v.
Kodaikanal Motor 'Union (P) Ltd., [1986] 3 SCC 91 at iOO; D.
E
Sanjeevayya v. Election Tribunal, A.P. & Ors., [1967] 2 SCR 489, 492;
Western Coalfields Ltd. v. Special Area Development Authority, Korba
& Anr., [1982] 2 SCR 1at17; Andhra Pradesh State Road Transport
Corpn. v. The I. T.O. & Anr., [1964] 7 .SCR 17; Tamlin v. Hannaford,
[19SO] KB 18; Aron Salomon v. A. Salomon & Co. Ltd., [1897]AC 22
at 27, 30, 31; Western Coalfields Ltd. in Rustom Cavasjee Cooper v.
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Union of India, [1970] 3 SCR S30 at SSS; Bank Voordel En Scheepvaart
N. V. v. Stalford, [19S3] l'Q.B. 248; Kodak Ltd. v. Clark, [1903] I K.B.
SOS; DHN Food Distributors Ltd. & Ors. v. London Borough of
Tomer Hamlets, 11976] 3 AER 462; Harold Holdsworth & Co.
(Wakefield) v. Caddies, [19SS] 1 All E.R. 72S; Scottish Co'Pperative
Wholesale Societ; Ltd. v. Meyer and Anr., [1958] 2 All E~R. 66;
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Charterbridge Corpn. Ltd. v. Lloyds Bank Ltd. & Anr., [1969] 2 All
E.R. 1185; Marshall Richards Machine Co. Ltd., v. Jewitt (H.M.) Inspector of Taxes, 36 TC Sll, S2~M/s. Sp
0encer & Co. Ltd., Madras v.
The Commissioner of Wealth Tax, AIR 1969 Madras 359;. Turner Morrison & Co. Ltd. v. Hungerford Investment Trust Ltd., AIR 1969 Cal.
238; Life Insurance Corpn. of India v. Escorts Ltd. & Ors., [i98S]
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SUPREME COURT REPORTS
[1988] Supp. 1 S.C.R.
Suppl, 3 SCR 909; Devi Das Gopal Krishnan & Ors. v.'State of Punjab
A
& Ors., [1967] 3 SCR 557; Ram Bachan Lal v. The State of Bihar,
[1967] 3 SCR 1; Panama Canal Company v. Grace Line, 356 U.S. 309 2
Lawyers' Edn. 788; Vincent Panikurlangara v. Union of India &
others, [1987] 2 S.C.C. 165; Union of India & Anr. v. Cynamide India
Ltd. & Anr., [1987] 2 SCR 720; P.J. Irani v. State of Madras, [1962] 2
B SCR 169 at 179-180, 181, 182; Ryote of Garabandho and Ors. v.
Zamindar of Parlakimedi & Anr., AIR 1943 P.C .. 164; Saraswati
Industrial Syndicate Ltd. etc. v. Union of India, [1975] 1 SCR 956;
A.K. Kraipok v. Union of India, AIR 1970 S.C. 150; M/s. Travancore
Rayons Ltd. v. Union of India, AIR 1971 S.C. 862; Amal Kumar
Ghatak v. State of Assam & Ors., AIR 1971 Assam 32; Commissioner
of Income Tax v. Mahindra & Mahindra Ltd. & Ors., [1983] 3 SCR 773
C
at 786, 787; Prag Ice & Oil Mills and Anr. etc. v. Union of India, 11978]
3 SCR 293; Shree Meenakshi Mills Ltd. v. Union of India, [1974] 2 SCR
398; Laxmi Khandsari, etc. v. State of U.P. & Ors., [1981] 3 SCR 92;
State of Orissa v. (Miss) Binapani Dei, [1967] 2 SCR 625; Mohd.
Rashid v. State of U.P., Am 1979 S.C. 592; S.L. Kapoor v. Jagmohan
O & Ors., AIR 1979 S.C. 592; Maneka Gandhi v. Union of India, Am
1978 S.C. 597; India Sugars & Refineries Ltd. v. Amrawathi Service
Co-operative Society Limited & Ors., [1976] 2 SCR 740, referred to.
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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 29(i6
of 1986.
From the Judgment and Order dated 26.9.1984 of the Allahabad
High Court in Writ Petition No. 3921of1982.
R.N. Trivedi, Additional Advocate General, Gopal Subramaniam and Mrs. Shobha Dikshit for the Appellants.
B. Sen,D.P. Gupta, N.A. Raja Ram Aggarwal, l'f.R. Khaitan,
E.D. Desai, Y.K, JChaitan, Jijina, Bandeep Aggarwal and T.N. Sen
for the Respondents.
The following Judgments of the Court were delivered:
SABYASACHI MUKHARJI, .J. This appeal by special leave is
directed against the judgment and order of the High Court of
Allahabad dated 26th September, 1984. The first appellani is the State
of Uttar Pradesh impleaded through the Chief Secretary to the
Government of Uttar Pradesh, Lucknow. The second appellant is the
H Secretary to the Government of Uttar Pradesh, Department of
STATE OF U.P. v. RENUSAGAR POWER CO. IMUKHARJI, J.] 635
Ene.rgy, Lucknow. The third appellant is one Shri Yogendra Narain,
presently acting as Secretary to the Chief Minister, State of Uttar A
Pradesh, Lucknow. At a particular point of time Shri Yogendra Narain
was the Secretary to lhe Department of Energy. The fourth appellant
is the Assistant Electrical Inspector, a functionary under· the U .P.
Electricity (Duty) Act, 1952, Mirzapur Zone, Rani Patti, Mirzapur.
The fifth appellant is the Collector of Mirzapur.
B
There are four responden!'S in this appeal. The first respondent is
Renusagar Power Company Ltd. The second respondent is M/s
Hindustan Aluminium Corporation Ltd. Respondent No. 3 is Shri
D .M. Mimatramka who resides at Hindalco Administrative Colony,
Renukut, Mirzapur. The fourth respondent is Shri Rajendra Kumar
Kasliwal 'who·. resides at Hindustan Aluminium Corporation Ltd.,
'R'enukur;"District·Mirzapur. Respondents 3 and 4 mentioned above
are the shareholders of the first respondent and !he second tespon·
dent, that is, Renusagar Power Company and M/s. Hindustan
Aluminium Corporation Ltd. respectively. It is stated that Mis
·Hindustan Alulllinium Corporation Ltd;·, established and aluminium
factory at Renukut inMirzapur District, U."P. in 1959. It is the case of
the respondents that it was induced to do so on the assurance that
cheap electricity and power would be made available at the relevant
time. In 1962, a plant of Hindustan Aluminium Corporation Ltd. for
manufacture of aluminium, was commissioned. M/s Renusagar Power
Co. Ltd. a wholly owned subsidiary of Mis Hindustan Aluminium
Corporation Ltd, was incorporated in 1964. Mis Reriusagar Power
Company Ltd. was incorporated separately and had its own separate
· Memorandum and Articles of ,Association. On 9th September, 1967,
the first generating unit of 67.5 MW in-·Renusagar was commissioned
by Mis Renusagar Power'Company Ltd. The second generating unit
of the company was commissioned oh 5th October, 1968. The U .P
Electricity {Duty) Act, 1952 (hereinafter ca~led· 'the Act') came into
force from 15th January, 1953 and it sf5ught to levy a duty on the
consumption of electrical energy in the State ofUttar Pradesh.
In the Statement of Objects and Reasons, which was published in
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U .P. Gazette;it was stated that the programmes of development of the G
State involved enormous ell:penditure and• thus additional resources
had to be raised, the bulk of which could only be raised by means of
fresh taxation. It was stated that the object of the Bill, inter alia,
provided as_follows:
"A tax on the consumption of electrical energy will impose
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[1988) Supp. 1 S.C.R.
a negligible burden on the consumer and is a fruitful source
of additional revenue. The Bill has been so prepared as to
ensure that the tax payable by a person will be. rela(ed to
the quantity of eleciricity consumed by him. The Bill is
being introduced with the above object."
By virtue of the provisions of the U .!;'. Electricity (Duty)
(Amendment) Ordinance, 1959 various amendments were carried otit
in the said Act. In section 2 of the principal Act, a new clause, clause
(hh) describing a scheduled industry was inserted. By virtue of the
aforesaid newly inserted clause, the expression 'scheduled industry'
meant any of the industries specified in the schedule. In the proviso to
section 3 of the principal Act, after clause (d), a new clause (e) was
inserted which provided for non-levy or exemption from the payment
of electricity duty on the energy consumed by a consumer in a
scheduled industry. The expression which was added was "by a consumer in a scheduled industry". By virtue of section 8 of the Amending
Act, a schedule was added to the principal Act. In the schedule, nonD ferrous metals and alloys were placed at serial No. 1 in Part B of the
schedule under a broad heading 'Metallurgical Industries'. It appears,
therefore, that by virtue of the aforesaid provisions electricity duty on
the energy consumed by M/s Hindustan Aluminium Corporation Ltd.
was exempted from 1st April, 1959, the date on which the Ordinance
E
came into force. It was further stated that the U .P. Electricity (Duty)
(Amendment) Ordinance, 1959 was repealed and the provisions were
incorporated into an amending Act, viz,, 0.P. Act No. 12 of 1959 and
termed as the U.P. Electricity (Duty) (Amendment) Act, 1959. By
virtue of sub-section (2) of section 1, the Amendment Act provided
that the Act would be deemed to have come into force with effect from
1st April, 1959. The amendment Act repealed the provisions of the
U.P. Electricity (Duty) (Amendment) Ordinance, 1959. In section 2,
after clause (d), the clause which was inserted as a new clause (e)
provided that electricity duty would not be leviable on the consumption of energy by a consumer in any industry engaged in the manufacture, production, processing, or repair of goods. Ordinance No. 14
of 1970 was promulgated on 5th August, 1970. The provisions conG tained in the Ordinance were subsequently incorporated in U .P. Act
No. 2 of 1971. The amended provisions of U.P. Act No. 2of1971 came
into force from 1st April, 1970. The Amendment Act was preceded by
U.P. Ordinance No. 14 of 1970. The Ordinance was described as "the
Uttar Pradesh Taxes and Fees Laws (Amendment) Ordinance 1970."
By virtue of Chapter III of the said Ordinance, amendments were
H sought to be made to the Act. Section 3 of the principal Act was
~.-
STATE OF U.P. v. RENUSAGAR POWER CO. [MUKHARJI, J.[
637
substituted by a new section which provided that there wpuld be levied
and paid to the State Government a duty called electricity duty on the
energy sold to a consumer by a licensee/Board/the State Government
the Central Government; there would be a duty on the consumption of
energy by a licensee or the Board in or upon the premises used for
commercial or residential purposes, or in or upon any other premises
except "in the construction, maintenance or operation of his or its
works", and there would be a duty upon the consumption of electricity
by any other person from "his own source of generation." It was
provided that a duty was to be determined at such rate or rates as may,
from time to time, be fixed by the State Government by notification in
the official gazette. Sub-section (2) of section 3 provlded that in
respect of certain classes of consumption the electricity duty would not
exceed 25% of the raie charged.
It may be expedient to rekr 1o the Prefatory Note of the Act
which, inter alia, is as follows:
A
B
c
"Prefatory Note: The minimum programme of developD
ment which this St.ate mμst carry out within the next three
or four years for ti)e 11ttaiI!f11ent of the objective of a
welfare State is set out in the Five Year Plan drawn up by
the Planning Commission. This plan provides for an expenditure of 13.58 crores--of rupees on power development
projects. Such a huge expenditure cannot be met from our
E
present resources. It is, however, eJiSential for the welfare
of the people that the expenditure should be incurred and
that nothing should be allowed to stand in the way of the
progress of the plan. Additional resoμrces have therefore
to_ be found, the bulk, ofwhi~h can be raised only by means
of fresh taxation."
F
Section 3 of the Act provides as follows:
"3. Levy of electricity duty.-(1) Subject to the provisions
hereinafter contained, there shall be levied for and paid to
the State Government on the energy:
G
(a) sold to a consumer by a licensee, the Board, the State
Government or the Central Government; or
(b) consumed by a licensee or the Boari) in or upon PT!'·
mises used for commercial or residential purposes, or in or
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638
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c
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SUPREME COURT REPORTS
[1988] Supp. 1 S.C.R.
upon any other premises except in the construction,
maintenance or operation of his or its works; or
( c) consumed by any other person from his own source of
generation; a duty (hereinafter referred to as 'electricity
duty') determined at such rate or rates as may from time to
time be fixed by the State Government by notification in
the Gazette, and such rate may be fixed either as a specified percentage of the rate charged or as a specified sum
per unit.
Provided that such notification issued after October
1, 1984 but not later than March 31, 1985 may be made
effective on or from a prior date not earlier than October 1,
1984.
(2) In respect of clauses (a) and (b) of sub-section
(1), the electricity duty shall not exceed thirty-five per cent
of the rate charged.
Provided that in the case of one-part tariff where the
rate charged is based on units of consumption, the electri·
city duty shall not be less than one paisa per unit or more
than eight paisa per unit.
Explanation-For the purposes of the calculation of
electricity duty as aforesaid, energy consumed by a licensee
or the Board or supplied free of charge or at the concessional rates to his or its partners, directors, members,
officers or servants shall be deemed to be energy sold to
consumers by the licensee or the Board, as the case may be,
at the rates applicable to other consumers of the same
category.
(3) In respect of clause (c) of sub-section (1), the
electricity duty shall not be less than one paisa or more
than six paisa per unit.
(4) The State Government may, in the public interest, having regard to the prevailing charges for supply of
energy in any area, the generating capacity of any plant,
the need to promote industrial production generally or any
specified class thereof and other relevant factors, either fix
•
.,
STATE OF U,P. v. RENUSAGAR POWER CO. [MUKHARJI, J.)
639
different rates of electricity duty in relation to different
A
classes of consumption of energy or allow any exemption
from payment thereof.
(5) No electricity duty shall be le.vied on-
(a) energy consumed by the Central Government or
B
sold to the Central Government for consumption by that
Government; or
{b) x
x
x
(c) energy consumed in the construction, maintenance or operation of any railway by the Central Government or sold to that Government for consumption in the
construction, maintenance or operation of any railway;
( d) by a cultivator in agricultural operations carried
on in or near his fields such as the pumping of water for
irrigation, crushing, milling or treating of the produce of
those fields or chaffcutting.
( e) Energy consumed in light upon supplies made
under the Jania Service Connection Scheme.
Explanation.-For the purposes of clause (e) "Jania
Service Connection Scheme" means a scheme approved by
the State Electricity Board for supplying- Energy to Harijans, landless labourers, farmers (hola1Ilg land not exceeding one acre), members of armed forces (whether serving
c
D
E
or retired), war widows and other weaker sections in disF
trict notified by the State Government."
Section 4 of the Act read as follows:
"4. Payment of electricity duty and interest thereon.-(!)
The electricity duty shall be paid, in such manner and
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within such period as may be prescribed, to the State
Government.
{a) where the energy is supplied or consumed by a licensee, -by the licensee;
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640
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SUPREME COURT REPORTS
I 1988] Surp. 1 S.C.R.
(b) where the energy is supplied by the State Government
or the Central Government or is supplied or consumed by
the Board,-by the appointed authority; and
(c) where the energy is consumed by any other person
from his own source of generation,-by the person generating such energy.
(2) Where the amount of electricity duty is not paid
by the State Government within the prescribed period as
aforesaid, the licensee, the Board or other person
mentioned in clause (c) of«ub-section (1), as the case may
be, shall be liable. to pay within such period as may be
prescribed, interest at the rate of eighteen per cent per
annum on the amount of electricity duty remaining unpaid
until payment thereof is made."
Section 9 of the Act provides as follows:
"Exemptions. Nothing in this Act shall apply to any
energy generated by a person for his own use or consumption or to energy generated by a plant having a capacity not
' exceeding two and a haH killowatts."
E
M/s. Renusagar Power Company Ltd. had in the meantime
obtained a sanction under section 18 of the Indian Electricity Act,
1910 to engage in the business of supply of electricity to the second
respondent, M/s. Hindustan Aluminium Corporation Ltd. By virtue of
section 2(f) which defines a licensee for the purposes of the Duty Act
to mean any person licensed under Part II of the Indian Electricity
F
Act, 1910 and includes any person who has obtained sanction from the
State Government under section 28. Renusagar Power Company Ltd.,
The first respondent herein, was deemed to be a licensee for the
purposes of the U.P. Electricity (Duty) Act. By virtue of section 2(d)
of the Act, M/s. Hindustan Aluminium Corporation Ltd. was a consumer since it was supplied energy by the licensee, M/s. Renusagar
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Power Company Ltd., the first respondent. Thus, the consumption of
electricity by M/s. Hindustan Aluminium Corporation Ltd. under a
contract of sale by the licensee was exigible to duty. In other words,
clause (a) of sub-section (1) of section 3 of the Act, as amended, came
into operation arid a levy of duty would take place on the energy sold,
to a consumer by a licensee. Clause (a) of sub-section (1) of section 4
H
as newly added provided that where the energy was supplied by a
STATE OF U.P. v. RENUSAGAR POWER CO. {MUKHARJl, J;J
641
licensee, the licensee would be liable to pay electricity duty. Thus, by
virtue of the amended provisions of the Electrieity (Duty) Act, M/s.
Renusagar Power Co. Ltd. the first respondent herein was liable to
pay electricity duty in respect· of its supplies lo M/s. Hindustan
Aluminium Corporation Ltd.
In exercise of the powers conferred by- the Amendment Ordinance (U.P. Ordinance No. 14 of 1970, the provisions of which were
re-enacted in U.P: Act No. 2 of 1971), the Governor on o.r about 25th
August, 1970 passed an order that with effect from 1st September,
1970 the electricity duty on industrial consumption would be levied at
one paisa per unit. On 28th August, 1970, the Governor ordered in
supersession of all the previous orders that with effect from 1st
September, 1970 electrieity duty on the energy consumed by the consumers would be levied at the rates specified therein. There was
further notificati9n dated 30th Septembq, 1970, issued in the name of
the Governor modifylng the terrns of the notifications dated 25th
August, 1970 and 28th August, 1970.
On or about 4th December, 1952 after the inauguration of the
First Five Year Plan, electricity duty was imposed to gather additional
revenue fot attaining the objectives set out in the plan. The U .P.
Electricity (Duty) Act, 1952 was enacted on 4th December, 1952. On
1st April, 1959 in order to mitigate the hardship which might be caused
A
B
c
D
to certain industries in the.State, the U.P. Electricity (Duty)'(AmendE
ment),Ordiflance, 1959 (U.P. Ordinance No. 3 of 1959) was promulgated by the Governor of U.P. By the aforesaid Ordinance it was
provided in the first proviso to section 3 of the principal Act that no
duty shall be leviable on the energy consumed by a consumer in a
Scheduled Industry, including Non-ferrous Industries manufacturing
Aluminium like that of respondent No. 2, Hindalco. The aforesaid
F
Ordinance was substituted by the U.P. Electricity (Duty) (Amendment) Act, 1959 (U.P. Act No. 12 of 1959). It substituted sub-clause
( e) in the first proviso of section 3 which reads as follows:
"( e) by a consumer in any. Industry engaged in the
manufacture, production, processing or repairs of goods".
G
In the year 1959 respondent No. 2 looking to the profitability of
establishing a factory for manufacture of aluminium, set up a plant at
Rennkut, District Mirzapur in the State of U .P. On or about 29th
October, 1959 an agreement was arrived at with the State Government
and the Hindustan Aluminium Corporation Ltd. (Hindalco) for supply
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642
SUPREME COURT REPORTS
[ 1988] Supp. 1 S.C.R.
A of 55 M.W. electrical power at the rate of 1.997717 paise per unit
inclusive of all charges, duties and taxes of whatever nature on electricity for 25 years.
In the year 1962 Hindalco, respondent No. 2, started production
of aluminium. On 14th October, 1964 respondent No. 2 requested the
B State Government to grant sanction to the Renusagar Power Company
Ltd., to supply electricity to respondent No. 2. On 12th November,
1964 respondent No. 1 Renusagar Power Company Ltd. was granted
sanction under section.28 of the Indian Electricity Act, 1910, to engage
in the business of supply of electricity to respondent No. 2 Hindalco.
-There was an'agreement on 29th December, 1967 with Hindalco and
U.P. State Electricity Board to supply 5.5 M.W. and 7.5 M.W. of
C
power. The rate of charges along with levy of sales tax, etc. were to be
paid by the consumer. On 1st July, 1970, there was an agreement
between Hindalco and State. Electricity Board to supply 7 .5 M. W. of
power. The rate of charges including levy such as Sales Tax etc. were
to be paid by the consumer. On 5th August, 1970, the U.P. Ordinance
D No. 14 of 1970 was promulgated further to amend the U.P. Electricity
(Duty) Act, 1952 which came into force from 1st September, 1970. By
the aforesaid amendment orovisions of sections 3, 4 and 7 were substituted by new sections, sections 3A and 9 were omitted and there
were several amendments in various sections of the original Act. As a
result of the promulgation of the Ordinance, electricity duty became
E leviable on the industrial consumptiOn as well as on the energy consumed by any person from his own source of generation. The provisions of section 3 have been set out before. Thereafter notification was
issued on 25th August, 1970 under which rate of electricity duty on the
energy consumed for industrial purposes was presctibed at one paisa
per unit on consumption cif electricity with effect from 1st September,
F
1970. On 1st September, 1970, the provisions of the Ordinance amending U.P. Electricity (Duty) Act, 1952 came into force. Electricity duty
became leviable on the respondent No. I on the energy supplied to
Hindalco, respondent No. 2 for the industrial purposes. On 28th
September, 1970 respondent No. 2, Hindalco, made an application
under sub-section (4) of section 3 of the Act to the State Government
G
to grant exemption on the energy supplied by respondent No. 1 to
respondent No. 2 for industrial purposes.