Electricity tax on unconsumed power ‘unconstitutional', says Karnataka high court

Time of India

7 hours ago

Bengaluru: Can electricity supply companies (Escoms) charge you for electricity you never used? As strange as it sounds, that's exactly what happened in
Karnataka
for 15 years! Between 2003 and 2018, the state govt levied a tax on power merely delivered to consumers' doorsteps, even if it wasn't consumed.
While most quietly paid up, the Karnataka Textile Mills Association (KTMA) and the Federation of Karnataka Chambers of Commerce and Industry took the fight to court.
After a 17-year legal battle, the high court has ruled the tax unconstitutional, handing a major victory to the industry bodies and a blow to the state's energy department.
The state govt way back in 2003 amended the Karnataka Electricity (Taxation and Consumption) Act-1959 by introducing the levying of tax (not exceeding 12 paise/unit) on the 'units of energy consumed every month'.
Besides, the state govt also amended section 3 (1) of the same Act to levy ad-valorem tax at 5% on the 'electricity charges' payable by all consumers barring irrigation pump (IP) sets up to 10 HP, Bhagya Jyoti, and Kutira Jyoti categories.
During the hearing, the HC bench noted that prior to the amendment, there was no obligation on consumers to pay tax on the minimum charges levied on the supply of electricity, but the liability to pay tax was only on electricity consumed.
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Almost five years since the amendment to the Karnataka Electricity Act, KTMA in 2008 questioned the constitutional validity of the state govt's move to levy tax on the electricity that was supplied but not consumed. Subsequently, in 2009, FKCCI also moved the HC demanding a refund of the collected tax, citing that levying such tax was unconstitutional.
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Advocate MS Raghavendra Prasad argued that electricity is covered by two distinct legislative fields—state list (consumption and sale of electricity) and concurrent list (electricity) of the 7th Schedule of the Constitution.
Citing the Supreme Court's judgment in Southern Petrochemical Industries Company Ltd, the petitioners argued: "The state legislature's power under the state list is only confined to taxation on the consumption or sale of electricity and does not extend to mere supply or availability of electricity."
Hearing the arguments, the single bench of Justice Anant Ramanath Hegde J observed: "If the consumer is taxed on the minimum tariff charged for the supply of power for ensuring constant supply for consumption at any given point, then it amounts to taxation on electricity which is not yet sold but only agreed to be sold.
Hence, the state has the power to enact a law on consumption and sales and does not enable the state to enact a law to impose tax when the electricity is not sold but agreed to be sold, where the actual sale does not take place.
Hence, the court is of the view that amended section 3(1) of the Act is unconstitutional."
However, the bench in its verdict on the refund of collected tax said: "The petitioners have not raised a plea for a refund of the collected tax and the court cannot direct the state to refund the tax collected under the law, which is declared unconstitutional, unless the state is allowed to meet the contention that the tax burden was not passed on to the consumers and suffered by the petitioners."
However, pertaining to the petition filed by FKCCI, the bench said: "The association has absorbed the tax burden imposed under the law, which has now been declared unconstitutional. Such being the case, the consequence of restitution does follow. The relief of refund of tax granted to FKCCI is only on the tax on electricity charges paid by the petitioner from Jan 15, 2009 (the date of the petition) till July 18, 2018 (withdrawal of amendment by the govt).
"
quotes
KTMA chairperson C Valliappa
As the high court has given them liberty to initiate fresh proceedings seeking a refund of collected tax, they will file a fresh petition seeking a refund of tax
MG Balakrishna, chairperson of FKCCI
We will file a fresh petition before the court to generalise the verdict so as to make it applicable to all categories of consumers as they cannot appeal to the court
Bengaluru: Can electricity supply companies (Escoms) charge you for electricity you never used? As strange as it sounds, that's exactly what happened in Karnataka for 15 years! Between 2003 and 2018, the state govt levied a tax on power merely delivered to consumers' doorsteps, even if it wasn't consumed.
While most quietly paid up, the Karnataka Textile Mills Association (KTMA) and the Federation of Karnataka Chambers of Commerce and Industry took the fight to court.
After a 17-year legal battle, the high court has ruled the tax unconstitutional, handing a major victory to the industry bodies and a blow to the state's energy department.
The state govt way back in 2003 amended the Karnataka Electricity (Taxation and Consumption) Act-1959 by introducing the levying of tax (not exceeding 12 paise/unit) on the 'units of energy consumed every month'.
Besides, the state govt also amended section 3 (1) of the same Act to levy ad-valorem tax at 5% on the 'electricity charges' payable by all consumers barring irrigation pump (IP) sets up to 10 HP, Bhagya Jyoti, and Kutira Jyoti categories.
During the hearing, the HC bench noted that prior to the amendment, there was no obligation on consumers to pay tax on the minimum charges levied on the supply of electricity, but the liability to pay tax was only on electricity consumed.
Almost five years since the amendment to the Karnataka Electricity Act, KTMA in 2008 questioned the constitutional validity of the state govt's move to levy tax on the electricity that was supplied but not consumed. Subsequently, in 2009, FKCCI also moved the HC demanding a refund of the collected tax, citing that levying such tax was unconstitutional.
Advocate MS Raghavendra Prasad argued that electricity is covered by two distinct legislative fields—state list (consumption and sale of electricity) and concurrent list (electricity) of the 7th Schedule of the Constitution.
Citing the Supreme Court's judgment in Southern Petrochemical Industries Company Ltd, the petitioners argued: "The state legislature's power under the state list is only confined to taxation on the consumption or sale of electricity and does not extend to mere supply or availability of electricity."
Hearing the arguments, the single bench of Justice Anant Ramanath Hegde J observed: "If the consumer is taxed on the minimum tariff charged for the supply of power for ensuring constant supply for consumption at any given point, then it amounts to taxation on electricity which is not yet sold but only agreed to be sold.
Hence, the state has the power to enact a law on consumption and sales and does not enable the state to enact a law to impose tax when the electricity is not sold but agreed to be sold, where the actual sale does not take place.
Hence, the court is of the view that amended section 3(1) of the Act is unconstitutional."
However, the bench in its verdict on the refund of collected tax said: "The petitioners have not raised a plea for a refund of the collected tax and the court cannot direct the state to refund the tax collected under the law, which is declared unconstitutional, unless the state is allowed to meet the contention that the tax burden was not passed on to the consumers and suffered by the petitioners."
However, pertaining to the petition filed by FKCCI, the bench said: "The association has absorbed the tax burden imposed under the law, which has now been declared unconstitutional. Such being the case, the consequence of restitution does follow. The relief of refund of tax granted to FKCCI is only on the tax on electricity charges paid by the petitioner from Jan 15, 2009 (the date of the petition) till July 18, 2018 (withdrawal of amendment by the govt).
"
quotes
KTMA chairperson C Valliappa
As the high court has given them liberty to initiate fresh proceedings seeking a refund of collected tax, they will file a fresh petition seeking a refund of tax
MG Balakrishna, chairperson of FKCCI
We will file a fresh petition before the court to generalise the verdict so as to make it applicable to all categories of consumers as they cannot appeal to the court