Karnataka High Court
Federation Of Karnataka Chambers vs The State Of Karnataka on 20 June, 2025
R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 20TH DAY OF JUNE, 2025
BEFORE
THE HON'BLE MR JUSTICE ANANT RAMANATH HEGDE
WRIT PETITION NO.3935 OF 2008 (GM-KEB)
C/W
WRIT PETITION NO.1644 OF 2009 (GM-KEB)
IN WP NO.3935/2008:
BETWEEN:
1. M/S SONA SYNTHETICS,
(A UNIT OF VALLIAPPA TEXTILES),
A COMPANY INCORPORATED
UNDER THE PROVISIONS
OF THE COMPANIES ACT, 1956 & HAVING ITS
OFFICE AT YEDAMADEE VILLAGE,
KAGGALAHALLI POST, HAROHALLI,
KANAKAPURAREP BY ITS ADMINISTRATIVE
OFFICER MR SIVA RAO.
2. SRI KRISHNA SPINNING &
WEAVING MILLS PVT LTD.,
A COMPANY INCORPORATED
UNDER THE PROVISIONS OF
THE COMPANIES ACT 1956 &
HAVING ITS OFFICE AT SUBRAMANYAPURA,
BANGALORE-560061,
REP BY ITS MANAGING DIRECTOR
MR Y G M MADHUSUDAN.
2
3. M/S RAMKUMAR MILLS PVT LTD.,
A COMPANY INCORPORATED
UNDER THE PROVISIONS OF
THE COMPANIES ACT 1956 &
HAVING ITS OFFICE AT RAJAJINAGAR,
BANGALORE-560010,
REP. BY ITS EXECUTIVE DIRECTOR,
MR SHIVKUMAR A YADALAM.
4. M/S SUBADRA TEXTILE PVT LTD.,
A COMPANY INCORPORATED
UNDER THE PROVISIONS
OF THE COMPANIES ACT 1956 &
HAVING ITS OFFICE AT NO.11,
MAGADI MAIN ROAD,
AGRAHARDASARAHALLI,
BANGALORE-560079,
REP. BY ITS MANAGING DIRECTOR,
MR V S RAJAGOPAL.
5. MARIS SPINNERS LTD.,
A COMPANY INCORPORATED
UNDER THE PROVISIONS OF
THE COMPANIES ACT 1956 &
HAVING ITS OFFICE AT HUNSUR,
K R NAGAR ROAD,
KATTEMALAVADI-571134,
HUNSUR TQ MYSORE,
REP BY ITS GENERAL MANAGER
MR R THANGAMARIAPPAN.
6. VISHNU TEXTILES LTD.,
A COMPANY INCORPORATED
UNDER THE PROVISIONS
OF THE COMPANIES ACT 1956
& HAVING ITS OFFICE
AT PERIYA PATNA TALUK,
KAMPALAPURA-571136 MYSORE DIST,
3
REP BY ITS FACTIRY MANAGER MR R ASHOK.
7. SREE JAYALAKSHMI AUTO SPIN LTD.,
A COMPANY INCORPORATED
UNDER THE PROVISIONS
OF THE COMPANIES ACT 1956 & HAVING ITS
OFFICE AT SANJANA DAVANGERE ROAD,
CHITRADURGA-577502,
REP BY ITS MANAGING DIRECTOR
MR K V PRABHAKAR.
8. SRI ANJANEYA COTTON MILLS LTD.,
A COMPANY INCORPORATED UNDER THE
PROVISIONS OF THE COMPANIES ACT 1956 &
HAVING ITS OFFICE AT T-6,
3RD FLOOR, GEM PLAZA 66,
INFANTRY ROAD BANGALORE-560001,
REP BY ITS MANAGING DIRECTOR ,
MR R MANJUNATH.
9. SREE GANESAR TEXTILE MILLS LTD.,
A COMPANY INCORPORATED UNDER
THE PROVISIONS
OF THE COMPANIES ACT 1956 & HAVING ITS
OFFICE AT JAYALAKSHMI
POONA BANGALORE ROAD,
DAVANGERE - 577002,
REP. BY ITS DIRECTOR,
MR R MANJUNATH.
10. M/S GOKAK TEXTILE MILLS LTD.,
(GOKAK MILLS DIVISION),
A COMPANY INCORPORATED UNDER THE
PROVISIONS OF THE COMPANIES ACT 1956 &
HAVING ITS OFFICE AT NO.6,
GOKAK FALLS-591308,
REP BY ITS POWER OF ATTORNEY HOLDER,
MR KAMALAPRASAD MOHANLAL BHAYYA.
...PETITIONERS
(BY SRI M S RAGHAVENDRA PRASAD, ADVOCATE)
4
AND:
1. THE STATE OF KARNATAKA,
VIDHANA SOUDHA,
DR. AMBEDKAR VEEDHI,
BANGALORE-560001,
REP. BY ITS CHIEF SECRETARY.
2. DEPARTMENT OF PARLIAMENTARY
AFFAIRS & LEGISLATION,
STATE OF KARNATAKA,
VIDHANA SOUDHA,
DR AMBEDKAR VEEDHI,
BANGALORE-1,
REP BY ITS SECRETARY.
3. DEPARTMENT OF ENERGY,
STATE OF KARNATAKA,
VIDHANA SOUDHA,
DR AMBEDKAR VEEDHI,
BANGALORE-1,
REP. BY ITS SECRETARY.
4. BANGALORE ELECTRICITY SUPPLY COMPANY LTD.,
OFFICE AT CFC BUILDING,
NRUPATHUNGA ROAD, BANGALORE-1,
REP HEREIN BY ITS GENERAL MANAGER TECH
BANGALORE CITY.
5. CHAMUNDESWARI ELECTRICITY SUPPLY
CORPORATION LTD.,
OFFICE AT NO.927, LJ AVENUE COMMERCIAL
COMPLEX NEW KANTHARAJ URS ROAD,
SARASWATIPURAM, MYSORE-570009,
REP HEREIN BY ITS MANAGING DIRECTOR,
MYSORE.
5
6. MANGALORE ELECTRICITY SUPPLY,
CORPORATION LTD OFFICE AT MAROLI,
KULASHEKARA, MANGALORE-575005,
REP. HEREIN BY ITS MANAGING DIRECTOR,
MANGALORE.
7. HUBLI-DHARWAD ELECTRICITY SUPPLY
CORPORATION LTD OFFICE AT EUREKA TOWERS
T B ROAD DESHPANDE NAGAR HUBLI-580029,
REP HEREIN BY ITS MANAGING DIRECTOR,
DHARWAD.
8. GULBARGA ELECTRICITY SUPPLY COMPANY LTD.,
OFFICE AT MAIN ROAD, GULBARGA-585102,
REP. HEREIN BY ITS MANAGING DIRECTOR
GULBARGA.
...RESPONDENTS
(BY SRI RAJKUMAR M, AGA FOR R1 TO R3,
SRI H.V.DEVARAJU, ADV. FOR R4 TO R6
R7 AND R8 ARE SERVED BUT UNREPRESENTED)
THIS WRIT PETITION IS FILED UNDER ARTICLES
226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING
TO - QUASH THE AMENDMENT TO SECTION 3(1) OF THE
KARNATAKA ELECTRICITY (TAXATION ON CONSUMPTION)
ACT, 1959 BY VIRTUE OF THE AMENDING ACT 7 OF 2003
WHICH CAME INTO EFFECT FROM 1.4.2003 AS BEING
UNCONSTITUTIONAL, ULTRAVIRES AND ILLEGAL IN SO
FAR AS PETITIONERS ARE CONCERNED AND ETC.,
IN WP NO.1644/2009:
BETWEEN:
FEDERATION OF KARNATAKA CHAMBERS
OF COMMERCE AND INDUSTRY COMPANY REGISTERED
UNDER THE PROVISION OF THE MYSORE
COMPANIES ACT, 1938, KEMPEGOWDA ROAD,
BANGALORE-560009,
6
REP. BY ITS SECRETARY LT. COL. N VIJAY KUMAR.
...PETITIONER
(SRI M S RAGHAVENDRA PRASAD, ADVOCATE)
AND:
1. THE STATE OF KARNATAKA,
VIDHANA SOUDHA,
DR. AMBEDKAR VEEDHI,
BANGALORE-560001,
REP. BY ITS CHIEF SECRETARY.
2. DEPARTMENT OF PARLIMANETARY
AFFAIRS AND LEGISLATION,
STATE OF KARNATAKA,
VIDHANA SOUDHA,
DR. AMBEDKAR VEEDHI,
BANGALORE-560001.
REP. BY ITS SECRETARY - 560001.
3. DEPARTMENT OF ENERGY,
STATE OF KARNATAKA,
VIDHANA SOUDHA,
DR. AMBEDKAR VEEDHI,
BANGALORE-560001,
REP. BY ITS SECRETARY.
4. BANGALORE ELECTRICITY
SUPPLY COMPANY LTD.,
OFFICE AT CFC BUILDING,
NRUPATHUNGA ROAD,
BANGALORE-560001,
REP. HEREIN BY ITS
GENERAL MANAGER TECH
BANGALORE CITY.
5. CHAMUNDESWARI ELECTRICITY SUPPLY
CORPORATION LTD.,
OFFICE NO 928, LJ AVENUE
7
COMMERCIAL COMPLEX,
NEW KANTHARAJ URS ROAD,
SARASWATIPURAM, MYSORE-570 009,
REP. HEREIN BY ITS MANAGING DIRECTOR,
MYSORE.
6. MANGALORE ELECTRICITY
SUPPLY CORPORATION LTD.,
OFFICE AT MAROLI, KULASHEKARA,
MANGALORE-575 005,
REP. HEREIN BY ITS
MANAGING DIRECTOR MANGALORE.
7. HUBLI-DHARWAD
ELECTRICITY SUPPLY CORPORATION LTD.,
OFFICE AT EUREKA TOWERS,
T.B.ROAD DESHPANDE NAGAR,
HUBLI-580029,
REP. HEREIN BY ITS
MANAGING DIRECTOR DHARWAD.
8. GULBARGA ELECTRICITY
SUPPLY COMPANY LIMITED
OFFICE AT MAIN ROAD,
GULBARGA-585 102,
REP. HEREIN BY ITS MANAGING DIRECTOR
GULBARGA.
...RESPONDENTS
(BY SRI RAJKUMAR M, AGA FOR R1 TO R3,
SRI H V DEVARAJU, ADVOCATE FOR R4 TO R6,
R7 AND R8 ARE SERVED BUT UNREPRESENTED)
THIS WRIT PETITION IS FILED UNDER ARTICLES
226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING
TO QUASH THE AMENDMENT TO SECTION 3 OF THE
KARNATAKA ELECTRICITY (TAXATION ON CONSUMPTION)
ACT, 1959 BY VIRTUE OF THE AMENDING ACT 7 OF 2003
WHICH CAME INTO EFFECT FROM 1.4.2003 AS BEING
UNCONSTITUTIOAL, ULRTA VIRES AND ILLEGAL SO FAR
AS PETITIONER IS CONCERNED AND ETC.
8
THESE PETITIONS HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 26 TH APRIL, 2025 AND
COMING ON FOR PRONOUNCEMENT THIS DAY, THE
COURT PRONOUNCED THE FOLLOWING:
CORAM: HON'BLE MR JUSTICE ANANT RAMANATH HEGDE
CAV ORDER
The questions that arose in these two writ petitions
are;
(i) Whether the supply of electricity to ensure
minimum demand, without actual
consumption of electricity, amounts to
consumption or sale and enables the State to
levy tax on the tariff for the supply of
electricity?
(ii) Whether Section 3(1) of the Karnataka
Electricity (Taxation on Consumption) Act,
1959 (For short 'Act, 1959') as amended by
Amending Act 7 of 2003 and Amending Act 5
of 2004 imposing tax on electricity charges
ultravires?
9
2. During the pendency of the writ petitions, in
terms of Act No.24 of 2018, Section 3(1) of the Act,
1959, is amended, and by reason of amendment, the
tax is levied only on 'sale and consumption of
electricity'. The tax on 'electricity charges',
imposed under the impugned provisions on supply of
electricity, was done away in 2018 amendment vide
Act No.24 of 2018.
3. Since the petitioners had questioned the tax on
electricity charges, and because of the amendment
during pendency of writ petitions, tax on electricity
charges on supply is done away, the State contends
that the petitioners' challenge that the provisions are
ultravires becomes academic, and writ petitions have
become infructuous. Thus, the Court, in addition to
two questions referred to above, has to answer the
following question as well.
10
"Whether the petition challenging the
constitutional validity of a provision of law
becomes infructuous, if the impugned
provision is amended, or omitted during
the pendency of the proceeding?"
4. If the answer to the above question is in the
affirmative, then the Court need not examine the
question on the vires of the provision. If the answer is
in the negative, then the Court needs to examine the
question on the vires of the provisions.
5. The answer to the above question does
not appear to be simple "Yes" or "No". The answer
depends on the consequence of the provisions of law
under challenge, on the petitioners.
6. If the provisions are held to be ultra vires,
and if the petitioners are entitled to restitution or
some other consequential relief, then the petitions do
not become infructuous.
11
7. If the provisions are held to be ultra vires,
and the petitioners are not entitled to any further
relief by way of restitution or otherwise, then the
Court petitions do become infructuous.
8. If the petitioners have suffered a
consequence which can be quantified in terms of
money, then the petition does not become infructuous
merely because the provisions under challenge are
omitted or amended.
9. Admittedly, in terms of the impugned
provisions, the petitioners have paid Tax on the
electricity charges, which included tax on 'minimum
tariff'. The contention is that the provisions imposing
tax on supply of electricity are ultra vires. If the said
contention is accepted and the provisions are held to
be ultra vires, then the imposition and collection of
such tax on minimum charges for the supply of
electricity would be illegal. As a consequence, the
12
State has to refund the tax collected, as collection of
such tax amounts to 'unjust enrichment' by the State
at the cost of the rate payer, subject, of course, the
petitioners have not passed on the tax burden to their
customers.
10. It is indeed true that the amended
provisions are not in force in view of the amendments
brought into effect during the pendency of the writ
petitions. However, the petitioners apart from
challenging the constitutional validity, have also
sought the consequential order for repayment of tax
collected by respondent No.1. Under these
circumstances, the petitions challenging the
constitutional validity of the provisions are not
rendered purely academic and need be considered on
merits notwithstanding the amendment of the law
during the pendency of the petitions.
13
11. The petitioners have challenged the
Constitutional validity of Section 3(1) of the Karnataka
Electricity (Taxation on Consumption) Act, 1959 (For
short 'Act, 1959') as amended by Amending Act 7 of
2003 and Amending Act 5 of 2004.
12. In terms of the impugned provision, the tax
was levied on electricity charges, which included the
charges on consumption as well as supply.
13. Relevant portion of Section 3(1) of the
Karnataka Electricity (Taxation on Consumption) Act,
1959, before the amendment vide Act No.7 of 2003
reads as under:-
"3. Levy of tax on consumption of
energy: (1)Subject to the provisions of this
Act, there shall be levied and paid to the State
Government on the units of energy
consumed every month, a tax (hereinafter
referred to as "electricity tax") calculated at a
rate not exceeding twelve paise per unit of
energy as may, by notification, be specified by
the State Government, and different rates may
be specified in respect of different classes of
consumers:
14
xxx
xxx
xxx
(Emphasis supplied)
14. The above-mentioned provision provided
for the levy of tax not exceeding 12 paise per unit of
'energy consumed' every month as may be notified
by the State Government.
15. The Act No.7 of 2003 amended Section
3(1) of the Principal Act, and after the amendment,
the relevant portion of Section 3(1) of the Act, 1959,
reads as under:-
"3. Levy of tax on electricity charges:-
(1) Subject to the provisions of this Act, there
shall be levied and paid to the State
Government, advalorem tax (hereinafter
referred to as the "electricity tax") at five
percent on the electricity charges payable
(excluding arrears) by all the consumers
except consumers under agricultural (irrigation
pump sets upto and inclusive of Ten Horse
Power), Bhagya jyothi and Kutirajyothi
categories.
(emphasis supplied).
15
16. Under the amended provision, the State is
enabled to impose ad-valorem tax @ 5% on the
'electricity charges' payable by all the consumers
except the consumers under the Agricultural
(Irrigation Pump sets up to an exclusive of 10
horsepower) Bhagya Jyoti and Kutira Jyoti categories.
17. The Act No.5 of 2004 amended Section 3 of
the Principal Act, and after the amendment, the
relevant portion of Section 3(1) of the Act, 1959 reads
as under:-
"3.Levy of tax on electricity charges:-
(1) Subject to the provisions of this Act, there shall
be levied and paid to the State Government, ad
valorem tax (hereinafter referred to as the
"electricity tax") at five percent on the
electricity charges payable (excluding arrears)
by all the consumers except consumers under
agricultural (irrigation pump sets upto and inclusive
of Ten Horse Power), Bhagya jyothi and Kutirajyothi
categories.
(2) Subject to the provisions of this Act, there shall
be levied and paid to the State Government, with
effect from the date of commencement of Karnataka
Electricity (Taxation on Consumption) (Amendment)
Act, 2004 till the first day of July, 2004, an electricity
16
tax @ Twenty Five paise per unit on all units of
energy consumed by any person, -
(i) Not being a licensee who has generated such
energy; or
(ii) To whom it is supplied free of charge by a
person not being a licensee who has generated such
energy.
(emphasis supplied).
18. As can be noticed, the liability to pay tax
under the original provision before 2003 amendment
was on the energy consumed, whereas under the
amended provisions of 2003 and 2004, the liability to
pay tax was on the electricity charges, which also
included the 'minimum tariff' levied for the supply of
electricity. To put it differently, under the unamended
provision, there was no obligation to pay tax on the
minimum charges levied on supply, but the liability to
pay tax was only on the electricity consumed.
19. The petitioners have questioned the
constitutional validity of the aforementioned
17
provisions on various grounds. However, at the time
of hearing, the challenge was confined to legislative
competence to levy tax on the electricity which is
supplied but not consumed.
20. Learned counsel appearing for the
petitioners would contend that the State lacked
legislative competence to impose a tax on the energy
which is not consumed by the petitioners. The State's
power to legislate on taxation on electricity, is
traceable only to Entry No. 53 in List II of Seventh
Schedule. Under the said entry, State can impose tax
only on the energy consumed, but not on the energy
supplied, is the contention.
21. Elaborating on the contention, the learned
counsel would further urge that all the electricity
supplied is not necessarily consumed by the
consumer, and the State can impose tax only on the
electricity consumed. The supply up to a point is to
18
ensure that the electricity is readily available for
consumption, and for that, the distributor or licensee
collects a tariff, which is called as minimum tariff and
said tariff is not a tariff on sale and not taxable.
22. Learned counsel for the petitioners in
support of his contention would rely upon the
following judgments of the Hon'ble Apex Court.
1. Southern Petrochemical Industries Co. Ltd.
V. Electricity Inspector and ETIO and
Others.1
2. State of Mysore V. West Coast Paper Mills
Ltd and another.2
3. Sri Visakaa Fabrics Private Limited v. State
of Tamil Nadu and others.3
4. M.P. Cement Manufacturers Association v.
State of M.P. and others.4
1
(2007) 5 SCC 447
2
(1975) 3 SCC 448
3
W.P (MD) No.8961 of 2007 and MP(MD) No.1 of 2007
4
(2004) 2 SCC 249
19
23. Learned Government Advocate for the
State in addition to the contention that the writ
petitions are rendered infructuous in view of the
amendment to the provisions under challenge, would
also contend that the provisions are intra vires and
the State has the legislative competence to impose
tax on the supply of electricity and the charges levied
on it. It is also urged that there is a presumption in
favour of the constitutional validity of a provision, and
no case is made out to rebut the said presumption.
24. Learned Government Advocate would also
urge that even if the provisions are held to be
unconstitutional, the petitioners are not entitled to
claim a refund of the tax alleged to have been paid by
them, as the petitioners have not pleaded that they
have not passed on the tax liability on their
customers. Learned Government Advocate also
pointed out that no relief for refund of the tax is
20
claimed from respondent No.1/State. In support of the
contention, learned Government Advocate relied on
the judgment of the Apex Court in Mafatlal
Industries Ltd. and others vs. Union of India and
others.5
Discussion on the question of vires.
25. The Act, 1959, is enacted to have a uniform
tax structure all over the State on taxation on the
consumption of electricity. The statement of objects
and reasons would point out that the law was enacted
to have a uniform tax on consumption of electricity.
The nomenclature of the Act is "THE KARNATAKA
ELECTRICITY (TAXATION ON CONSUMPTION) ACT,
1959".
The preamble of the Act, 1959 reads as under:
5
(1997) 5 SCC 536
21
"An Act to provide for the levy of tax on the
consumption of electrical energy in the
State of Karnataka.
WHEREAS it is expedient to provide for the
levy of tax on consumption of electrical
energy in the State of Karnataka."
(emphasis supplied)
26. There is no dispute that the Act, 1959, was
enacted in exercise of the legislative power conferred
under Entry No.53 in List-II of Seventh Schedule.
Under the Constitution of India, there are two distinct
legislative fields covering electricity. Entry No.53 in
List II and Entry No.38 in List III of the Seventh
Schedule.
27. The legislative field provided under Entry
No.53 in List II (State List) is as under:
"Tax on the consumption or sale of
electricity."
The plain reading unmistakably suggests that the taxing
power is conferred on the State on the consumption or sale
of electricity."
22
Entry 38 in List III (Concurrent list) deals with
"Electricity".
28. In paragraphs No.56 and 60, and 138 of
Southern Petrochemical Industries Company Ltd,
supra, the Apex Court has held as under:
"56. A bare perusal of Entry 53 of List II
and Entry 38 of List III, however, clearly
suggests that they are meant to operate in
different fields.
60. Entry 53 of List II provides for a
taxation entry; whereas Entry 38 of List III
provides for a non-taxation entry dealing with
general aspects of electricity, excluding
taxation. The 1998 Act empowers the
Commission only to fix the electricity tariff or
the charges for consumption of electricity. The
legislation made by the State is independent of
actual tariff of electricity charges. Tariff would
mean a cartel of commerce and normally it is a
book of rates. (BSES Ltd. [(2004) 1 SCC 195] ,
SCC at p. 208)."
138. We have noticed hereinbefore that
the legislative fields carved out by reason of
Entry 53 of List II and Entry 38 of List III of
the Seventh Schedule of the Constitution of
India operate in different fields. The 1948 Act
was enacted to provide for the rationalisation
of the production and supply of electricity, and
generally for taking measures conductive to
electrical development".
23
29. As noticed above, the Apex Court has held
that both Entries No.53 and 38 operate in a different
field. In other words, Entry No.38 does not enable the
State to pass a law on taxation in connection with the
consumption and sale of electricity. The law on
taxation on electricity is authorised only in Entry
No.53 of List II of Seventh Schedule. If the makers of
the constitution intended to cover all aspects,
including taxation on consumption and sale of
electricity in List III (Concurrent list) of seventh
schedule, there was no need to have taxation on
consumption and sale of electricity in List II of
Seventh schedule.
30. Any interpretation to hold that the
expression 'Electricity' appearing in Entry No.38 in List
III includes taxation on consumption or sale of
electricity will render Entry No.53 in List II otiose. It is
a settled position that the interpretation should always
24
lean in ensuring the provision of law or any expression
in a provision of law is not rendered otiose. That is
more so when it comes to the interpretation of the
provisions of the Constitution of India.
31. Hence this Court is of the view that Entry
No.38 in List III enables the State to legislate on
electricity, except the taxation on consumption of and
sale of electricity, and the State's legislative power to
impose tax on electricity is traceable only under Entry
No.53 in List II and such power is confined only on
consumption and sale of electricity.
32. As already noticed, the petitioners are not
aggrieved by the tax imposed on consumption. The
grievance is on the tax imposed on electricity charges,
which also includes the electricity not sold. Thus, the
question that arises for consideration is,
"Whether the supply of electricity to
ensure minimum demand without actual
25
consumption of electricity amounts to
consumption or sale"?
33. In Paragraphs No.139 and 150 of
Southern Petrochemical Industries Co. Ltd,
supra, the Apex Court has held as under:
"139. Tariff is framed by the State Electricity
Boards under Sections 46 and 49 of the 1948 Act.
They may have different considerations for
imposition of tariffs. We have noticed hereinbefore,
the definition of "tariff" in BSES Ltd. [(2004) 1 SCC
195] whereupon Mr Andhyarujina himself relied
upon. A tax on tariff and a tax on consumption or
sale of electrical energy, thus, operate in different
fields. If it is to be held that the power of the
Electricity Regulatory Commission to fix tariff does
not include a power to impose tax, axiomatically, the
same principle would apply also when a tax is sought
to be levied on consumption or sale of electrical
energy and not on tariff. Power of taxation, as
noticed hereinbefore, operates differently from
power to impose tariff. A tariff validly framed by the
licensee, in exercise of its statutory power, may lay
down a higher rate on the sale of power to various
types of consumers having regard to the necessity to
maintain infrastructure. A maximum demand charge,
when levied, does not contemplate a sale or
consumption of electrical energy. Maximum tariff is
provided for various reasons. xxx".
150. Supply does not mean sale. A fortiori it
does not also mean consumption".
26
34. The Apex Court has held that the supply of
electricity to ensure a continuous supply when the
electricity is not consumed is not a sale.
35. Thus, if the licensee supplies electricity to a
consumer and demands a certain Tariff as a minimum
Tariff payable, irrespective of consumption, then such
Tariff cannot be termed as a Tariff on consumption or
a tariff on sale. The charges for consumption start
only when the electricity is consumed. The minimum
Tariff imposed is towards the cost of ensuring a
continuous supply of electricity. Only when the said
supply is consumed by the consumer, has to pay for
consumption charges. Thus, only when the electricity
is consumed it is sold. Till then, it is only a supply. If
the supply of electricity to a consumer is charged then
it is a Tariff, on supply, not on sale.
36. To consider whether the supply of electricity up to
a point where the consumer has not consumed the
27
electricity is a sale of electricity, reference to Section 4 of
the Sale of Goods Act, 1930( for short, "Act, 1930") is
necessary.
"4.Sale and agreement to sell.--(1) A
contract of sale of goods is a contract whereby
the seller transfers or agrees to transfer the
property in goods to the buyer for a price.
There may be a contract of sale between one
part-owner and another.
(2) A contract of sale may be absolute or
conditional.
(3) Where under a contract of sale the
property in the goods is transferred from the
seller to the buyer, the contract is called a
sale, but where the transfer of the property in
the goods is to take place at a future time or
subject to some condition thereafter to be
fulfilled, the contract is called an agreement to
sell.
(4) An agreement to sell becomes a sale when
the time elapses or the conditions are fulfilled,
subject to which the property in the goods is to
be transferred."
37. Section 4 of the Act, 1930 recognises both 'sale',
where the transfer of ownership and possession takes
28
place, as well as the 'agreement for sale', where the seller
agrees to transfer the goods at a future time.
38. Under sub-section (3) of Section 4 of the Act,
1930, when the goods are transferred from the seller to the
buyer, it is a 'sale'. Whereas, when the goods are agreed to
be sold at a future time, then such a contract is an
'agreement to sell'. Sub-section (4) of Section 4 of the Act,
1930 provides that the 'agreement to sell' becomes a 'sale'
when the goods are transferred or the conditions in the
'agreement to sell' are fulfilled
39. There is no dispute that when the supplier of
electricity supplies electricity to the designated point at the
consumer's place, it is quite possible that the consumer
may tap the electricity so supplied for consumption or may
not use it at all. If it is consumed by the consumer, then the
consumer has to pay the price fixed for such consumption,
where the delivery actually takes place, and electricity is
utilised by the consumer. In such an event, the delivery is
29
complete and the electricity is used, and the sale of
electricity is complete.
40. However, if the consumer does not tap and
consume the electricity so supplied, the delivery of the
goods (electricity) does not take place, and the contract for
sale of electricity does not end up in a contract of sale, and
it only remains a contract for sale, in which situation there
is no sale.
41. When the supplier of electricity supplies
electricity to a specified point at a place belonging to the
consumer, from where the consumer can tap the electricity
for consumption, it is only an 'agreement to sell' electricity
and not a 'sale' of electricity. For example, if 220 kW of
electricity is supplied to the consumer, after one hour, if the
consumer has consumed 10 units of electricity, the actual
'sale' would be only 10 units and not the number of units
supplied which is more than what is consumed. It is also
relevant to note that the consumed unit does not include
30
the number of units lost in transmission up to the specified
point at the consumer's place. Once those 10 units are
consumed, the State has the power to impose a tax on the
price of 10 units consumed as same amounts to taxation on
consumption as well as sale.
42. If the consumer is taxed on the 'minimum tariff'
charged for the supply of electricity for ensuring constant
supply for consumption of electricity at any given point of
time, then it amounts to taxation on electricity which is not
yet sold but only agreed to be sold. Looking at the
language used in Entry No.53 of List-II of Seventh
Schedule, it is evident that State has the power to enact a
law on consumption and sale. Entry No.53 in List-II of
Seventh Schedule does not enable the State to enact law to
impose tax when the electricity not sold but agreed to be
sold, where the actual sale does not take place. Thus,
State lacks legislative competence to impose a tax on
electricity charges, which includes the minimum tariffs on
31
electricity supplied but not sold. Thus, impugned provisions
amount to a colourable exercise of legislative power.
43. For the aforementioned reasons, this Court is of
the view that the provisions of the amended Section 3(1) of
the Act, 1959 as amended vide Act No.7 of 2003 and Act
No.5 of 2004 providing for tax on electricity charges which
includes the 'minimum tariff' are unconstitutional as the
State has no legislative competence to levy tax on 'minimum
tariff' for the electricity which is not consumed. Hence, the
petitioners succeed in their challenge to the constitutional
validity of the aforementioned provisions.
44. Now the question is, "Whether the petitioners
are entitled to a refund of the tax paid by way of
restitution?"
45. Writ Petition No.1644/2009 is filed by the
Federation, and Writ Petition No.3935/2008 is filed by the
Companies.
32
46. The prayer in both petitions is to direct the power
transmitting companies to refund the tax collected on the
premise that such tax is unconstitutional. The impugned
provisions specifically provide that the tax shall be paid to
the State. However, power transmitting companies are
enabled to collect the tax on behalf of the State. It is not
the case of the petitioners that the tax so collected is
retained by respondents No. 4 to 8 the power transmitting
companies. The tax collected is with respondent No.1/State.
No prayer for refund is made against the respondent No.1,
to whom the tax has been remitted.
47. Thus, the petitions are, in a way, defective.
Thus, the prayer to recover the tax from power transmitting
companies is not maintainable.
48. Though the learned counsel for the petitioners
would submit that the prayer is to be moulded and direction
is to be issued to the State to refund the tax collected, this
Court is unable to accept such a plea for moulding the
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prayer to reimburse the tax by the State. The reason is
simple. Merely because a law providing for a tax on
'minimum tariff' on electricity is held to be unconstitutional,
the petitioners are not automatically entitled to
reimbursement of tax collected under a law which is
declared unconstitutional.
49. The Apex Court, in Mafatlal Industries Ltd.,
supra,has exhaustively dealt with the question of restitution
where tax (Excise duty) has been illegally collected. The
Apex Court has held that even if a law is declared as
unconstitutional, the restitution is not automatic, and it
depends on the pleading and proof of actual loss or damage
suffered on account of the law which is declared
unconstitutional.
50. The Apex Court has also dealt with the possible
remedies for the parties who have suffered loss on account
of an unconstitutional levy of tax. The party may have to
file a suit or avail the refund mechanism, if any, provided in
34
the Statute or in appropriate cases may invoke Article 226
of the Constitution of India. However, the remedy under
Article 226 of the Constitution of India is again subject to
certain other riders like the availability of an alternate
remedy and disputed questions of fact, if any, required to
be dealt with.
51. It is a well-settled principle of law that a person
who seeks restitution has to establish that he has suffered
actual damage/loss on account of the unconstitutional levy
of tax. It is quite possible that the person who has paid the
tax, being the manufacturer of certain products, like the
petitioners in Writ Petition No.3935/2008, might have
passed on the tax burden to the actual consumers of their
respective products. Such being the position, the petitioners
are required to plead and establish that the tax burden,
which is imposed on them, is absorbed by them, and the
tax burden is not passed on to the consumers. To that
effect, there has to be a pleading and proof.
35
52. It is noticed from the pleadings in Writ Petition
No.3935/2008 that the petitioners have not raised such a
plea. When that being position, 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 in
W.P.No.3935/2008.
53. As far as the W.P.No.1644/2009 is concerned, the
petition is filed by the Federation of Karnataka Chambers of
Commerce and Industry Company, which is not the
Manufacturer and it is only the consumer of electricity for
its own use. It cannot pass the tax burden on others, as it
is not the manufacturer or seller of any product. Thus, the
petitioner in Writ Petition No.1644/2009 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, notwithstanding the
36
fact that there is no specific prayer against the State. The
State is not put to any prejudice for want of any prayer
against the State for refund of the tax. The State was put
on notice on the plea relating to the vires of the impugned
provisions. Thus, in Writ Petition No.1644/2009, the order
for refund of tax collected under the impugned provisions is
consequential.
54. In the said petition, the Court can certainly mould
the relief, as the State cannot take the contention that the
Federation has passed on the tax burden to some other
person. However, it is made clear that the
W.P.No.1644/2009 is not considered as a petition on behalf
of the members of the petitioner Federation. There is no
pleading to consider the petition as the one representing its
members, and particulars of the members are also not
provided. The relief of refund of tax granted to the
petitioner in W.P. 1644/2009 is only on the tax on
37
electricity charges paid by the petitioner from 15.01.2009
(the date of the petition) till 18.07.2018.
55. Since this Court has held that the provision
imposing tax on the 'minimum tariff' for supply of electricity
is unconstitutional, the logical conclusion would be that the
State could not have collected the tax from the petitioners.
However, the oral prayer for a direction to refund the tax so
collected from respondent No.1 is rejected for want of a
proper plea that the petitioners have not passed on the tax
burden on their customers while selling their products.
Nonetheless, the petitioners' right to recover the tax paid,
in case the petitioners have absorbed the tax burden and
not passed it on to the consumer should not be taken away
for want of a necessary plea in these petitions.
56. Since the law is declared as unconstitutional,
liberty is to be reserved to the petitioners in Writ Petition
No.3935/2008 to initiate appropriate proceedings as
advised in law (keeping in mind the law laid down in
38
Mafatlal Industries Ltd., supra) as there is a fresh cause
of action to seek refund of the tax collected, as such
collection is now held to be unconstitutional. However, it is
also required to be noticed that the writ petition was filed
on 07.03.2008, and the provisions impugned came into
effect on 01.04.2003 and 16.10.2004. Hence, it is made
clear that though the petitioners are permitted to initiate
appropriate action as advised in law for a refund, the
petitioners shall not claim a refund of tax paid before
07.03.2008, i.e., the date on which the writ petition is filed.
57. It is also required to be observed that the Writ
Petition was filed in the year 2008, and the impugned
provisions came into effect in the years 2003 and 2004. The
petitioners have not chosen to question the said provisions
till 2008. Under these circumstances, the petitioners in W.P.
No.3935/2008, if entitled to claim reimbursement (subject
to proof of loss/damage), are entitled to claim
reimbursement only from 07.03.2008, the date of the writ
39
petition, till 18.07.2018, i.e., the date on which the
impugned provisions are amended.
58. It is also required to be observed that though the
law is held to be unconstitutional and the said law which is
now declared unconstitutional is omitted in the year 2018,
the benefit of this judgment is available only to the
petitioners who have approached the Court and not to
others who have not challenged the provision of law and
paid the tax. Taking into consideration that the impugned
provisions were omitted in 2018, this Court has to observe
that the persons who have not questioned the impugned
provisions should not be allowed to take the benefit of this
judgment declaring the impugned provisions as ultra vires.
Conclusions:
(i) Section 3(1) of the Karnataka Electricity
(Taxation on Consumption) Act, 1959, as
amended by Act No.7 of 2003 and Act
40
No.5 of 2004, imposing tax on electricity
charges, declared as unconstitutional.
(ii) Supply of electricity to the consumer to
ensure availability of electricity for
consumption, does not amount to
consumption or sale, unless the electricity
consumed by the consumer, and the
State has no legislative competence under
Entry No.53, List II of Seventh Schedule
to the Constitution of India to levy tax on
minimum tariff. The State is competent to
levy tax under Entry No.53, List II of
Seventh Schedule only on actual
consumption or sale of electricity.
(iii) Petition challenging the constitutional
validity of a provision ipso facto does not
become infructuous, if the provisions
under challenge are amended or omitted
41
during the pendency of the petition.
Whether such petition becomes
infructuous or not depends on the nature
of relief sought and consequences
suffered under the provisions questioned
which are to be decided on the facts and
circumstances obtained in such case.
59. Hence, the following:
ORDER
(i) Writ Petition No.3935/2008 is allowed-
in-part.
(ii) Writ Petition No.1644/2009 is allowed.
(iii) Section 3(1) of the Karnataka Electricity (Taxation on Consumption) Act, 1959, as amended by Act No.7 of 2003 and Act No.5 of 2004, imposing tax on electricity charges, declared as unconstitutional. 42
(iv) Respondent No.1-State shall reimburse the tax collected from the petitioner in Writ Petition No.1644/2009 from 15.01.2009 - the date of the petition till 18.07.2018 - the date on which the impugned provisions are amended.
(v) The petitioners in Writ Petition No.3935/2008 are at liberty to initiate appropriate proceeding to recover the tax collected on the consumption of electricity from 07.03.2008 - the date of petition, till 18.07.2018 - the date of the amendment of the provision, subject to proof that the petitioners have not passed the tax liability on the consumers and other parameters laid down in Mafatlal Industries Ltd. and others 43 vs. Union of India and others, (1997) 5 SCC 536.
(vi) It is made clear that only the tax on 'minimum tariff' is held unconstitutional and not the tax collected on the consumption of electricity.
Sd/-
(ANANT RAMANATH HEGDE) JUDGE Brn