Karnataka High Court: When Electricity is purchased from open source, electricity Tax is Payable on that Rate
The Karnataka High Court (HC) in the case titled M/s Southern Ferro Ltd. (Petitioner) v. The State of Karnataka & Ors. (Respondents) ruled that when a consumer purchases electricity from an Open Access Source, the tax on electricity will be chargeable at the rate at which the consumer purchased electricity, instead of the higher charges at which it is supplied by a licensee.
The single-judge of the HC Justice N.S Sanjay Gowda stated that if a consumer is to pay electricity tax on charges higher than the one supplied by the licensee, necessarily, whenever, the licensee procures through Open Access Source, electricity at a lower rate, the charges would have to be calculated on the rate at which the consumer had purchased the electricity.
The factual background of the case is that the petitioner has challenged the demand to pay a sum of Rs. 94,47,534 before the HC. It was contended that apart from electricity supplied by the licensee i.e. Hubli Electricity Supply Company Limited (HESCOM), it is also supplying energy from the energy exchange every month which is called as the purchase of electricity from Open Access Source.
Petitioner contended that the price paid for the purchase of electricity through Open Access Source is different than the price paid by it for the electricity sold to it by the licensee, HESCOM.
The petitioner admitted that it is liable to pay tax on the electricity consumed by it whether it is purchased from the HESCOM or purchased from Open Access Source. Petitioner, however, contends that the electricity tax i.e., to be paid should be levied on the price at which it purchases, be it from the licensee or from the Open Access Source.
The electricity purchased from HESCOM, is liable to pay tax at the rate of 6 percent on the procurement price. It was stated that similarly in respect of electricity purchased from Open Access Source, electricity tax would have to be levied at the rate of 6 percent on the price at which the electricity was procured from the Open Access Source.
However, HESCOM had issued a demand calling upon the petitioner to pay tax on electricity consumed at the rate of 6 percent on the charges that HESCOM had fixed for the sale of the units.
It has been submitted that since the petitioner had procured electricity at a lower rate from the Open Access Source, HESCOM could not demand tax at the rates at which it supplied.
The petitioner stated that the demand made by computing tax for electricity consumed at the rates prescribed by HESCOM would be illegal and would be liable to be quashed.
The department argued that the petition is not maintainable since the company had admittedly submitted a representation to the State Government requesting a grant of 24 monthly installments for payment of arrears of tax on electricity.
The Court referred to Section 3 of the Karnataka Electricity (Taxation on Consumption or Sale) Act, 1959 and stated that the aim of the Act is clear i.e. when a consumer consumes electricity within Karnataka then the consumer has to pay tax on ad volorem basis at 6 percent rate on charges payment for electricity sold or being consumed.
Justice Gowda further emphasized that it should be borne in mind that as per legislative intent it was open for a consumer of electricity to either purchase electricity from a licensee such as HESCOM or from the Open Access Source.
The Court added that if the electricity procured by the licensee from Open Access Source is costlier than the electricity supplied through the licensee, obviously, higher revenue would yield to the State. The corollary of this would also have to be given effect to.
The HC said, "If it was the intent of the State that irrespective of the rate at which the electricity was purchased by the consumer, the rate of tax would be on the charges payable by the consumer to the licensee, then the charging Section would have clearly stated so."
It was held by the Court that electricity tax would have to be levied and collected at a particular rate at which the consumers had purchased the electricity exchange. It added that the demand made by HESCOM by computing the tax at the rate at which it was selling electricity to its consumers cannot be the basis for levying and collecting the electricity tax.
The Court while rejecting the contentions of HESCOM directed it to calculate the electricity tax at the rate at which the petitioner had purchased the electricity from Open Access Source and issue a revised demand within a period of two weeks.
It directed that deposited by the petitioner (if any) shall be adjusted and if there is any sum in excess, the same may be refunded to the petitioner. If the petitioner has to pay an additional amount, then it shall be paid within two weeks from the date of demand.