Case: Bihar State Electricity Board Vs. M/s. Usha Martin Industries

...... Ordinarily, it is not shown as a separate item in the bill but it is included in the price charged by him. The "Sale Price" in such a case could be the entire price inclusive of excise duty because that would be the consideration payable by the purchaser for the sale of the goods. ...... But even so it would be part of the sale price because it forms a component of the consideration payable by the purchaser to the dealer.... and on this reasoning, it would make no difference whether the amount of excise duty is included in the price charged by the dealer or is shown as a separate item in the bills. In either case, it would be part of the sale price." 22. Mr. Dave contended that even on general principle of law the rates fixed under the tariff included Central Excise Duty, even if it was not mentioned separately in express words. 23. We are unable to uphold any of these arguments. The proposition laid down in the case of Love v. Norman Wright (Builders) Ltd., 1944(1) All ER 618, goes directly against the argument advanced by Mr. Dave. M/s. Usha Martin Industries is the purchaser of electricity. The price it pays will include costs of production, profit plus taxes. But the purchaser pays nothing but the price. The consideration for the sale of electricity is the price charged by the Board. The law laid down by Lord Goddard LJ in Love v. Norman Wright (Builders) Ltd., in a case under purchase tax was applied by this Court in the case of Hindustan Sugar Mills v. State of Rajasthan, (AIR 1978 SC 1496 ) (Supra). After referring to the judgment of Goddard LJ, it was reiterated that the sale price would be the entire price inclusive of excise duty because that would be the consideration payable by the purchaser for the sale of goods. 24. In the instant case, after imposition of Central Excise Duty on production of electricity at the rate of 0.02 paise per unit, the Board did not revise the uniform tariff, but decided to levy a surcharge of 0.03 paise per unit even though the duty payable was only 2 paise per unit. Reasons have been given in justification for surcharge of 3 paise per unit even though the duty levied was only 2 paise per unit which were found valid by the Division Bench of the Patna High Court. On and from 2-6-1979, the surcharge was merged in uniform tariff by a notification issued by the Board. There is no dispute that the uniform tariff was fixed in conformity with the principles contained in Section 49 of the Act. Along with other costs incurred by it, the Board also took into account the excise duty payable by the Board. It is not the case of the respondent-Company that the Board is making excessive profit or any profit at all. The excise duty is only one small item in the total expenditure incurred by the Board for generation of electricity. There is no law which requires the Board to reduce the tarrif, if any one of the items of expenditure incurred by the Board has been reduced. 25. This Court pointed out in the case of Parag Ice and Oil Mills v. Union of India, 1978(3) SCR 293, that in the ultimate analysis the mechanics of price fixation is necessarily to be left to the judgment of the executive. The principle was reiterated in the case of Rohtas Industries Ltd. v. Chairman, Bihar State Electricity Board, 1984 (Supp) SCC 161, where fuel surcharge levied by the Board was challenged as arbitrary and unreasonable. (At P. 663 of AIR) "The learned Attorney-General appearing on behalf of the Board has placed before us tabulated statements showing the working results (financial) of the Board in the years subsequent to 1977-78. It is found therefrom that the net result of the Boards working in each of the years 1978-79 to 1981-82 was a substantial deficit or loss. The deficit in 1978-79 was Rs. 15.31 crores, in 1979-80 Rs. 10.27 crores, in 1980-81 Rs. 32.69 crores and in 1981-82 Rs. 18.60 crores. The statement also shows that the revenue earned per unit of electric energy sold was much lower than the actual cost of production incurred by the Board per unit. The cost of production per unit in the four years aforementioned was 51.00 p., 65.10 p., 73.86 p., and 87.16 p. respectively, whereas the revenue per unit was only 38.48 p., 47.17 p., 53.07 p., and 66.39 p. respectively. It is thus found that notwithstanding the mandatory provision contained in Section 59 of the Act, the Board has been selling energy at rates which are lower then the actual cost incurred by it per unit of production. Such being the factual situation, there is absolutely no basis for the contention urged on behalf of the appellants that the tariff fixation effected by the Board suffers from the vice of arbitrariness and is liable to be interfered with by the Court on that ground." 26. The period involved in that dispute was the years 1978-79 and 1981-82 (This period is also relevant for the purpose of this case). In that case scope of Section 59 of the Act was examined and it was observed that no attempt has been made on behalf of the respondent-Company to show that the Board was making undue profit. The Central Excise Duty has been merged in the uniform tariff. The petitioner, in effect, is seeking a reduction of the uniform tariff fixed by the Board. It is not the case of the petitioner that the tariff has been fixed regardless of considerations which have to be taken into account under Section 49. The mechanics of price fixation has to be left to the judgment of the executive.27. We are of the view, the High Court was clearly in error in directing modification of the tariff fixed by the Board.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]2. We are of the view that the High Court was clearly in error in coming to this decision. Electricity has to be supplied by the Board to persons other than licensees at a price fixed by the Board. In fixing the price, the Board has to take into consideration various factors laid down in Section 49 ofthe Electricity (Supply) Act, 1948. The Board is also under a statutory mandate to charge price from its customers in such a way that the total revenue received by it in a year is more than its expenditure. Section 59 enjoins the Board to generate profit of at least 3 per cent of the value of the fixed assets of the Board. The State Government may direct the Board to generate even larger profits.We are of the view that the High Court should not have interfered with the pricing of the electricity sold by the Board on the ground that the liability to pay central excise duty had come to an end on and from 1st October,first and foremost is that this contention was not taken before the lower authorities including the Tribunal. The applicability of Section 64-A will depend upon the agreement between the parties. No evidence was led before the authorities below to show that the parties intended that the relief of excise duty if abolished or reduced would be passed on to the consumers. It was specifically stated in Clause 16.4, one of the clauses of Tariff Notification, that if the excise duty was enhanced, the tariff would be raised. No provision was made for reduction of tariff under any circumstance. The specific provision for raising tariff in case of enhancement of excise duty and absence of any such provision for reduction of tariff in case of lowering or abolition of excise duty go to show that there was no intention on the part of the Board to reduce the tariff in case of lowering or abolition of the excise duty. The provision of Section 64-A can only apply if intention to the contrary did not appear from the terms of the contract.17. Moreover, the tariff is fixed by exercise of statutory power. It is not fixed as a result of any bargaining by and between the Board and the consumers. It is a uniform tariff which every consumer will have to pay for the electricity consumed by him. In fact, the consumer has no option but to pay the tariff fixed by the Board in exercise of power conferred by Section 49.This argument overlooks the fact that the price in the instant case was fixed in exercise of statutory power. It included Central Excise Duty on electricity with effect from 1-3-1978. On 6-4-1979, the Central Excise Duty payable on generation of electricity was merged in the tariff. The result was that the excise duty was included in the price for supply of electricity charged by the Board and lost its separate identity.In the instant case, after imposition of Central Excise Duty on production of electricity at the rate of 0.02 paise per unit, the Board did not revise the uniform tariff, but decided to levy a surcharge of 0.03 paise per unit even though the duty payable was only 2 paise per unit. Reasons have been given in justification for surcharge of 3 paise per unit even though the duty levied was only 2 paise per unit which were found valid by the Division Bench of the Patna High Court. On and from 2-6-1979, the surcharge was merged in uniform tariff by a notification issued by the Board. There is no dispute that the uniform tariff was fixed in conformity with the principles contained in Section 49 of the Act. Along with other costs incurred by it, the Board also took into account the excise duty payable by the Board. It is not the case of the respondent-Company that the Board is making excessive profit or any profit at all. The excise duty is only one small item in the total expenditure incurred by the Board for generation of electricity. There is no law which requires the Board to reduce the tarrif, if any one of the items of expenditure incurred by the Board has beenis not the case of the petitioner that the tariff has been fixed regardless of considerations which have to be taken into account under Section 49. The mechanics of price fixation has to be left to the judgment of the executive.27. We are of the view, the High Court was clearly in error in directing modification of the tariff fixed by the Board.