Essar Steel India Ltd. And Anr vs State Of Gujarat And Anr

Consequent upon such conversion, the appellant no.1 company was granted by the State Government exemption from payment of electricity duty for a period of 15 years commencing from 21.07.1990. In the year 1991, the appellant no.1 company also desired to put up a composite plant after making substantial investment for production of both HBI and HRC. Therefore, in or about the year 1991-92, the appellant no.1 company thought of setting up another Captive Power Plant of 300 MW of capacity in Combined Cycle Mode at Hazira for meeting its requirement of more power. The appellant thought of doing so, in view of the benefits available to the Captive Power Plant at the relevant time. The Government of Gujarat and the Gujarat Electricity Board granted in principle approval to the appellant no.1 company for setting up the said Captive Power Plant of 300 MW. There was, however, a change in the Power Policy of Government of India, in the year 1991-92, which allowed the participation of private sector in power generation. Government of Gujarat also, with a view to give effect to that policy, issued a Notification dated 27.02.1992 under Section 3 of the Bombay Electricity Duty Act, 1958(hereinafter referred to as 1958 Act). The appellant no.1 Company, therefore, abandoned its plan to set up the said Captive Power Plant of 300 MW in Combined Cycle Mode and in place and instead thereof, promoted and incorporated a separate generating company under the name and style of “ESSAR Power Limited”, the appellant no.2 is a Special Purpose Vehicle promoted by the appellant no.1 company for supply of power to the appellant no.1 company as well as to the Gujarat Electricity Board.

3. The Government of Gujarat issued an Order dated 16.06.1995 agreeing in principle to the demand of appellant no.2 to set up 510 MW generating station at Hazira. The appellant no.2 started production of electricity w.e.f. 08.08.1995. The appellant no.1 held equity shares of 42% of appellant no.2 company. Out of 515 MW, 300 MW capacity has been allocated to GEB (Gujarat Electricity Board) which constitute 58% of the installed capacity, remaining capacity of 215 MW which constitute 42% to the ESSAR Group of company as per the stipulation contained in the Power Purchase Agreement dated 30.05.1996.

17. Even assuming appellant no.1 and appellant no.2 are jointly generating the energy for the use of industrial undertaking which are jointly generating the energy, the Gujarat Electricity Board to whom 300 MW has been allocated cannot be held to be industrial undertaking which is jointly generating the energy with appellant. The Statutory scheme for grant of exemption has to be strictly construed. The appellant no.2 is not jointly generating energy with Gujarat Electricity Board and it is selling the energy to the extent of 300 MW to Gujarat Electricity Board. The conditions of the statutory provisions of Section 3(2)(vii)(a) are not fulfilled. The High Court has further held that both ESL and EPL being distinct separate legal entities merely because ESL might have 42% shares holding in EPL, it cannot be said that ESL is generating electricity jointly with EPL and EPL is generating electricity jointly with ESL for use of electricity by ESL.

21. Learned Counsel for the appellant submits appellant is claiming exemption from excise duty only to the extent of its shareholdings i.e. 42%. The object for grant of exemption to the industrial undertaking which generates energy either singly or jointly is for the use of industrial undertaking which are jointly generating the energy. When in the present case, 58% of the energy generated has been allocated to Gujarat Electricity Board with whom appellant No. 2 is not jointly generating the energy, the Statutory provisions has to be strictly construed and when energy being generated is used by industrial undertaking which is not jointly generating the energy the claim is not covered under Section 3(2)(vii)(a).

26. Ultimately, the appeal was partly allowed and judgment of the High Court was modified vide paragraph 57 of the judgment which is to the following effect: -

29. In the above case the question of exemption in excise duty within meaning of Section 3(2) of 1958 Act had not arisen nor the question was considered whether EPL can be held to be generating energy jointly with appellant no.1 and Gujarat Electricity Board. For the issues which have arisen in the present case, the above judgment does not render any help.

Claim under notification dated 27.02.1992

34. We thus do not find any error in rejection of claim of appellant under the notification dated 27.02.1992.

35. The High Court has rightly negatived the claim of the appellant under Section 3(2) as well as under the notification dated 27.02.1992 issued under Section 3(3). We do not find any merit in this appeal, the appeal is accordingly dismissed.