Case: Indian Aluminium Co Vs. State Of Kerala

3. By Section 36 of Finance Act 1978, the Central Excises and Salt Act 1944 (for short, the "Excise act", was amended to impose central excise duty on electricity under Item 11-E in the Ist Schedule to the Excise Act and fixed 2 paise per kilo watt of electricity unit. Consequently , the Kerala State electricity Board (KSEB) was liable to pay excise duty on electricity generated and produced by it. To recoup that loss, the Government of Kerala, exercising its power under Section 3 of the Kerala Essential Articles Control (Temporary Powers) Act, 1961, issued an order. By clause (4) of the said order, surcharge at the rate of 2.5 paise per unit of electrical energy was levied on all supplies of electrical energy made by the KSEB either directly or through licensees of Extra High Tension (EHT) and High Tension (HT) consumers. Thereunder, the licensees were allowed to retain 1% of the amount collected as collection charges. On October 1,1984 the Government of India had withdrawn the levy of excise duty on electricity. The Government of Kerala in supersession of its Order dated April 6,1979 had notified the State Electricity Supply ( Kerala State Electricity Board and Licensees Area) Surcharge Order, 1984 effective from October 1,1984. Under clause (4) of the said Order all supplies of electrical energy made by KSEB either directly or through licensees, were liable to surcharge at the rate fixed at 2.5 paise per unit. In the explanatory note it was stated that though excise duty was discontinued, the State Government desired to continue the levy of surcharge. The EHT and HT consumers had filed writ petitions challenging the validity of the 1984 Order. pending writ petitions, on August 1, 1988, the State Government discontinued the levy of surcharge with effect from that date by issuing an Ordinance called the Kerala Electricity Duty (Amendment) Ordinance, 1988 which later on became an enactment. The rate of electricity duty was 30% of the price of energy. Later, it was revised to 10 paise per unit for HT consumers and 6.5 paise per unit for EHT consumers. After a representation was made through the Association of the HT and EHT consumers, the Government of Kerala decided to discontinue the surcharge on the electricity duty of 10 paise per unit On September 27, 1988, a Division Bench of the High Court in Chakolas Spinning and Weaving Mills Ltd. v. K. S. E. Board, 1988(2) Ker L. T 680 held that the levy of surcharge is in substance a compulsory exaction intended to enrich the confers of the State and in effect partakes the character of tax on electricity. The Government, acting as a delegate under the Kerala Essential Articles Control Act, 1986 (Act 16 of 1986), is not competent to impose any tax. A writ of mandamus was issued directing refund of excise duty collected from those writ petitioners before the High Court. The Kerala State Electricity Supply (Kerala State Electricity Board and Licensees Area) Surcharge Order, 1984 was declared ultra vires the power of the State Government. The said judgment was confirmed by this Court dismissing the Special Leave Petitions in limine.4. At this stage, it may be necessary to mention that the Essential Articles (Control) Act. 1963 was amended and Act 13 of 1988 was enacted. It is also relevant to note that exercising the power under Entry 53 of List II of the seventh Schedule, the Kerala State legislature had enacted Kerala Electricity Duty Act. 1963 and Rules were made to levy electricity duty at varying rates. Orders were passed by this Court on April 13, 1989 dismissing the SLP (c) Nos. 4256-66 of 1989. The Governor of Kerala, exercising power under Article 213 of the Constitution issued Ordinance called the Kerala Electricity Surcharge (Levy and Collection) Ordinance, 1989 which later on became enactment. viz. Act 22 of 1989 (for short, "the Act"). Under the Act, the appellants are liable to pay 2.5 paise per unit of electrical energy supplied. The appellants challenged the same by filing the writ petitions. The High Court upheld the validity of the Act and the Order. Thus these appeals by special leave.

Court's reasoning:
Indisputably, the title of the Act as well as the charging Section 3 employ the words "duty on supply of electricity. Under Article 246 (3) of the Constitution, every State legislature has explicit power to make law for that State with respect to the matters enumerated in List II (State List) of the Seventh Schedule to the Constitution. The States power to impose tax is derived from the Constitution. The Entries in the three Lists of the Seventh Schedule are not power of legislation but merely fields of legislation. The power is derived under Article 246 and other related Articles of the Constitution. The legislative fields are of enabling character designed to define and delimit the respective areas of legislative competence of the respective legislatures. There is neither implied restriction imposed on the legislature nor is any duty prescribed to exercise that legislative power in a particular manner. But the legislation must be subject to the limitations prescribed under the Constitution.In view of the legal position referred to hereinbefore, it must be held that the words sale or consumption used in Entry 53 of State List and the Act made in exercise of the power under Article 246 (3) of the Constitution, would receive wide interpretation so as to sustain the constitutionality of the Act unless it is affirmatively established that the Act is unconstitutional.20. When the vires of an enactment is challenged, it is very difficult to ascertain the limits of the legislative power. Therefore, the controversy must be resolved as far as possible, in favour of the legislative body putting the most liberal construction upon the relevant legislative entry so that it may have the widest amplitude. The Court is required to look at the substance of the legislation. It is equally settled law that in order to determine whether a tax statue is within the competence of the legislature, it is necessary to determine the nature of the tax and whether the legislature had power to enact such a law. The primary guidance for this purpose is to be gathered from the charging section. It is the substance of the impost and not the form that determines the nature of the tax.The doctrine of pith and substance, though applied in determining the true character of the statutes under List III (Concurrent List) of the respective legislative topics of the State legislature and the Parliament. It was extended for consideration of the true character of the legislation even under the same legislative list. In all cases, therefore, the name given by the legislature in the impugned enactment is not conclusive on the question of its competence to make it. It is the pith and substance of the legislation which decides the matter which needs to be decided with reference to the provisions of the statute itself.It is true that when water supplied by the municipality to the consumers through their water mains, flows from the mains through the water meter and into the pipes fitted into the house and from there water is supplied from tap fitted to the pipes. Thus there is hiatus between supply and consumption. When water is actually used there would be consumption though water supplied gets recorded when water passes through the meter from the water mains. But the analogy there of to the supply, consumption and sale of electric energy is inappropriate as it cannot be separately stored after the supply but before consumption or sale thereof. However, water can incidentally be stored or remain in pipe for use and after tap is opened it is consumed. Even if it percolates it may be a loss to the consumer. This operation thereof is inapt. Its analogy to electricity is, therefore, inapt and inappropriate.Levy of duty goes into the public revenue. It is an impost, a compulsory exaction for the benefit to the coffers of the public exchequer and, therefore, it is a tax. The Act in pith and substance is a tax on sale or consumption of electrical energy. Therefore, the Act falls in Entry 53 and does not fall in Entry 27 of the State List of the Seventh Schedule to the Constitution. The State legislature, therefore, validly enacted the Act under Article 246 (3) of the Constitution.A reading thereof clearly indicates that notwithstanding anything to the contrary contained in any judgment, decree or order of any Court, the levy and collection of surcharge by the Board or other licensees on or after the 1st day of October, 1984 and before the 1st day of August, 1988 under the Kerala State Electricity Supply (Kerala State Electricity, Board and Licensees Area) Surcharge Order, 1984, shall be deemed to be, and deemed always to have been validly levied and collected as if the said Order was a notified order under Section 3 of the (Act 22 of 1984). Accordingly all acts, proceedings or things done by the Board or other licensees in connection with such levy, collection and remittance of surcharge shall, for all purposes be deemed to be, and deemed always to have been, done or taken in accordance with the Act. Sub-section (2) removes the doubts declaring that nothing in sub-section (1) shall be considered as preventing any person from claiming refund of any surcharge already paid in excess of the amount due from him under the order referred to in sub-section (1).33. It is seen that the Act does not limit to the period covered under Section 11 of the Validation Act. Section 3 with a non obstante clause provides that notwithstanding anything to the contrary contained in any agreement entered into with any consumer or the conditions or service agreed by the Board, the Government may by notified order provide for the levy and collection of surcharge on all HT and EHT supplies of energy made by the Board whether directly or through licensees at such rates not exceeding 3 paise per unit, as may be specified therein etc. It is an Act to remain operational in future. Admittedly, the Act is permanent statute operating prospectively and retrospectively validating past transactions as if they have been made, entered into or transacted under the Act.34. While making the Validation Act, as seen, Section 6 provides for recoveries and Section 7 provides for penalties. Section 8 prescribes offences by companies and Section 9 gives rule making power to effectuate the purpose of the Act by making rules enumerated thereunder to give effect to the provisions of the Act. Section 10 provides protection of actions taken by the officers in good faith. Section 4 deals with books of accounts to be maintained by the licensees and Section 5 authorises officers for inspection of the books of accounts maintained by the licensees. It would thus be clear that the Act is a complete and self-contained code inprinciple of power of validation, vested in the legislature is no longer res integra.From a resume of the above decision the following principles would emergeThe adjudication of the right of the parties is the essential judicial function. Legislature has to lay down the norms of conduct or rules which will govern the parties and the transactions and require the Court to give effect to them :(2) The Constitution delineated delicate balance in the exercise of the sovereign power by the Legislature, Executive and Judiciary :(3) In a democracy governed by rule of law, the Legislature exercises the power under Article 245 and 246 and other companion Articles read with the entries in the respective Lists in the Seventh Schedule to make the law which includes power to amend the law.(4) Courts in their concern and endeavour to preserve judicial power equally must be guarded to maintain the delicate balance devised by the Constitution between the three sovereign functionaries need free-play in their joints so that the march of social progress and order remain unimpeded. The smooth balance built with delicacy must always be maintained :(5) In its anxiety to safeguard judicial power, it is unnecessary to be overzealous and conjure up incursion into the judicial preserve invalidating the valid law competently made;(6) The Court, therefore, need to carefully scan the law to find out; (1) whether the vice pointed out by the Court and invalidity suffered by previous law is cured complying with the legal and constitutional requirements; (b) whether the Legislature has competence to validate the law; (c) whether such validation is consistent with the rights guaranteed in Part III of the Constitution.(7) The Court does not have the power to validate an invalid law or to legalise impost of tax illegally made and collected or to remove the norm of invalidation or provide a remedy. These are not judicial functions but the exclusive province of the Legislature. Therefore, they are not the encroachment on judicialIn exercising legislative power, the Legislature by mere declaration, without anything more, cannot directly overrule, revise or override a judicial decision. It can render judicial decision ineffective by enacting valid law on the topic within its legislative field fundamentally altering or changing its character retrospectively. The changed or altered conditions are such that the previous decision would not have been rendered by the Court, if those conditions had existed at the time of declaring the law as invalid. It is also empowered to give effect to retrospective legislation with a deeming date or with effect from a particular date. The Legislature can change the character of the tax or duty from impermissible to permissible tax but the tax or levy should answer such character and the Legislature is competent to recover the invalid tax validating such a tax or removing the invalid base for recovery from the subject or render the recovery from the State ineffectual. It is competent for the legislature to enact the law with retrospective effect and authorise its agencies to levy and collect the tax on that basis, make the imposition of levy collected and recovery of the tax made valid, notwithstanding the declaration by the Court or the direction given for recovery thereof.(9) The consistent thread that runs through all the decisions of this Court is that the legislature cannot directly overrule the decision or make a direction as not binding on it but power to make the decision ineffective by removing the base on which the decision was rendered, consistent with the law of the Constitution and the Legislature must have competence to do theIt is seen that the duty was collected under an order made in exercise of Section 3 of the Essential Articles Act and it was held to be not a tax but a duty for the benefit of KSEB. That duty being a compulsory exaction for the benefit of pubic exchequer is tax. Duty on supply of electricity was declared to be additional burden and a levy within Entries 26 and 27 of List II, subject to Entry 33 of List III (Concurrent List). Duty is an additional burden and partakes the character of a tax, Entry 53 of List II (State List) empowers he State Legislature to impose tax on consumption or sale of electricity. It is therefore, a compulsory exaction for the benefit of the Revenue. Therefore, it is an additional tax in the form of a duty under the Act. The vice pointed out in Chakolas case, has been removed under the Act. Consequently, Section 11 validated the invalidity pointed out in Chakolas case, removing the base. In the altered situation, the High Court would not have rendered Chakolas case, under the Act. It has made the writ issued in Chakolas case, ineffective. Instead of refunding the duty illegally collected under invalid law. Section 11 validated the illegal collections and directed the liability of the past transactions as valid under the Act and also fastened liability on the consumers. In other words, the effect of Section 11 is that the illegal collection made under invalid law is to be retained and the same shall now stand validated under the Act. Thus considered, we hold that Section 11 is not an incursion on judicial power of the Court and is a valid piece of legislation as part of the Act.58. As already seen, the specific case of the State and the Board is that the State has been expending its public money for the effective functioning for the KSEB and the duty under the Act is flowing into the public exchequer and, therefore, it is not a duty for the benefit of KSEB coming under Essential Articles Act. Equally, it is not either a threat to the power of judicial review or form of restraint to exercise the power of judicial review over legislative action. It is true that under the Electricity Act which admittedly has been enacted under Entry 53 of the State List, the rate of duty, as amended, is 10 per cent, As stated above, under the Act duty is an additional impost in the nature of compulsory exaction for the benefit of public exchequer. When we look into the provisions of the Act it is clear that levy and collection of additional duty is not discontinued as contended by Shri Venugopal. As held above, the Act is a complete code in itself and operates retrospectively. Therefore, both the Acts operate harmoniously and do not collide in their operation since 1984 Act is the principal Act and the Act is in addition to, but not in substitution of the principal Act. Therefore, 1984 Act does not get eclipsed with the passing of the Act.