The Karnataka High Court in the case of M/s Harekrishna Metallics Pvt Ltd v State of Karnataka upheld the validity of the levy of tax on electricity captively generated.
The petitioner is a public limited company who has captive electric power generating stations at various places in Karnataka. The respondent has demanded the electricity tax on electricity generated and consumed by these petitioners. The petitioners have approached the Court to challenge the constitutional validity of Sections 3(1) and (2) and Section 4(3) of the Karnataka Electricity (Taxation and Consumption) Act, 1959. They have specifically challenged the levy of tax on consumption of electricity captively generated and thereby Auxillary consumed which have been inserted by the 2013 Amendment to be taxable under the 1959 Act along with consequential demand notices issued.
The petitioners have contended that the 2013 Act falls outside the legislative competence of the State Government for the reason that the 2013 Amendment levy tax on the generation of electricity and not consumption while the taxation on the generation of electricity falls within the Union’s Legislative competence.
The State, on the other hand, referred to the decisions of Vijaya Steels and ACC Limited along with others to state that the incidence of tax is on consumption and not on the generation of electricity.
The Single Bench constituting of Justice S.Sujatha held the amended Sections to be valid under the Constitution of India. The Bench was of the view that since the constitutional validity of sub-Sections (1) and (2) of Section 3 has already been upheld by the Court and that the challenge revolved around Section 4(3) of the Act.
The Court discussed that the incidence of tax in accordance with Section 4(3) of the Act is on consumption. The Bench described ‘consumption’ as that relating to every person generating electricity by himself and or who supplies electricity free of charge or otherwise to any other person through his own system. It further referred to paragraph 22 of the Biocon case wherein the issue of levy of tax on generation or consumption has been discussed.
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