Electricity Duty Cannot Be Levied on ‘Net Charges’ Without Amending Charging Section: Jharkhand HC Strikes Down 2021 Amendment [Read Order]

In a recent ruling, the Jharkhand High Court held that electricity duty cannot be levied on the basis of “net charges” without amending the charging section of the statute and struck down the Jharkhand Electricity Duty (First Amendment) Act, 2021 along with the Electricity Duty Rules, 2021, insofar as they shifted the levy from units of electricity to the value of electricity supplied.

A batch of writ petitions was filed by industrial consumers and captive power plant operators challenging the change in the method of levying electricity duty. Earlier, duty was charged on the basis of units of electricity consumed or sold. The 2021 amendment changed this and allowed duty to be charged as a percentage of “net charges” shown in electricity bills.

The petitioners argued that Section 3 of the parent Act is the charging section and it permits levy of duty only on units of electricity. They argued that the State could not change the basis of levy from units to value without amending the charging provision itself. It was also argued that the term “net charges” was not defined in the Act, making the levy unclear and arbitrary.

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The State of Jharkhand defended the amendments and argued that it had constitutional power to levy electricity duty. The State’s counsel argued that the amendment only changed the rate and manner of calculation and did not alter the nature of the tax. They also argued that matters relating to taxation policy should not be interfered with lightly by courts.

The Division Bench comprising Chief Justice Tarlok Singh Chauhan and Justice Sujit Narayan Prasad observed that in a taxing statute, the charging section must clearly authorise both the levy and the measure of tax. The court observed that Section 3 of the Act continued to levy duty on units of electricity, and without amending that section, the State could not impose duty on “net charges.” The court explained that a proviso or a schedule cannot enlarge or override the scope of the main charging provision.

The court further observed that the power delegated to the State Government to fix rates and categories without clear guidelines amounted to excessive delegation. The court pointed out that taxation laws must be certain and unambiguous, and the absence of a definition for “net charges” made the levy arbitrary.

On the Electricity Duty Rules, 2021, the court observed that the rules could not operate retrospectively and, in any case, could not stand once the parent amendment itself was held invalid.

During the pendency of the petitions, the State enacted the Jharkhand Electricity Duty (Second Amendment) Act, 2021, which restored a unit-based levy for captive power plants at the rate of 50 paise per unit. The court observed that this amendment was consistent with the charging section and involved a policy decision on rate fixation, which did not call for interference.

The court struck down the Jharkhand Electricity Duty (First Amendment) Act, 2021 and the Electricity Duty Rules, 2021 to the extent they levied duty on “net charges.” The court upheld the Second Amendment Act, 2021. It quashed the electricity bills raised under the invalid provisions and directed that the excess electricity duty already paid be adjusted against future bills. The writ petitions were allowed.

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