Tariff can be regulated under Electricity Act, levy of Duty is sole prerogative of State and cannot be regulated under Act : Andhra Pradesh HC

In a recent case, the Andhra Pradesh High Court held that Tariff can be regulated under Electricity Act,2003 while levy of Duty is sole prerogative of the state which cannot be regulated under the act.

A.P. Textile Mills Association, the A.P. Electricity Duty Act, 1939 (the Duty Act) was enacted for levying duty on the sale of electrical energy by licensees. The term Licensee was originally defined to mean any person licensed under the Indian Electricity Act, 1910 to supply energy or any person who was authorized under section 28 of the same Act to supply energy. This definition was amended to mean a person who has been granted a licence under section 14 of the Electricity Act, 2003.

Prior to the impugned amendments, Duty, at the rate of 6 paise per unit, was levied on the Licensees, under Section 3 of the Duty Act. Under section 7, the Government, by way of previous sanction, could permit the licensees to pass on the Duty, to the consumers. Section 3A, empowered the Government to exempt payment of Duty.

Where a licensee who is liable to pay duty under the section sells energy to the Government of India for consumption by that Government or to a railway company operating any railway for consumption, in the construction, maintenance or operation of that railway, the price charged on such sales shall be less by the amount of the duty than the price charged to other consumers of a substantial quantity of energy, provided the price last mentioned is more than twelve paisa per unit.

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By virtue of the aforesaid Amendment Act and G.O.Ms.No.7 dated 08.04.2022, the rate of electricity duty, payable by the licensee, on the sales made to commercial and industrial consumers, had been increased from six paise per unit to Rs.1 per unit. The rate of duty remained at six paise per unit for domestic consumers and the sales made to agricultural consumers were exempted from levy of any duty. It may also be noted that even earlier, electricity sold to agricultural consumers had already been exempted from Duty, by way of G.O.Ms.No.82 dated 08.04.2003.

The licensees sought to collect the enhanced duty from the consumers. Aggrieved by this increase of duty, and the attempts of the licensees, to collect the enhanced duty, various commercial and industrial category consumers filed writ petitions before the Court. All these writ petitions came to be disposed of by a learned Single Judge of the Court, by his order, dated 15.09.2023, in W.P.No.16619 of 2022 and batch.

The petitioners had raised various contentions, before the single judge. The Single Judge, after considering these issues, had observed that there was no challenge to Act 10 of 2021 or the amended or un- amended provisions of Section 3 of the Duty Act and to the classification of electricity energy consumers, and that the challenge was only to G.O.Ms.No.7 dated 08.04.2022.

Section 12 (4) of the Andhra Pradesh Electricity Reforms Act, 1998 states that the State Government shall consult the Commission in relation to any proposed legislation or rules concerning any policy direction and shall duly take into account the recommendation by the Commission on all such matters.

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The Madhya Pradesh Vidyuth Sudhar Adhiniyam, 2000 was enacted for the purposes of carrying out electricity reforms, in the same manner as the Andhra Pradesh Electricity Reforms Act, 1998. Section 12 (3) of the Act states that the State Government shall consult the Commission in relation to any policy directive which it proposes to issue or any legislation is proposed to be enacted affecting the electricity industry it shall duly take into account the recommendation if any, given by the Commission within such reasonable time as the State Government may specify.

The Supreme Court had held that it would not go into this question, the ratio laid down in paragraph 38, of the above judgment, would be binding on this court. There was some objection raised, by the State, that there was some difference, in the language of section 12 (4) of the Andhra Pradesh Electricity Reforms Act, 1998, and section 12 (3) of the Madhya Pradesh Vidyuth Sudhar Adhiniyam, 2000.

The single judge had also held that the plenary power of taxation available under Entry 53 of the 2nd list, in the VII schedule of the constitution, cannot be controlled by the regulatory power granted under Entry 38 of the 3rd list. We have not been shown any reason to differ with this view of the single judge.

It may be noted that this entry does not give power to either the state or central legislature to levy any tax or duty on any aspect of electricity. However, Entry 53 of the 2nd list (state list) in the VII Schedule empowers a state legislature to levy duty on the sale and consumption of electricity. The Duty Act, though it is a pre-constitutional legislation, would draw it’s sustenance from this entry. Both Acts operate in different and discrete zones, with no overlap.

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Under this provision, a fair price/tariff is to be fixed for all categories of consumers. In the event of the State being desirous of subsidizing the tariff for any category of consumer, an estimate would have to be made about the quantum of such subsidy and the state government would pay this subsidy to the licensees, who are supplying such electricity.

When the State pays the subsidy amount, it would be a direct subsidy. The decision to pay such subsidy is within the purview of the State. The appropriate commission can only insist on payment of the subsidy amount, to the licensee, and would not have any control over how much of the Tariff can be subsidized by the State. The language of section 65 does not give such regulatory oversight to the appropriate commission.

The State Governments can give subsidy, to the extent they consider appropriate, as per the provisions of Section 65 of the Act. Direct subsidy is a better way to support the poorer categories of consumers than the mechanism of cross- subsidizing the Tariff across the board. Subsidies should be targeted effectively and in a transparent manner. As a substitute of cross subsidies, the State Government has the option of raising resources through the mechanism of electricity duty and giving direct subsidies to only needy consumers. This is a better way of targeting subsidies effectively.

The division bench of Chief Justice Dhiraj Singh Thakur and Justice R Raghunandan Rao viewed that coss subsidy which is a part of the Tariff can be regulated under the provisions of the Electricity Act. However, levy of Duty, either for the purposes of subsidizing consumers or for any other purpose, would be outside the scope of the regulatory process under the Electricity Act, 2003. The levy of Duty or additional Duty is the sole prerogative of the State and cannot be regulated under the Electricity Act, 2003.

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