Page 1

1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4842 OF 2017 (ARISING OUT OF SLP(CIVIL) NO.34384 OF 2016)

ESSAR STEEL INDIA LTD.   AND ANR. … APPELLANT(S)

VERSUS

STATE OF GUJARAT AND ANR.    … RESPONDENT(S)

J U D G M E N T

ASHOK BHUSHAN,J.

1. This appeal has been filed against the Division

Bench judgment of Gujarat High Court dated

07.09.2016 dismissing Letters Patent Appeal of the

appellants affirming the judgment of Learned Single

Judge dated 25.02.2010. Special Civil Application

Page 2

2

was filed by appellant challenging the order dated

24.09.2099 passed by the State Government as well as

the demand notice dated 06.10.2009. Learned Single

Judge dismissed the Writ Petition.

2. Brief facts of the case which are necessary to be

noticed for deciding this appeal are: ­

The appellant no.1 is duly incorporated

company under the provisions of Companies Act, 1956

engaged in business of manufacturing and selling

steel products. The appellant no.2 is also a duly

incorporated company under the provisions of

Companies Act, 1956, which is a generating company

selling/supplying electrical energy. The appellant

no.1 company set up its gas based steel plant at

Hazira, in the year 1990 or thereabout for

production of HBI. It also set up a 20 MW Open Cycle

Power Plant for captive consumption of power for its

HBI plant. On the application made by the appellant

no. 1 Company, the State Government granted

exemption  from  payment of  electricity  duty  for a

Page 3

3

period of 10 years commencing from 21.07.1990 with

respect to the said Open Cycle Power Plant.

Subsequently, the appellant no.1 Company converted

the said Open Cycle Power Plant of 20 MW into 30 MW

Combined Cycle Mode Power Plant by adding steam

turbine. 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

1991­92, 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

Page 4

4

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 1991­92, 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.

Page 5

5

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.

4. The appellant no.1 had filed an application

dated 15.03.2001 seeking exemption from payment of

electricity duty under the notification dated

27.02.1992 issued under Section 3(3) of the Bombay

Electricity Act, 1958 (hereinafter referred to as

Act 1958). Another application dated 12.04.2001 was

sent by appellant no.1 to the Commissioner of

Page 6

6

Electricity seeking exemption from electricity duty

for a period of 15 years under Section 3(2)(vii)(a)

(i) of 1958 Act. The State of Gujarat Vide Order

dated 23.12.2002 rejected the request for exemption

under Section 3(2). The Order dated 23.12.2002 was

challenged in the High Court Wherein High Court vide

Order dated 17.03.2003 left open to the Government

to take a fresh decision. The State Government again

by Order dated 23.01.2006 rejected the application

of appellant no.1 for grant of exemption for payment

of electricity duty for 215 MW power generation

equivalent to 42% of the total generation. The Writ

Petition was again filed challenging the Order dated

23.01.2006 in which High Court set aside the Order

dated 23.01.2006 and directed the Government to pass

a fresh Order. The State Government passed the

detailed Order dated 24.12.2009 rejecting the claim

of appellant no.1 for exemption of payment of

electricity duty both under Section 3(2)(vii)(a)(i)

as well as under notification dated 27.02.1992.

After decision dated 24.09.2009 recovery notice

Page 7

7

dated 06.10.2009 was issued for payment of

electricity duty amounting to Rs.562/­ Crores

together with interest totaling Rs.1038.27/­ Crores

for the period of April 2000 to August 2009. The

Order of State Government dated 24.09.2009 was

challenged by the appellants before the High Court

by means of Special Civil application no. 10946 of

2009. Learned Single Judge dismissed the Writ

Petition vide its judgment dated 25.02.2010

aggrieved against which Letters Patent Appeal was

filed by the appellants. In Letters Patent Appeal,

an interim order was granted on conditions:

i) The appellant shall pay a sum of Rs.50

Crores against the outstanding dues of

electricity by 30.04.2010 in two

installments of Rs.20 Crores each.

ii) The appellant no.1 shall further pay from

01.05.2010 a sum of Rs.15 Crores every

month against the outstanding dues of

electricity.

Page 8

8

5. The Letters Patent Appeal ultimately came to

be dismissed by Division Bench on 07.09.2016 against

which judgment the present appeal has been filed.

6. We have heard Shri Mihir Joshi, Senior

Advocate for the appellants and Shri C.A.Sundram,

Senior Advocate appearing for the respondents.

7.  Learned Counsel for the appellants contends that

the issue is squarely covered in its favour by a

decision of this Court in  A.P. Gas Power

Corporation Ltd. Versus AP State Regulatory

Commission and another, (2004) 10 SCC 511,  wherein

it was held, inter alia, that the electricity

generated by a Special Purpose Vehicle and consumed

by the participating member to the extent of its

equity contribution would amount to captive

consumption of electricity. The High Court in the

impugned judgment, however, distinguished the

aforesaid judgment of this Court on the ground that

in that case the parties were governed by a

Memorandum of Understanding (“MoU”) which was not

Page 9

9

there in the present case and secondly, on the

ground that ESIL was purchasing 215 MW of power from

EPL.

8. It is further submitted that rejection of the

application on the ground that same was not made in

the prescribed form under Rule 11 of Bombay

Electricity Duty Rules, 1968 is erroneous and had

the rejection being only on the ground of non­filing

the application at the first stage same could have

been done since the State had power to condone the

delay. Alternatively, the appellant was entitled for

exemption under notification dated 27.02.1992 by

reason of the fact that ESIL was jointly generating

electricity with EPL and had also purchased the

generating sets by making payments of the purchase

price to the vendors during the period prescribed.

It is further contended that in the similar

circumstances the Government of Gujarat had extended

the benefit of exemption from payment of electricity

duty to GIPCL and therefore, ESIL who is similarly

Page 10

10

situated cannot be deprived of benefits of

exemption.

9. Learned Counsel appearing for the State

refuting aforesaid submission contends that

Government as well as High Court has rightly

rejected the claim of exemption of duty. The

appellant neither fulfills the statutory

requirements under Section 3(2) nor fulfill the

conditions of the notification dated 27.02.1992.

ESSAR Power and ESSAR Steel are separate and

independent legal entities. ESSAR Steel is not

generating energy. ESSAR Steel is not generating

either singly or jointly with either GEB or its

successor entity, Gujarat Urja Vikas Nigam Limited

or even with ESSAR Power. ESSAR Power is not

generating energy for its own use. ESSAR Power

Limited has established 515 MW power station, out of

which 300 MW capacity has been allocated to Gujarat

Electricity Board (GEB). Thus 58% of the installed

capacity is allocated to GEB and in relation to such

Page 11

11

capacity; ESSAR Power Limited generates and sells

electricity as a generating station and not as a

captive Power Plant of GEB. The remaining capacity

of 215 MW, which constitutes 42%, is for ESSAR Group

of Companies, as per the stipulation contained in

the Power Purchase Agreement dated 30.05.1996

entered into between ESSAR Power and GEB as well as

the Power Purchase Agreement dated 29.06.1996

entered into between ESSAR Power and ESSAR Steel.

The clauses in each of these agreements is clearly

inconsistent with ESSAR Power being treated as

captive generation and use within the scope of

Section 3(2)(vii) of the 1958 Act. The appellant has

rightly been denied the benefit of exemption as

claimed under the notification dated 27.02.1992. The

condition of the notification dated 27.02.1992

specifically states that the generating set or sets

shall have to be purchased or installed or

commissioned during the period beginning from

01.01.1991 and ending on 31.12.1992. This does not

cover order placed for the purchase of generating

Page 12

12

set. Since ESSAR Steel has merely placed the order

for generating set but neither purchased nor

installed or generated within the period specified

in the aforesaid notification, it is not fulfilling

this condition and hence not entitled for benefits

of the said notification. In case of purchase,

property in goods is transferred to the owner, here,

in given case, property in goods cannot be

considered as transferred when same is simply

ordered.

10. Learned Counsel for the parties have placed

reliance on various judgments of this Court in

support of their respective submission which shall

be referred to while considering the submissions in

detail.

11. We have considered the submissions of Learned

Counsel for the parties and perused the records.  

12. From the facts which have come on the record

it is clear that appellant no.1 had claimed

Page 13

13

exemption from duty under the provisions of Section

3(2)(vii) as well as under the notification issued

under Section 3(3) of 1958 Act for different period

which exemption was earlier granted. Details of

benefit of exemption availed by appellant no.1 has

been extracted by Division Bench of High Court in

Para 5.4 of the judgment. It is useful to extract

the table quoted in the judgment which is quoted

below to the following effect:

Sr.  No.

Date of  Application  seeking  exemption  from Duty

Prescribed  Form No.  for making  application

Applicable provision for

exemption under GED Act, 1958

Source of  electricity  supply

Date of  Issue of  Certificate  of  Exemption

Exemption  period  

(1) (2) (3) (4) (5) (6) (7)

1. 21.7.1990 Form ‘E’ Sec. 3(2) (vii) (a) (ii)

20 MW +  1380 KVA +  590 KVA + 1500 KVA of  Self-generating  sets of ESSAR  Steel

1.9.1995 21.7.1990  to

29.9.1999

2. 30.7.1990 Form 'F' Sec. 3(2) (vii) (b)

GEB  connection No   HT 159

28.1.1992 19.12.1991 to

26.3.1995

Page 14

14

3. May, 1995 Form 'F' Notification dt. 30.6.1993 issued

under Sec. 3(3)

GEB  connection No  HT 0159/ HT  10029 + 215 MW  from  ESSAR  Power  (exclusively for  HRC Project)

6.9.1995 31.3.1995 to

30.3.2000

4. 30.1.1996 Form E Sec. 3(2) (vii) (a) (i)

20 MW  (existing)  + 11 MW i.e.  Co- generation  plant

26.11.1998 15.12.1995 to

29.9.2004

13. In the present case, no application in the

prescribed form as per Rule 11 of the Rules was

filed by the appellant no.1 and for the first time

the appellant had come up with an application dated

15.03.2001 seeking an exemption under notification

dated 27.02.1992 and subsequently on 12.04.2001 has

again claimed exemption under Section 3(2)(vii)(a)

(i) of 1958 Act. The exemption from payment of duty

as claimed by the appellant is in two parts.

Firstly, under Section 3(2)(vii)(a)(i) of 1958 Act

and secondly, under the notification dated

27.02.1992.  We  proceed to  examine  both  the claim

separately.

Page 15

15

Claim under Section 3(2)(vii)(a)(i)

14. Section 3 of 1958 Act deals with “duty on

units of energy consumed”. Sub­Section 2 enumerates

various circumstances under which duty shall not be

leviable on the units of energy consumed. Section

3(2)(vii)(a)(i) and 3(3) is quoted below:

“3.  Duty on units of energy consumed... ... ...

(2) Electricity duty shall not be leviable on the units of energy consumed.........

(vii)  for motive power and lighting in respect of premises used by an industrial undertaking for industrial purpose, until the expiry of the following period, that is to say­ (a) In the case of an industrial

undertaking which generates energy either singly or jointly with any other industrial undertaking for its own use or as the case may be, for the use of industrial undertakings which are jointly generating the energy. (i) Fifteen years from

the date of commencement of the

Page 16

16

Bombay Electricity Duty (Gujarat Amendment) Act, 1983(hereinafter in this sub­section and sub­sections (2A) and (2AA) referred to as “the commencement date”) or the date of starting the generation of such energy whichever is later in such generation of energy is by back pressure turbine or if such generation of energy is obtained by co­generation.

(3) The State Government may, by notification in the Official Gazette, and subject to such terms and conditions as may be specified therein, reduce the rate of duty or remit the duty in respect of­

......”

15. The keywords in the statutory scheme are

“generates energy either singly or jointly with any

other industrial undertaking for its own use or as

the case may be, for the use of industrial

undertaking which are jointly generating the

energy.” We have to look into the facts of the

Page 17

17

present case to find out as to whether the statutory

conditions enumerated above are satisfied in the

facts of the present case or not. The appellant no.1

is a  separate  registered company  which  holds  42%

equity shares of the appellant no.2. The appellant

no.2 has been constituted as a Special Purpose

Vehicle for generating electricity. The appellant

no.2 is a generating company within the meaning of

Section 2(4A) of Electricity (Supply) Act, 1948. The

submission which has been pressed by the counsel for

the appellant is that both the appellant no.1 and

appellant no.2 are generating energy jointly for the

use of industrial undertaking which are jointly

generating the energy.

16. As noted above, there is a Power Purchase

Agreement dated 30.05.1996 and 01.06.1996 which

contains various conditions for sale of electricity

by appellant no.2. The State Government in its order

dated 24.09.2009 has extracted the recitals in Power

Page 18

18

Purchase agreement dated 01.06.1996 which are to the

following effect: ­

“...WHEREAS the Company is a Generating Company as defined under clause 4(A) of Section 2 of the Electricity (Supply) Act, 1948

AND WHEREAS the Company has substantially implemented a 515 MW combined Cycle Generating Station at Hazira Dist. Surat, Gujarat of which it has already commissioned 3 x 110 MW Gas Turbine Generating Set an aggregate generating Capacity of 330 MW.

AND WHEREAS the Company is setting up the said Generating Station and has been permitted as a special case to supply power to its sister concerns viz. ESSAR Steel Ltd. and ESSAR Oil Ltd, hereinafter jointly and severally referred to as ‘ESSAR Group Companies’.

AND WHEREAS ESTL which is engaged in the manufacture of Steel products at Hazira, intends to purchase electrical output generated by the Generating Station equivalent to 138 MW capacity in the Open Cycle mode and 215 MW capacity in Combined Cycle mode operation (hereinafter collectively or severally referred to as the ‘Allocated Capacity’) on the terms and conditions set forth in this Agreement.

Page 19

19

16. Article 3 of the PPA dated 01.06.1996 between ESSAR Power Limited and ESSAR Steel Limited reads as under:

3.1 ALLOCATION OF CAPACITY The allocation of capacity shall

be as under: (a)  During Open Cycle mode operation

prior to commissioning of the Combined Cycle mode operation the Company shall allocate: 138 MW to the ESTL; and  192 MW to GEB

(b) During Combined Cycle mode 215 MW to the ESTL; and  300 MW to GEB

..........   ..................”

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

Page 20

20

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.

18. The statutory conditions for grant of

exemption as contained in Section 3(2)(vii)(a) can

neither be tinkered with nor diluted. Learned

Counsel for the appellant contends that the State

Government had granted permission to the ESSAR Power

Plant to set up a generating station as a special

case and to supply power generated by it to its

sister concerned i.e. ESSAR Steel and ESSAR Oil as a

special  case.  The  letter of  the  State  Government

dated 05.06.1995 further stated that if there is any

excess power generated by EPL, the same may be

Page 21

21

purchased by the Board at the price  decided by the

Board. It is useful to extract the letter of

permission dated 05.06.1995 issued by the State

Government which was to the following effect:­

"The Govt. has considered all the aspect on the above matter and after careful consideration, has decided to agree in principle to the demand of ESSAR Power Limited to set up a generating station as a special case, and to supply power generated by it to its sister concern, i.e. ESSAR Gujarat, ESSAR Steels and ESSAR Oil again as a special case only subject to fulfillment of requirements of legal provisions as laid down under Section 15­A and 18­A of the Electricity Supply Act and with the express condition that the power generated through this subject shall never as sold outside the State or to any other person except as mentioned above. Moreover, in case, the power generated by EPL is to be wheeled, GEB shall decide the wheeling rate according to the sound commercial principles. In addition to this, if there is any excess power generated by EPL, the each may be purchased by the Board, at a price decided by the Board subject to the norms laid down by GoI from to time.

Page 22

22

It is, therefore, requested that GEB may take further necessary action in the matter.”

19. We have noticed above that Power Purchase

Agreement allocated the energy to the Gujarat

Electricity Board to the extent of 58% and 42% power

supply was to be given to sisters concern i.e. ESSAR

Gujarat, ESSAR Steel and ESSAR Oil as a special

case. It is well settled that taxing statute are to

be strictly construed specifically the exemption

notification. It has been held that the statutory

provisions providing for exemption has to be

interpreted in the light of words employed in it and

there cannot be any addition or substraction from

the statutory provision. This Court in Commissioner

of Central Excise, Surat­I versus Favourite

Industries, 2012 (7) SCC 153,  while considering

exemption notification issued under Central Excise

Tariff Act, 1985 laid down following in paragraph 35

to 40:­

"35. The notification requires to be interpreted in the light of the

Page 23

23

words employed by it and not on any other basis. There cannot be any addition or subtraction from the notification for the reason the exemption notification requires to be strictly construed by the courts. The wordings of the exemption notification have to be given its natural meaning, when the wordings are simple, clear and unambiguous.

36.  In Commr. of Customs v. Rupa & Co. Ltd., this Court has observed that the exemption notification has to be given strict interpretation by giving effect to the clear and unambiguous wordings used in the notification. This Court has held thus: (SCC pp. 413­14, para 7)

“7. … However, if the interpretation given by the Board and the Ministry is clearly erroneous then this Court cannot endorse that view. An exemption notification has to be construed strictly but that does not mean that the object and purpose of the notification is to be lost sight of and the wording used therein ignored. Where the wording of the notification is clear and unambiguous, it has to be given effect to. Exemption cannot be denied by giving a construction not justified by the wording of the notification.”

(emphasis supplied)

Page 24

24

37.  In CCE v. Rukmani Pakkwell Traders, this Court has also held: (SCC p. 804, para 5)

“5. … It is settled law that exemption notifications have to be strictly construed. They must be interpreted on their own wording. Wordings of some other notification are of no benefit in construing a particular notification.”

(emphasis supplied)

38. In Kohinoor Elastics (P) Ltd. v.  CCE this Court has held: (SCC p. 533, para 7) “7. … When the wordings of the  notifications are clear and  unambiguous they must be given  effect to. By a strained reasoning  benefit cannot be given when it is  clearly not available.”

(emphasis supplied)

39. In Compack (P) Ltd. v. CCE, this Court has observed thus: (SCC p.  306, para 20) “20. Bhalla Enterprises laid down a proposition that notification has to be construed on the basis of the language used. Rukmani Pakkwell

Traders16  is an authority for the same proposition as also that the wordings of some other notification are of no benefit in construing a particular notification. The notification does not state that exemption cannot be granted in a case where all the inputs for manufacture

Page 25

25

of containers would be base paper or paperboard. In manufacture of the containers some other inputs are likely to be used for which MODVAT credit facility has been availed of. Such a construction, as has been suggested by the learned counsel for the respondents, would amount to addition of the words ‘only out of’ or ‘purely out of’ the base paper and cannot be countenanced. The notification has to be construed in terms of the language used therein. It is well settled that unless literal meaning given to a document leads to anomaly or absurdity, the golden rule of literal interpretation shall be adhered to.”

(emphasis supplied)

40.  In CCE v. Mahaan Dairies, this Court has held: (SCC p. 800, para 8) “8. It is settled law that in order to claim benefit of a notification, a party must strictly comply with the terms of the notification. If on wording of the notification the benefit is not available then by stretching the words of the notification or by adding words to the notification benefit cannot be conferred. The Tribunal has based its decision on a decision delivered by it in Rukmani Pakkwell Traders v. CCE. We have already overruled the decision in that case. In this case also we hold that the decision of the Tribunal is unsustainable. It is accordingly set aside.”

(emphasis supplied)”

Page 26

26

20. The statutory provisions of Section 3(2)vii(a)

thus have to be strictly construed and in event the

condition of generating energy jointly with any

other industrial undertaking is not fulfilled, the

claim has to be rejected.

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).

Page 27

27

22. Learned Counsel for the appellant has also

referred to the judgment of this Court in State of

U.P. and Ors. versus Renusagar Power Company &

Ors., 1988(4) SCC 59.  In the above case, M/s

Renusagar Company had obtained a sanction to engage

in the business of supply of electricity to M/s

Hindustan Aluminium Corporation Ltd. In the above

case, this Court took the view that corporate Veil

should be lifted and Hindalco and Renusagar may be

treated as one concern and the Renusagar Powers

Plant must be treated as the owned source of

generation of Hindalco. Following was held in

paragraph 67:­

"67.  In the aforesaid view of the matter we are of the opinion that the corporate veil should be lifted and Hindalco and Renusagar be treated as one concern and Renusagar’s power plant must be treated as the own source of generation of Hindalco and should be liable to duty on that basis. In the premises the consumption of such energy by Hindalco will fall under Section 3(1)(c) of the Act. The learned Additional Advocate­General for the State relied on several

Page 28

28

decisions, some of which have been noted.”

23. In the present case, there is no dispute to

the fact that appellant No.2 was created as a

Special Purpose Vehicle by appellant No.1 itself.

Had appellant No.2 would have been supplying energy

to appellant No.1 only, the claim deserved

consideration.   But present is a case where the

appellant no.2 is supplying energy to industrial

undertakings with whom it is not jointly generating

the energy. Judgment of this Court in State of U.P.

and Renusagar Company, thus, has no application in

the facts of present case.

24. Learned Counsel for the appellant has placed

reliance on judgment of this Court in  A.P. Gas

Power Corporation Ltd. Versus A.P. State Regulatory

Commission & Another, 2004 (10) SCC 511. In the

above case, the State Government of Andhra Pradesh

and Andhra Pradesh Electricity Board had mooted the

idea of setting up of 3 X 33 MW gas­based Combined

Page 29

29

Cycle Power Station for establishing a generating

station. It was decided to invite private

participation in the venture. A Memorandum of

Understanding dated 17.10.1988 and on 19.04.1997 was

entered according to which Andhra Pradesh State

Electricity Board had to have 26% shares in the new

company to come up as A.P.GPCL and rest of the

participating industries were to have different

percentage of shares and the power so generated by

company was to share proportionately among the

shareholding participating companies and their

sister concerns. The question which fell for

consideration before this Court was as to whether

A.P.GPCL was required to take a license under the

law for utilization/sale and supply of power

generated by the participating industries, their

sister concerns and the companies to whom shares of

APGPCL were transferred by the participating

industries.

Page 30

30

25. This Court after noticing the contents of

various clauses of Memorandum of Understanding and

the provisions of Indian Electricity Act, 1910 and

Andhra Pradesh Electricity Reform Act, 1998, laid

down following in paragraph 36 and 37:

“36. From the perusal of para 4 of the Memorandum of Understanding it is clear that a participating industry has been given a right to transfer its share of energy and power to its sister concern. The term “sister concern” has been explained as “a concern under the same group.” There is no further clarification or clue as to which are those concerns which may be considered under the same group. The expression “sister concern” used in para 4 of the Memorandum of Understanding certainly does not mean a concern which is owned or is a subsidiary of the participating industry. It would be a concern or unit different from the participating industry and not a part of it. Maybe,that the same group may manage two different independent units carrying on the same nature of activities. They may be addressed as sister concerns but would definitely have separate entity and identity of their own. Consumption of power, generated by a generating company, by a concern which may be under the same group as any of the participating

Page 31

31

industry cannot be said to be consumption or use of the power by the participating industry itself. In absence of the element of self­consumption by the generating company, it would not fall in the category of “captive consumption”. It would surely be a supply to a non­participating industry and in that event it would be necessary to have a licence under the relevant provisions of law. If there is such a legal requirement, merely an agreement amongst certain parties would not exclude the application of law. Provisions of law regulating the situation would prevail over any kind of agreement amongst some individuals as a group or otherwise. We are, therefore, of the view that such a clause in the Memorandum of Understanding would not do away with the requirement of having a licence for supply of electricity generated by A.P.GPCL to such concerns which may be under the same group as the participating industries but not the participating industries themselves.

37. To support the view taken by us, a decision of this Court referred to by the respondents may be cited as in State of U.P. Vs. Renusagar Power Co. This case, however, was decided in a slightly different fact situation. M/s Hindustan Aluminium Corporation Ltd. was established in 1959 on assurance of providing cheap

Page 32

32

electricity to it. In the year 1964, however, M/s Renusagar Power Co. Ltd. was established as a wholly owned and subsidiary of M/s Hindustan Aluminium Corporation Ltd. It was generating electricity, but incorporated separately and had its own separate Memorandum of Understanding and Articles of Association. To raise the revenue for the State, the U.P. Electricity (Duty) Act, 1952 was enforced to levy a duty on the consumption of electricity. Several amendments were, however, incorporated from time to time and ultimately a provision was inserted providing that there would be levied and paid to the State Government a duty called electricity duty on the energy sold to a consumer by a licensee/Board/the Central Government. The duty on consumption of electricity was leviable even though it may be from his own source of generation. Renusagar Power Co. Ltd. had also obtained a licence under Section 28 of the Act of 1910. In such circumstances, it was held that even though Renusagar Power Co. Ltd. was a subsidiary company owned by M/s Hindustan Aluminium Co. Ltd., yet it would amount to supply of electricity by a licensee to a consumer in view of the provisions of the U.P. Act of 1952 which levied duty on consumption of electricity. The situation in the case in hand is similar only to the extent that the participating industries and the

Page 33

33

sister concerns are different entities and separately incorporated. Distinction may be there in view of the statutory provisions intervening under the U.P. Act of 1952 but that is not material for this case.”

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: ­

“57. We, therefore, hold that no licence is necessary for utilization of energy generated by A.P.GPCL and utilized by the participating industries and the concerns holding shares of A.P.GPCL transferred to them by the participating industries to the extent of value of the shares so transferred. It would, however, be necessary to have a licence for supply of energy to the sister concerns. In the result, the appeals are partly allowed and the judgment and order passed by the High Court stands modified in the manner indicated above. Parties to bear their own costs.”

Page 34

34

27. The judgment of Andhra Pradesh Gas Power

Corporation Limited is clearly distinguishable and

does not help the appellant in present case. In the

aforesaid case the energy was utilized by the

participating industries and the concerned holding

shares of A.P.GPCL but supply of energy to the

sister concerned was required to have license.

Present is a case where Gujarat Electricity Board

who has been allocated 300 MW is not a participating

industry nor appellant no.2 is jointly generating

the energy with Gujarat Electricity Board, even if

it is held that the appellant no.1 to the extent it

holds 42% equity shares of appellant no.2 is jointly

generating the energy. The Gujarat Electricity Board

which has been allocated 58% of electricity

generated can not be said as the industrial

undertaking jointly generating the energy.

28. The judgment  of this  Court  in  Gujarat Urja

Vikas Nigam Ltd. Versus ESSAR Power Limited,

2016(9) SCC 103, has also been referred to. The

Page 35

35

above case was a case where parties to the present

appeal were at issue and appeal was filed by Gujarat

Urja Vikas Nigam, successor of Gujarat Electricity

Board under Section 125 of the Electricity Act

against the Order of Appellate Tribunal of

electricity. The appellant had filed the petition

before the Gujarat Electricity Regulatory Commission

for adjudication of the dispute arising out of Power

Purchase agreement. The appellant had sought

compensation for wrongful allocation of electricity

by EPL to the sister concerned i.e. ESSAR Steel

Limited in preference to the appellant. The

Commission had occasion to examine various clauses

of Power Purchase Agreement dated 30.05.1996 between

the parties. This Court rejected the contention of

the EPL that it could sell power to ESL beyond its

allocated capacity. In the paragraph 22 of the

judgment following was held: ­

“22. The agreement clearly contemplates the proportion of allocation of a capacity. EPL has to fuel and operate the generating

Page 36

36

station to meet the requirement of electric output that can be generated corresponding to the allocated capacity. The appellant has to pay annual fixed cost as determined in terms of Clause 7.1.1 of Schedule VII of the agreement. The Commission is thus, right in observing that once the entire capacity has been allocated in two parts in a particular proportion, the contention of EPL that it could sell power to ESL beyond the allocated capacity could not be accepted. EPL was under obligation as per Schedule VI to declare weekly schedule of the capacity available and the dispatch instructions were to be issued on the basis of the said declaration. It could not thus be said that EPL had no obligation to declare the capacity and the obligation of GUVNL to issue dispatch instructions was not dependent on declaration of the available capacity by EPL. Contrary view of the Tribunal is clearly erroneous. In para 45 and 46 and elsewhere in its judgment, the Tribunal erred in holding that there was no obligation to declare available capacity on proportionate basis. The finding of the Commission in paras 9.5 to 9.12 of its order quoted above is the correct interpretation of the agreement. We hold accordingly.”

Page 37

37

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.

30. Learned Counsel for the appellant has

submitted that the High Court had rejected the claim

of payment only on the ground that there is no such

Memorandum of Understanding between EPL and ECL as

was found in  A.P. Gas Power Limited (Supra).  The

High Court although has noted the fact that in the

present case there is no such Memorandum of

Understanding between EPL and ECL but the judgment

of the High Court is not based only on the above

premise  rather  High  Court  has  clearly  found  that

conditions stipulating under Section 3(2)(vii)(a)(i)

of 1958 Act are not satisfied, hence, appellant no.1

Page 38

38

is not entitled for exemption. High Court has

elaborately considered all the submission raised by

the  appellant  and  rightly  came to  the  conclusion

that conditions as enumerated in Section 3(2)(vii)

(a) are not fulfilled. We do not find any error in

the aforesaid finding of the High Court.  

Claim under notification dated 27.02.1992

31. The notification dated 27.02.1992 was issued

in exercise of power conferred by Section 3(3) of

Bombay Electricity Act, 1958. The relevant part of

the notification dated 27.02.1992, is as follows: ­

“NOTIFICATION Sachivalaya Gandhinagar

27th February, 1992

BOMBAY ELECTRICITY DUTY ACT, 1958

No. GHC/92/10/JCP/1188/2594/K

In exercise of the powers conferred by Sub Section (3) of the Section 3 of the Bombay Electricity Duty Act,1958(Bom. XL of 1958), the Government of Gujarat hereby remitted with effect on and from the date of publication of this notification in the Official

Page 39

39

Gazette. In the whole of the State of Gujarat, the Electricity Duty payable under item (6) of Part I of Schedule II to the said Act, on the energy consumed for motive power and lighting for Industrial purposes by industrial under takings which generate energy jointly for their own use either by establishing an independent joint company solely for this purpose or on pro­rata cost sharing basis, for a period of ten years from the date of commissioning of the generating sets subject to the following terms and conditions namely:­

(a) The generating set or sets shall have been purchased and installed or commissioned during the period beginning from 1st  January, 1991 and ending on 31st  December, 1992. Providing that such generating act or sets shall not have been previously used in the State.

****** ******”   

32. The claim raised by the appellant under the

above said notification was specifically dealt by

the  High Court and  the Government.  The condition

which  was  found  lacking  for  applicability  of  the

notification was that generating sets were not

purchased or installed or commissioned during the

Page 40

40

period from 01.01.1991 to 31.12.1992. The High Court

has recorded categorical finding that the generating

sets have been commissioned in the month of August

1995. It is useful to refer to paragraph 12.0 of the

judgment of Division Bench which is to the following

effect: ­  

“12.0. Now, so far as the alternative claim of the appellants to grant the exemption for a period of 10 years under the Notification dated 27.02.1992 is concerned, on considering Notification dated 27.02.1992, it appears that the conditions precedent laid down in the said notification cannot be said to have been compiled by the appellants more particularly appellant No.1 – ESL. For claiming the benefit of notification dated 27.02.1992 it is to be established that the generating set or sets have been purchased/installed or commissioned during the period beginning from 01.01.1991 and ending on 31.12.1992. From the record it appears that the generating sets have been commissioned in the month of August 1995, the appellants have failed to establish that the generating sets were even purchased during the aforesaid period. It cannot be disputed that in a taxing statute more particularly with respect to the exemption from payment of duty,

Page 41

41

all the conditions which can be said to be statutory are required to be fulfilled and unless and until all the conditions stipulated in the exemption notification are satisfied and/or compiled with, there shall not be any exemption under the notification. In the present case, admittedly, the generating sets in question have been commissioned in the month of August 1995. The appellants have failed to establish that they even purchased the generating sets during the period beginning from 01.01.1991 to 31.12.1992. More placement of order for purchase cannot amount to actual purchase of the generating sets.”

33. Another reason given by the High Court was

that no application was made within 180 days of

application of the notification dated 27.02.1992 or

even  from  the  date  of  installation  of  generating

sets i.e. August 1995. Even if the second reason

given by the High Court is ignored, non­fulfillment

of condition no.(a) of notification dated 27.02.1992

clearly entailed rejection of claim under

notification dated 27.02.1992. There is no

foundation or basis laid down even in this appeal to

Page 42

42

assail the finding recorded by the High Court that

generating set was not purchased from 01.01.1991 to

31.12.1992.

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.

......................J.    (A. K. SIKRI)

......................J.   (ASHOK BHUSHAN)

NEW DELHI, MAY 02, 2017