Electricity duty and cess can’t be levied on transmission losses, only on energy actually consumed: Rajasthan HC

Jodhpur: The Rajasthan High Court has held that electricity duty and cess under the Rajasthan Electricity (Duty) Act, 1962 cannot be levied on units of energy lost during transmission. The duty must be calculated only on the energy actually consumed within the State. A division bench of Justice Arun Monga and Justice Sunil Beniwal partly allowed writ petitions filed by Shree Rajasthan Syntex Limited. The bench directed Ajmer Vidyut Vitran Nigam Limited (AVVNL) to recompute duty and cess by excluding transmission losses, while retaining the levy on open access electricity bought from outside Rajasthan.

The petitions arose from electricity duty, water conservation cess and urban cess charged under Sections 3, 3-B and 3-C (levies on energy consumed) of the 1962 Act. The company’s Dungarpur unit drew power partly from AVVNL and partly from Tata Power Trading Company Limited through open access. AVVNL computed the duty on units measured at the 132 KV Grid Sub-Station at Dungarpur, treated as the interface meter point. It did not use the lower readings recorded at the meter inside the petitioner’s industrial premises. Shree Rajasthan Syntex argued that the difference reflected transmission losses that the company could not be said to have “consumed”.

Senior advocate Sanjeev Johari for the petitioner contended that Tata Power was not a “supplier” under Section 2(h) (definition of supplier) of the 1962 Act. He argued that the trader was only licensed under Section 14 (licensing of electricity traders) of the Electricity Act, 2003. Taxing units lost in transmission, he submitted, travelled beyond the charging provision. AVVNL replied that as a distribution licensee it was the authorised collecting agency. It pointed out that the petitioner had contractually agreed to bear transmission losses up to 4.2%. The interface meter at the GSS, it submitted, was the designated billing meter under the metering regulations.

On the first issue, the bench held that the taxable event under the 1962 Act is consumption of electricity within Rajasthan, not the source of procurement. Justice Sunil Beniwal, writing for the bench, observed that the petitioners admittedly receive and consume energy in the State. They could not escape duty merely because the procurement route was open access through an out-of-State trader, the bench held. On the second issue, the court drew a sharp line between tariff and tax. It held that “energy consumed” under Sections 3, 3-B and 3-C cannot be stretched to include units lost in transmission. Such units never reach the point of use, the bench observed.

The bench relied on the Supreme Court’s ruling in State of Mysore v. West Coast Papers Mills Ltd.; (1975) 3 SCC 448. It reiterated that electricity tax is payable only on units actually consumed, not on energy lost in transmission. The court also referred to Southern Petrochemical Industries Company Limited v. Electricity Inspector; (2007) 5 SCC 447 to underscore that tariff and tax are distinct concepts.

Rejecting AVVNL’s argument that the petitioner had contractually agreed to absorb transmission losses, the bench said: “Such contractual liability may govern tariff adjustment, commercial settlement, or network charges, however, tax liability must rest on statutory authority. A private agreement cannot convert non-consumed electricity into ‘energy consumed’ for the purposes of Sections 3, 3-B, and 3-C of the Act of 1962. Article 265 of the Constitution mandates that both the levy and collection of tax must have the authority of law. What the statute does not recognize as a taxable event cannot be introduced by contract.”

The writ petitions were partly allowed. AVVNL must recompute electricity duty, water conservation cess and urban cess on the actual energy consumed from Tata Power’s open access supply, excluding transmission losses. The bench directed AVVNL to use readings of the standby meter installed at the petitioner’s premises for that determination.

Case details