2002 INSC 0325
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style='text-align:center'>b>SUPREME COURT OF INDIA/b>br> br> STATE OF A.P.br> br>
Vs.br> br> NATIONAL THERMAL POWER CORPN. LTD. amp; ORS.br> br> 22/04/2002br>
br> (CJI, R.C.Lahoti, N. Santosh Hegde, Ruma Pal amp; Arijit Pasayat)/p> p align=center
style='text-align:center'>Appeal (civil) 3112 of 1990br> Transfer Case (civil) 3 of 1998/p>
p>b>JUDGMENT/b>/p> p>R.C. Lahoti, J. /p> p>The High Court of Andhra Pradesh at Hyderabad
has, by its impugned judgment dated April 11, 1990, allowed the writ petition filed by the
respondent National Thermal Power Corporation Ltd. (hereinafter 'NTPCL', for short) and declared
that the levy of duty by the State of Andhra Pradesh on the sales of electrical energy generated by
the Corporation-respondent No.1 at its thermal power station set up at Ramagundam, within the
State of Andhra Pradesh, and sold to the Electricity Boards of Karnataka, Kerala, Tamil Nadu and
the State of Goa in pursuance of contracts of sales occasioning inter-State movement of electricity is
incompetent and outside the power of State Legislature. Consequently, the tax levied and collected
has also been held to be without authority of law, hence liable to be refunded in accordance with
law. On a prayer made by the learned Advocate General on behalf of the State of Andhra Pradesh,
the High Court certified that the case involves a substantial question of law as to the interpretation
of Constitution under Article 132. The appeal has been filed pursuant to the certificate so granted by
the High Court. On 4.10.1991, a bench of two learned Judges directed the appeal to be placed for
hearing before a Constitution Bench, as required by Clause (3) of Article 145 of the Constitution.
/p> p>At a point of time when this Court was seized of the appeal filed by the state of Andhra
Pradesh, NTPCL moved a petition under Article 139A of the Constitution seeking withdrawal of
Writ Petition No.1941 of 1996 NTPCL Vs. State of Madhya Pradesh amp; Others pending in the
High Court of Madhya Pradesh at Jabalpur to this Court. The prayer was allowed vide order dated
13.10.1997 and on receipt of the records from High Court of Madhya Pradesh the same has been
registered here as T-C-3/1998. /p> p>The State of Madhya Pradesh and newly formed State of
Chhattisgarh with effect from 1.11.2000, during the pendency of the petition were noticed and the
parties thereto have been heard analogously with the hearing in C.A.No.3112/1990. However, for
convenience sake we will refer to States of Madhya Pradesh and Chhattisgarh as State of M.P. only
as admittedly until the formation of new State the two power stations in question were situated
therein only. /p> p>Facts in C.A. No.3112/1990 /p> p>Andhra Pradesh Electricity Duty Act, 1939
provides for levy of duty on certain sales and consumption of electricity by licensees in the State of
Andhra Pradesh. The definition of the term 'licensee' specifically includes the National Thermal
Power Corporation (respondent No.1) or any other Corporation engaged in the business of
supplying energy. Section 3 of the Act is the charging section, the relevant part whereof reads as
under:- /p> p>quot;3. Levy of a duty in certain sales of electrical energy.__ (1) Save as otherwise
provided in sub- section (2), every licensee in the State of Andhra Pradesh shall pay every month to
the State Government in the prescribed manner, a duty calculated at the rate of four paise per unit of
energy, on and in respect of all sales of energy, except sales to the Government of India for
consumption by that Government or sales to the Government of India or a railway company
operating any railway for consumption in the construction, maintenance or operation of that railway
effected by the licensee during the previous month, at a price of more than twelve paise per unit and
on and in respect of all energy which was consumed by the licensee during the previous month for
purposes other than those connected with the construction, maintenance and operation of his
electrical undertaking and which, if sold to a private consumer under like conditions, would have
fetched a price of more than twelve paise per unit. /p> p>Provided that no duty under this sub-
section shall be payable on and in respect of sale of energy effected:- /p> p>(a) by the Andhra
Pradesh State Electricity Board to any other licensee; /p> p>(b) by the National Thermal Power
Corporation to the Andhra Pradesh State Electricity Board.quot; /p> p>A bare reading of the
provision shows that duty is leviable at the prescribed rate on 'all sales of energy' effected by the
licensee during the previous month at a price of more than 12 paise per unit. Duty is also leviable on
all energy consumed by the licensee. There are certain categories of sales and consumption saved
and excluded from what would otherwise have been dutiable. However, in the present case, we are
not concerned with those exclusions, nor with levy of duty on consumption. The limited question
arising for our consideration is __ whether sales of energy by NTPCL, the respondent No.1, to
several Electricity Boards situated outside the State of Andhra Pradesh and to the State of Goa,
attract the incidence of taxation under Section 3 of the Act. /p> p>According to the facts found by
the High Court, NTPCL, a Government Company, wholly owned by the Government of India, has
set up several super thermal power stations in different parts of the country normally located near
coal-pit heads. One such super thermal power station is set up in Ramagundam in Karimnagar
District of the State of Andhra Pradesh. There are various transmission lines and sub-stations
through which the power generated at Ramagundam station is transmitted to the purchasers. The
power generated is fed into the southern grid and is made available to the several State Electricity
Boards and the State of Goa. These facts are not in controversy and sufficient to be taken note of for
the purpose of this appeal. During the course of hearing, by reference to certain documents, it was
sought to be pointed out where the meters are located __ within the State of M.P. or within the
territories of buyer states or at both the places, by reference to reading whereof the quantum of
energy sold, exported or imported is fixed and the price calculated. We do not propose to state the
facts and contending submissions in that regard in details as it is unnecessary. /p> p>The
controversy centres mainly around the question as to under which entry Andhra Pradesh Electricity
Duty Act, 1939 is covered and whether the sales of electricity by NTPCL, the respondent No.1, to
the Electricity Boards situated outside the State of Andhra Pradesh and to the State of Goa, can be
construed as inter-State sale or intra- State sale. /p> p>Facts in T-C-3/98 /p> p>The relevant facts of
this writ petition are briefly set out in what follows. The erstwhile Central Provinces and Berar
Legislative Assembly enacted the CP and Berar Electricity Duty Act, 1949 which having been
adapted in the State of Madhya Pradesh has come to be known as M.P. Electricity Duty Act, 1949
and extends to the whole of Madhya Pradesh. The Preamble to the Act, as amended by Madhya
Pradesh Legislature, provides that it is an Act for the levy of duty on sale or consumption of
electrical energy. The expression quot;distributor of electrical energyquot; is defined in Clause (b)
of Section 2 to specifically include therein the National Thermal Power Corporation. Section 3
provides that every distributor of electrical energy and every producer shall, subject to certain
exceptions, pay every month to the State Government a duty calculated at the rates specified in the
table appended thereto on the units of electrical energy sold or supplied to a consumer or consumed
by himself for his own purposes or for purposes of his township or colony during the preceding
month. The table appended to Section 3 prescribes different rates of duty depending on the purpose
for which electrical energy is sold, supplied or consumed, the details whereof are not relevant for
our purpose. There is yet another legislation, namely, the Madhya Pradesh Upkar Adhiniyam 1981
(No.1 of 1982) which provides for levy of certain cesses. Sub-section (1) of Section 3 thereof
provides that every distributor of electrical energy shall pay to the State Government an energy
development cess at the rate of certain paise per unit on the total units of electrical energy sold or
supplied to a consumer or consumed by himself or his employees during any month. NTPCL has
two power projects located in the State of Madhya Pradesh (i) Korba Super Thermal Power Station
at Pragati Nagar, District Bilaspur, known as Korba Station (presently in the State of Chhattisgarh)
and (ii) Vindhyachal Super Thermal Power Station situated at Vindhya Nagar, District Sidhi of
Madhya Pradesh known as Vindhyachal Station. The electricity generated by it at these two stations,
is fed into Northern grid and supplied to several States outside the State of Madhya Pradesh
pursuant to contracts entered into between the parties, that is, the seller and the buyers. On
30.11.1994, the Chief Engineer (Electricity Duty) and Chief Electrical Inspector, Government of
Madhya Pradesh issued a letter annexed by a tabulated statement raising a demand of
Rs.2,74,01,59,535/28 paise for the period commencing October, 1984 and expring March, 1996.
The demand is on account of electricity duty at the rate of 2 paise per unit and cess at the rate of 1
paise per unit calculated on the units sold to Electricity Boards of other States. /p> p>In the counter-
affidavit on behalf of the States of Madhya Pradesh and Chhattisgarh reliance has been placed on
the definition of 'consumer' engrafted into the M.P. Electricity Duty Act, 1949 by M.P. Act No.46 of
1984 with effect from 1.10.1984 which reads as under:- /p> p>quot;Consumerquot; means any
person who receives electrical energy sold or supplied by a distributor of electrical energy or a
producer and includes a person receiving electrical energy in bulk for onward distribution. /p> p>By
the same amendment quot;distributor of electrical energyquot; was defined so as to include therein
NTPCL, as already stated. It is admitted by the States of M.P. and Chhattisgarh that the power
generated at the two power stations is sold and supplied to various electricity boards/electricity
departments situated in other States but as the generating stations are located in the State of Madhya
Pradesh the sale is not an inter-State sale. The situs of sale is within the State of M.P. Transaction of
sale is complete in the State of M.P. and the buyers carry the electricity to their respective States
when property in electricity sold has already passed to them. Reliance has been placed on the
several clauses of the bulk power supply agreement entered into between NTPCL and buyers, one of
which entered into between NTPCL and Western Region Electricity Board (WREB) having its
office at Andheri East, Bombay, has been filed and quoted in the counter affidavit, according to
which (a) Metering is within the State of M.P.; (b) Transmission loss from Madhya Pradesh to the
Home State of the buyer is to the account of the buyer; (c) Wheeling loss from Madhya Pradesh to
the Home State of the buyer to the account of the buyer; (d) Transmission charges for transmission
from Madhya Pradesh to the Home State of the buyer to the account of the buyer; (e) Wheeling
charges from Madhya Pradesh to the Home State of the buyer to the account of the buyer; (f)
Delivery of WREB in Madhya Pradesh; (g) NTPCL ceases to have control over the electrical energy
once it is delivered to WREB within State of M.P.; (h) Payment made by the Bulk Beneficiaries is in
respect of quantum of electrical energy supplied/delivered at metering point in State of M.P. Similar
are the agreements entered into with other outside-State buyers. /p> p>It is not disputed that the
power generated at the abovesaid two stations is fed into transmission system of Power Grid
Corporation of India Limited and the transmission systems of other bulk power beneficiaries
wherefrom the buyers draw the power purchased by them. Great emphasis was laid on the fact that
the points for metering are installed within the State of Madhya Pradesh. It was submitted that the
transaction under scrutiny in the case of State of M.P. is different from the one under scrutiny in the
case of State of Andhra Pradesh. /p> p>Relevant Provisions We proceed to notice the relevant
provisions of the Constitution and other statutory provisions. /p> p>Changes of far reaching
implications were made in the Constitution by the Constitution (Sixth Amendment) Act, 1956 with
effect from September 11, 1956. To enable a convenient comparative reading, we set out the
provisions as under:- /p> p>quot;246. Subject-matter of laws made by Parliament and by the
Legislatures of States.__ (1) Notwithstanding anything in clauses (2) and (3), Parliament has
exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh
Schedule (in this Constitution referred to as the quot;Union Listquot;). /p> p>(2) Notwithstanding
anything in clause (3), Parliament and, subject to clause (1), the Legislature of any State also, have
power to make laws with respect to any of the matters enumerated in List III in the Seventh
Schedule (in this Constitution referred to as the quot;Concurrent Listquot;). /p> p>(3) Subject to
clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or
any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in
this Constitution referred to as the 'State List'). /p> p>(4) Parliament has power to make laws with
respect to any matter for any part of the territory of India not included in a State notwithstanding
that such matter is a matter enumerated in the State List.quot; /p> p>Seventh Schedule /p> p>List I
Union List /p> p>xxx xxx xxx xxx /p> p>92A. Taxes on the sale or purchase of goods other than
newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce.
/p> p>(inserted by Sixth Amendment) /p> p>List II - State List /p> p>Entry 52 /p> p>Taxes on the
entry of goods into a local area for consumption, use or sale therein. /p> p>Entry 53 /p> p>Taxes on
the consumption or sale of electricity. /p> p>Entry 54 : /p> p>(Before Sixth Amendment) /p> p>54.
Taxes on the sale or purchase of goods other than newspapers /p> p>(After Sixth Amendment) /p>
p>54.Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of
entry 92A of List I. /p> p>Before 11.9.56 After 11.9.56 269.The following duties and taxes shall be
levied and collected Taxes levied and by the Government of collected by the India but shall be
assig- Union but assig- ned to the States in the ned to the States. manner provided in clause (2),
namely :- (a) duties in respect of succession to property other than agricultural land; (b) estate duty
in respect of property other than agricultural land; (c) terminal taxes on goods or pass- ngers carried
by railway, sea or air. (d) taxes on railway fares and freights; (e) taxes other than stamp duties on
transactions in stock-exchanges and future markets; (f) taxes on the sale or purchase of newspapers
and on advertise- ments published therein. /p> p>(2) The net proceeds in any financial year of any
such duty or tax, except in so far as those proceeds represent proceeds attributable to States
specified in Part C of the first Schedule, shall not form part of the Consolidated Fund of India, but
shall be assigned to the States within which that duty or tax is leviable in that year, and shall be
distributed among those States in accordance with such principles of distribution as may be
formulated by Parliament by law. /p> p>269.(1)The following duties and taxes shall be levied and
collected Taxes levied and by the Government of collected by the India but shall be assig- Union but
assig- ned to the States in the ned to the States. manner provided in clause (2), namely :- /p> p>(a)
duties in respect of succession to property other than agricultural land; /p> p>(b) estate duty in
respect of property other than agricultural land; /p> p>(c) terminal taxes on goods or passn- gers
carried by railway, sea or air; /p> p>(d) taxes on railway fares and freights; /p> p>(e) taxes other
than stamp duties on transactions in stock-exchanges and future markets; /p> p>(f) taxes on the sale
or purchase of newspapers and on advertise- ments published therein. /p> p>(g) taxes on the sale or
purchase of goods other than newspapers, where such sale or purchase takes place in the course of
inter-State trade or commerce. /p> p>(h) taxes on the consignment of goods (whether the
consignment is to the person making it or to any other person), where such consignment takes place
in the course of inter- State trade or commerce; /p> p>(2) The net proceeds in any financial year of
any such duty or tax, except in so far as those proceeds represent proceeds attributable to Union
territories shall not form part of the Consolidated Fund of India, but shall be assigned to the States
within which that duty or tax is leviable in that year, and shall be distributed among those States in
accordance with such principles of distribution as may be formulated by Parliament by law. /p>
p>(3)Parliament may be law formulate principles for determining when a sale or purchase of or
consignment of goods takes place in the course of inter-State trade or commerce. /p> p>Before
11.9.56. After 11.9.56. /p> p>286. (1) No law of a State shall impose or authorise the imposition of,
a tax on the sale or purchase of goods where such sale or purchase takes place__ /p> p>(a) (b) (a)
outside the State; or (b) (b) in the course of the import of the goods into, or export of the goods out
of, the territory of India. /p> p>Explanation __ For the purposes of sub- clause (a), a sale or
purchase shall be deemed to have taken place in the State in which the goods have actually been
delivered as a direct result of such sale or purchase for the purpose of consumption in that State,
notwithstanding the fact that under the general law relating to sale of goods the property in the
goods has by reason of such sale or purchase passed in another State. /p> p>(2) Except in so far as
Parliament may by law otherwise provide, no law of a State shall impose, or authorise the
imposition of, a tax on the sale or purchase of any goods where such sale or purchase takes place in
the course of inter-State trade or commerce: /p> p>Provided that the President may by order direct
that any tax on the sale or purchase of goods which was being lawfully levied by the Government of
any State immediately before the commencement of this Constitution shall, notwithstanding that the
imposition of such tax is contrary to the provisions of this clause, continue to be levied until the
thirty-first day of March, 1951. /p> p>(3) No law made by the Legislature of a State imposing, or
authorizing the imposition of, a tax on the sale or purchase of any such goods as have been declared
by Parliament by law to be essential for the life of the community shall have effect unless it has
been reserved for the consideration of the President and has received his assent. /p> p>286. (1) No
law of a State shall impose, or authorize the imposition of, a tax on the sale or purchase of goods
where such sale or purchase takes place__ /p> p>(a) (b) (a) outside the State; or (b) in the course of
the import of the goods into, or export of the goods out of, the territory of India. /p> p>* * * * * /p>
p>(2) Parliament may by law formulate principles for determining when a sale or purchase of goods
takes place in any of the ways mentioned in clause (1). /p> p>(3) Any law of a State shall, in so far
as it imposes, or authorizes the imposition of,. __ /p> p>(a) a tax on the sale or purchase of goods
declared by Parliament by law to be of special importance in inter-State trade or commerce; or /p>
p>(b) (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause
(b), sub-clause (c) or sub-clause (d) of clause (29A) of article 366, be subject to such restrictions
and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may
be law specify. /p> p>Out of the several changes introduced by the Constitution (Sixth Amendment)
Act, only a few are relevant and material for our purpose. In Article 269, Sub-Clause (g) was added
in clause (1) and a new Clause (3) was added. The Forty-Sixth Amendment substituted the words
'sale or purchase of, or consignment of, goods' in place of 'sale or purchase of goods' as was
occurring in Clause (3) inserted by Sixth Amendment. Such Forty Sixth Amendment has no
relevance for the present controversy. In Article 286 subsequent to the Sixth Amendment, Clause (3)
has been brought in the present form by Forty -Sixth Amendment which again is not relevant for the
present controversy. What is relevant for our purpose is the deleting of former explanation appended
to Clause (1) and substitution of Clause (2) in the present form in Article 286 by Sixth Amendment.
/p> p>As to the several relevant entries quoted hereinabove, it may be noted that Entry 92A in List-I
of Seventh Schedule was added by Sixth Amendment. Entry 54 in List-II in the present form was
substituted by Sixth Amendment. Entries 52 and 53 in List-II remain unaffected by Sixth
Amendment. /p> p>The Central Sales Tax Act, 1956 was enacted to formulate principles for
determining __ when a sale or purchase of goods takes place in the course of inter-state trade or
commerce or outside a State or in the course of import into or export from India, to provide for the
levy, collection and distribution of taxes on sale of goods in the course of inter-State trade or
commerce etc., as the Preamble to the Act states. Clause (d) of Section 2 defines 'goods' (unless the
context otherwise requires) to include all materials, articles, commodities and all other kinds of
moveable properties, but not including newspapers, actionable claims, stocks, shares and securities.
Section 3 of the Act, placed in Chapter II thereof, provides as under:- /p> p>quot;CHAPTER II /p>
p>FORMULATION OF PRINCIPLES FOR DETERMINING WHEN A SALE OR PURCHASE
OF GOODS TAKES PLACE IN THE COURSE OF INTER-STATE TRADE OR COMMERCE
OR OUTSIDE A STATE OR IN THE COURSE OF IMPORT OR EXPORT /p> p>3. When is a
sale or purchase of goods said to take place in the course of inter-State trade or commerce.__ A sale
or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if
the sale or purchase__ /p> p>(a) occasions the movement of goods from one State to another; or /p>
p>(b) is effected by a transfer of documents of title to the goods during their movement from one
State to another. /p> p>Explanation 1.__ Where goods are delivered to a carrier or other bailee for
transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to
commence at the time of such delivery and terminate at the time when delivery is taken from such
carrier or bailee. /p> p>Explanation 2. __ Where the movement of goods commences and terminates
in the same State it shall not be deemed to be a movement of goods from one State to another by
reason merely of the fact that in the course of such movement the goods pass through the territory of
any other State.quot; /p> p>At this juncture it would be appropriate to have a view of the legislative
history. Explanation to clause (1) of Article 286 generated some controversy which led to the
constitution of a larger Bench (7- judge strength) in The Bengal Immunity Company Limited Vs.
The State of Bihar and Ors. - 1955 (2) SCR 603. The larger bench ruled by majority that an inter-
State sale or purchase continues to be so irrespective of the State where the sale can be held to be
located under the general law or by the fiction created by the explanation appended to clause (1) of
Article 286. The situs of a sale or purchase is wholly irrelevant so far as its inter-State character is
concerned. The larger bench further ruled that until Parliament by law made in exercise of the
powers vested in it by clause (2) of Article 286 provides otherwise, no State can impose or authorize
the imposition of any tax on sale or purchases of goods when any sales or purchases take place in
the course of inter-State trade or commerce. To put in other words, it was held that explanation to
Article 286(1) as it existed prior to the Sixth Amendment could not be applied for the purpose of
interpreting clause (2) of Article 286. /p> p>The issue attracted the attention of Taxation Enquiry
Commission 1953-54 (TEC, for short). In its report, Volume III, Chapter 4, vide para 30, the
Commission observed, inter alia, that Clause (1) of Article 286 links the sales-tax to one of the two
parties, viz., the consumer and lays down that no State shall levy tax on a sale which results in
delivery for consumption in another State. While making recommendations for consideration of
future policy regarding sales tax, it opined that the system should contain provisions whereby
certain constitutional restrictions on the States and certain powers of levy and control by the Union
are introduced. The TEC observed that the Constitution, in effect, divides sales of goods in India
into (a) goods delivered for consumption in particular States and (b) other sales, which dichotomy is
imperfect from the point of view of tax administration. It suggested division, both useful and
effective, of all sales of goods into two, namely (a) those in the course of inter-State trade and
commerce, and (b) those not in the course of such trade and commerce; while the former should be
the sphere of the Union and the latter in the sphere of the States. It appears that so far as the
electricity duty is concerned, though the subject was separately dealt with by the report, in the then
circumstances the TEC did not comprehend inter-State sale of electricity and, therefore, did not
make any recommendation specifically in that regard. However, that does not make any difference.
/p> p>Pursuant to the recommendations made by the Taxation Enquiry Commission the Parliament
incorporated certain amendments in the Constitution by enacting the Constitution (Sixth
Amendment) Act, 1956 which we have already noticed briefly. /p> p>We have very briefly stated
the legislative history for it has been noticed in details in a recent Constitution Bench decision of
this Court in 20th Century Finance Corporation Ltd. amp; Anr. Vs. State of Maharashtra (2000) 6
SCC 12 and earlier in Shiv Dutt Rai Fateh Chand etc. Vs. Union of India amp; Anr. (1983) 3 SCC
529, and therefore, we have deemed it not necessary to repeat or re-state the same in details. The
Central Sales Tax Act, 1956 was enacted by the Parliament as authorized by the Constitution. We
have already reproduced Section 3 of the CST Act hereinabove. By Section 6 of the Act the Central
Government was empowered to levy tax on all sales of goods effected by a dealer in the course of
inter-State trade or commerce. However, by the Central Sales Tax (Amendment) Act, 1972, which
came into force with effect from 1.4.1973, the language of Section 6 was suitably amended so as to
confine the levy of tax under Section 6 on all sales quot;of goods other than electrical energyquot;.
The Statement of Objects and Reasons for this amendment was so stated quot;Exemption from
Central sales-tax Act on inter-State sales of electrical energy is now dependent on the exemption
from tax by a State Government on local sales of electrical energy. It is now proposed to provide
specifically that inter-State sale of electrical energy would not be liable to Central sales tax.quot;
(see Gazette of India Extraordinary Part II, at page 522). The purpose behind referring to this
amendment and the SOR is that in the understanding of the Parliament also the inter-State sale of
electrical energy was liable to central sales-tax under Section 6 of the Act and but for the
amendment such tax was capable of being levied by the Central Government. /p> p>Electricity,
what it is Before we deal with the constitutional aspects let us first state what electricity is, as
understood in law, and what are its relevant characteristics. It is settled with the pronouncement of
this Court in Commissioner of Sales Tax, Madhya Pradesh, Indore Vs. Madhya Pradesh Electricity
Board, Jabalpur- 1969 (2) SCR 939 that electricity is goods. The definition of goods as given in
Article 366 (12) of the Constitution was considered by this Court and it was held that the definition
in terms is very wide according to which quot;goodsquot; means all kinds of moveable property.
The term quot;moveable propertyquot; when considered with reference to quot;goodsquot; as
defined for the purpose of sales-tax cannot be taken in a narrow sense and merely because electrical
energy is not tangible or cannot be moved or touched like, for instance, a piece of wood or a book it
cannot cease to be moveable property when it has all the attributes of such property. It is capable of
abstraction, consumption and use which if done dishonestly is punishable under Section 39 of the
Indian Electricity Act, 1910. If there can be sale and purchase of electrical energy like any other
moveable object, this Court held that there was no difficulty in holding that electric energy was
intended to be covered by the definition of quot;goodsquot;. However, A.N. Grover, J. speaking for
three- Judge Bench of this Court went on to observe that electric energy quot;can be transmitted,
transferred, delivered, stored, possessed etc. in the same way as any other moveable propertyquot;.
In this observation we agree with Grover, J. on all other characteristics of electric energy except that
it can be 'stored' and to the extent that electric energy can be 'stored', the observation must be held to
be erroneous or by oversight. The science and technology till this day have not been able to evolve
any methodology by which electric energy can be preserved or stored. /p> p>Another significant
characteristic of electric energy is that its generation or production coincides almost instantaneously
with its consumption. To quote from Aiyar's Law Lexicon (Second Edition, 2000) __ 'Electricity in
physics is quot;the name given to the cause of a series of phenomena exhibited by various
substances, and also to the phenomena themselves.quot; Its true nature is not understood. Imperial
Dict. (quoted in Spensley v. Lancashire Ins. Co., 54 Wis. 433, 442, 11 NW 894, where the court,
quoting from the same authority, said, quot;We are totally ignorant of the nature of this cause
whether it be a material agent or merely a property of matter. But as some hypothesis is necessary
for explaining the phenomena observed, it has been assumed to be a highly subtle, imponderable
fluid, identical with lightning, which pervades the pores of all bodies, and is capable of motion from
one body to another.' This characteristic quality of electric energy was judicially noticed in Indian
Aluminium Co.etc.etc. Vs. State of Kerala amp; Ors. (1996) 7 SCC 637. Vide para 25 this Court has
noted, quot;Continuity of supply and consumption starts from the moment the electrical energy
passes through the meters and sale simultaneously takes place as soon as meter reading is recorded.
All the three steps or phases (i.e. sale, supply and consumption) take place without any hiatus. It is
true that from the place of generating electricity, the electricity is supplied to the sub-station
installed at the units of the consumers through electrical higher-tension transformers and from there
electricity is supplied to the meter. But the moment electricity is supplied through the meter,
consumption and sale simultaneously take place.quot; quot;as soon as the electrical energy is
supplied to the consumers and is transmitted through the meter, consumption takes place
simultaneously with the supply. There is no hiatus in its operation. Simultaneously sale also takes
place.quot; These properties of electricity as goods are of immense relevance as we would state
hereafter. /p> p>List II, Entries 53 and 54, how to be read: We now come to the question on the
interpretation of Entry 53 in List II of Seventh Schedule. It provides for taxes on the consumption or
sale of electricity. The word 'sale' as occurring in Entry 52 came up for the consideration of this
Court in Burmah Shell Oil Storage amp; Distributing Co.India Ltd. Vs. The Belgaum Borough
Municipality 1963 Supp.(2) SCR 216. It was held that the act of sale is merely the means for putting
the goods in the way of use or consumption. It is an earlier stage, the ultimate destination of the
goods being quot;use or consumptionquot;. We feel that the same meaning should be assigned to the
word 'sale' in Entry 53. This is for a fortiorari reason in the context of electricity as there can be no
sale of electricity excepting by its consumption, for it can neither be preserved nor stored. It is this
property of electricity which persuaded this Court in Indian Aluminium Co. etc's case (supra) to
hold that in the context of electricity, the word 'supply' should be interpreted to include sale or
consumption of electricity. Entry 53 should therefore be read as 'taxes on the consumption or sale
for consumption of electricity'. /p> p>With these two things in mind, namely, that electricity is
goods, and that sale of electricity has to be construed and read as sale for consumption within the
meaning of Entry 53, the conflict, if any, between Entry 53and Entry 54 ceases to exist and the two
can be harmonized and read together. Because electricity is goods it is covered in Entry 54 also. It is
not disputed that duty on electricity is tax. Tax on the sale or purchase of goods including electricity
but excluding newspapers shall fall within Entry 54 and shall be subject to provisions of Entry 92A
of List I. Taxes on the consumption or sale for consumption of electricity within the meaning of
Entry 53 must be consumption within the State and not beyond the territory of the State. Any other
sale of electricity shall continue to be subject to the limits provided by Entry 54. Even purchase of
electricity would be available for taxation which it would not be if electricity was not includible in
the meaning of term 'goods'. A piece of legislation need not necessarily fall within the scope of one
entry alone; more than one entry may overlap to cover the subject-matter of a single piece of
legislation. A bare consumption of electric energy even by one who generates the same may be
liable to be taxed by reference to Entry 53 and if the State Legislature may choose to impose tax on
consumption of electricity by the one who generates it, such tax would not be deemed to be a tax
necessarily on manufacture or production or a duty of excise, as held by Constitution Bench in
Jiyajeerao Cotton Mills Ltd., Birlanagar, Gwalior Vs. State of Madhya Pradesh 1962 Supp.(1) SCR
282. A mere consumption of goods (other than electricity), not accompanied by purchase or sale
would not be taxable under Entry 54 because it does not provide for taxes on the consumption and
Entry 53 does not speak of goods other than electricity. Thus in substance Entries 53 and 54 can be
and must be read together and to the extent of sale of electricity for consumption outside the State,
the electricity being goods, shall also be subject to provisions of Entry 92A of List I. This, in our
opinion, is the best way of reading the two entries. In C.P. Motor Spirit Act re., AIR 1939 FC 131, it
was held that two entries in the lists may overlap and sometimes may also appear to be in direct
conflict with each other. It is then the duty of this Court to reconcile the entries and bring about
harmony between them. The Court should strive at searching for reasonable and practical
construction to seek reconciliation and give effect to all of them. If reconciliation proves impossible
the overriding power of Union Legislature operates and prevails. Gwyer, C.J. observed quot;A grant
of the power in general terms, standing by itself, would no doubt be construed in the wider sense;
but it may be qualified by other express provisions in the same enactment, by the implication of the
context, and even by considerations arising out of what appears to be the general scheme of the
Act.quot; And again he said, quot;an endeavour must be made to solve it, as the Judicial Committee
have said, by having recourse to the context and scheme of the Act, and a reconciliation attempted
between two apparently conflicting jurisdictions by reading the two entries together and by
interpreting, and, where necessary, modifying the language of the one by that of the other. If needed
such a reconciliation should prove impossible, then and only then, will the non-obstante clause
operate and the federal power prevail.quot; In Calcutta Gas Co. Ltd. Vs. The State of West Bengal
amp; Ors., 1962 Supp (3) SCR 1, the Constitution Bench has held that the same rules of
construction apply for the purpose of harmonizing an apparent conflict between two entries in the
same list. /p> p>What is inter-State sale? /p> p>It is well settled by a catena of decisions of this
Court that a sale in the course of inter-State trade has three essential ingredients: (i) there must be a
contract of sale, incorporating a stipulation, express or implied, regarding inter-State movement of
goods; (ii) the goods must actually move from one State to another, pursuant to such contract of
sale; the sale being the proximate cause of movement; and (iii) such movement of goods must be
from one State to another State where the sale concludes. It follows as a necessary corollary of these
principles that a movement of goods which takes place independently of a contract of sale would not
fall within the meaning of inter-State sale. In other words, if there is no contract of sale preceding
the movement of goods, obviously the movement cannot be attributed to the contract of sale.
Similarly, if the transaction of sale stands completed within the State and the movement of goods
takes place thereafter, it would obviously be independently of the contract of sale and necessarily by
or on behalf of the purchaser alone and, therefore, the transaction would not be having an inter-State
element. Precedents are legion; we may briefly refer to some of them. In English Electric Company
of India Ltd. Vs. Deputy Commercial Tax Officer, 1977 (1) SCR 631, this Court held that when the
movement of the goods from one State to another is an incident of the contract it is a sale in the
course of inter-State sale and it does not matter which is the State in which the property passes.
What is decisive is whether the sale is one which occasions the movement of goods from one State
to another. In Union of India Vs. K.G. Khosla and Co. Ltd., (1979) 2 SCC 242, it was observed that
a sale would be an inter-State sale even if the contract of sale does not itself provide for the
movement of goods from one State to another provided, however, that such movement was the
result of a covenant in the contract of sale or was an incident of the contract. Similar view was
expressed in M/s. Sahney Steel and Press Works Ltd. and Anr. Vs. Commercial Tax Officer and
Others (1985) 4 SCC 173. In Manganese Ore (India) Ltd. Vs. The Regional Assistant Commissioner
of Sales-tax, Jabalpur 1976 (4) SCC 124, after referring to Balabhagas Hulaschand Vs. State of
Orissa, (1976) 2 SCC 44, it was observed that so far as Section 3 (a) of the C.S.T. Act is concerned
there is no distinction between unascertained or future goods and goods which are already in
existence, if at the time when the sale takes place these goods have come into actual existence. /p>
p>Effect of Entry-53, List-II, having remained unamended Having seen the properties of electricity
as goods and what is inter-State sale, let us examine the effect of Entry 53, List II, having been left
unamended by Sixth Amendment from another angle. Sixth Amendment did not touch Entry 53 in
List-II and so the contents of Entry 53 were not expressly made subject to the provisions of Entry 92
A of List I and arguments were advanced, with emphasis, on behalf of the States of Andhra Pradesh
and Madhya Pradesh contending that such omission was deliberate and therefore the restriction
which has been placed only in Entry 54 by making it subject to the provisions of Entry 92A of List I
should not be read in Entry 53. It was submitted that so far as sale of electricity is concerned even if
such sale takes place in the course of inter-State trade or commerce the State can legislate to tax
such sale if the sale can be held to have taken place within the territory of that State or if adequate
territorial nexus is established between the transaction and State legislation. For the several reasons
stated hereinafter such a plea cannot be countenanced. /p> p>The prohibition which is imposed by
Article 286(1) of the Constitution is independent of the legislative entries in Seventh Schedule.
After the decision of larger Bench in Bengal Immunity Company Limited (supra) and Constitution
Bench decision in Ram Narain Sons Ltd. amp; Ors. Vs. Asst. Commissioner of Sales Tax amp; Ors.,
1955 (2) SCR 483, there is no manner of doubt that the bans imposed by Articles 286 and 269 on
the taxation powers of the State are independent and separate and must be got over before a State
legislature can impose tax on transactions of sale or purchase of goods. Needless to say, such ban
would operate by its own force and irrespective of the language in which an Entry in List-II of
Seventh Schedule has been couched. The dimension given to field of legislation by the language of
an Entry in List-II Seventh Schedule shall always remain subject to the limits of constitutional
empowerment to legislate and can never afford to spill over the barriers created by the Constitution.
The power of State legislature to enact law to levy tax by reference to List II of the Seventh
Schedule has two limitations : one, arising out of the entry itself; and the other, flowing from the
restriction embodied in the Constitution. It was held in Tata Iron and Steel Co. Ltd. Bombay Vs.
S.R. Sarkar and Ors. - 1961 (1) SCR 379 (at pages 387 and 388) that field of taxation on sale or
purchase taking place in the course of inter-State trade or commerce has been excluded from the
competence of the State Legislature. In 20th Century Finance Corporation Limited (supra) the
Constitution Bench (majority) made it clear that the situs of the sale or purchase is wholly
immaterial as regards the inter-State trade or commerce. In view of Section 3 of the Central Sales
Tax, 1956 all that has to be seen is whether the sale or purchase (a) occasions the movement of
goods from one State to another; or (b) is effected by a transfer of documents of title to the goods
during their movement from one State to another. If the transaction of sale satisfies any one of the
two requirements it shall be deemed to be a sale or purchase of goods in the course of inter-State
trade or commerce and by virtue of Articles 269 and 286 of the Constitution the same shall be
beyond the legislative competence of a State to tax without regard to the fact whether such a
prohibition is spelled out by the description of a legislative entry in Seventh Schedule or not. /p>
p>It is well settled, and hardly needs any authority to support the proposition, that several entries in
the three lists of Seventh Schedule are legislative heads or fields of legislation and not the source of
legislative empowerment. [To wit, see The Calcutta Gas Co. Ltd. Vs. The State of West Bengal
amp; Ors. (supra)]. Competence to legislate has to be traced to the Constitution. The division of
powers between Parliament and the State Legislatures to legislate by reference to territorial limits is
defined by Article 245. The subject-matters with respect to which those powers can be exercised are
enumerated in the several entries divided into three groups as three Lists of Seventh Schedule.
Residuary powers of legislation are also vested by Article 248 in the Parliament with respect to any
matter not enumerated in any of the lists in Seventh Schedule. This residuary power finds reflected
in Entry 97 of List I. If an Entry does not spell out an exclusion from field of legislation discernible
on its apparent reading, the absence of exclusion cannot be read as enabling power to legislate in the
field not specifically excluded, more so, when there is available a specific provision in the
Constitution prohibiting such legislation. /p> p>It is by reference to the ambit or limits of territory
by which the legislative powers vested in Parliament and the State Legislatures are divided in
Article 245. Generally speaking, a legislation having extra territorial operation can be enacted only
by Parliament and not by any State Legislature; possibly the only exception being one where extra
territorial operation of a State legislation is sustainable on the ground of territorial nexus. Such
territorial nexus, when pleaded, must be sufficient and real and not illusory. In Burmah Shell Oil
Storage amp; Distributing Co.India Ltd.(supra), which we have noticed, it was held that sale for use
or consumption would mean the goods being brought inside the area for sale to an ultimate
consumer, i.e. the one who consumes. In Entry 53, 'sale for consumption' (the meaning which we
have placed on the word 'sale') would mean a sale for consumption within the State so as to bring a
State Legislation within the field of Entry 53. If sale and consumption were to take place in different
States, territorial nexus for the State, where the sale takes place, would be lost. We have already
noticed that in case of electricity the events of sale and consumption are inseparable. Any State
legislation levying duty on sale of electricity, by artificially or fictionally assuming that the events
of sale and consumption have taken place in two States, would be vitiated because of extra
territorial operation of State legislation. /p> p>In 20th Century Finance Corporation's case, the
Constitution Bench by reference to the definition of quot;tax on the sale or purchase of goodsquot;
(which too has been inserted as clause (29-A) in Article 366 by Sixth Amendment) opined that the
situs of sale can be fixed either by the appropriate legislature or by Judge made law and no settled
principles for determining situs of sale can be laid down. Further, the State legislature cannot by
law, treat sales outside the State and sales in the course of import as quot;sales within the Statequot;
by fixing the situs of sales within its State in the definition of sale, as it is within the exclusive
domain of the appropriate legislature, i.e. Parliament to fix the location of sale by creating legal
fiction or otherwise. The, majority has clearly opined that the State where the goods are delivered in
the transaction of inter-State sale, cannot levy a tax on the basis that one of the events in the chain
has taken place within the State; so also where the goods are in existence and available for the
transfer of right to use, there also that State cannot exercise power to tax merely because the goods
are located in that State. Then it was observed that in case where goods are not in existence or where
there is an oral or implied transfer of the right to use the goods, such transactions may be effected
by the delivery of the goods in which case the taxable event would be on the delivery of goods.
However, we are dealing with the case of electricity as goods, the property whereof, as we have
already noted, is that the production (generation), transmission, delivery and consumption are
simultaneous, almost instantaneous. Electricity as goods comes into existence and is consumed
simultaneously; the event of sale in the sense of transferring property in the goods merely intervenes
as a step between generation and consumption. In such a case when the generation takes place in
one State wherefrom it is supplied and it is received in another State where it is consumed, the
entire transaction is one and can be nothing else excepting an inter-State sale on account of
instantaneous movement of goods from one State to another occasioned by the sale or purchase of
goods, squarely covered by Section 3 of C.S.T. Act. /p> p>Sale of electricity by NTPCL /p> p>In
both the cases before us, contracts have been entered into between parties to the transaction, that is,
the sellers and the buyers (in other States) prior to the generation of electricity. The NTPCL
generates electricity and pursuant to these contracts supplies the same from its power stations
situated in the States of A.P. or M.P. to the buyers in other States where it is received and consumed.
There is no hiatus between generation, sale, supply, transmission, delivery and consumption. The
inter-State movement of electricity is pursuant to contracts of sale. Such sales can be held only as
inter-State sales. /p> p>Though it may be permissible to fix the situs of sale either by appropriate
State legislation or by Judge made law as held by the majority opinion in 20th Century Finance
Corporation case, we would like to clarify that none of the two can artificially appoint a situs of sale
so as to create territorial nexus attracting applicability of tax legislation enacted by any State
Legislature and tax an inter-State sale in breach of Section 3 of the CST Act read with Articles 286
(2) and 269(1) and (3) of the Constitution. No State legislation, nor any stipulation in any contract,
can fix the situs of sale within the State or artificially define the completion of sale in such a way as
to convert an inter-State sale into an intra-State sale or create a territorial nexus to tax an inter-State
sale unless permitted by an appropriate central legislation. But this is exactly what the definition of
'consumer' in Clause (2)(a) of the M.P. Electricity Duty Act, 1949 has done. The definition of
consumer has been artificially extended to include any person who receives electrical energy
(without regard to its consumption) and also to include a person who, receiving the electrical energy
in bulk, forwards it onwards for distribution, (without regard to the fact whether it transmitted
outside the State and whether the electricity is or is not consumed within the State). The same
definition has been adopted in M.P. Upkar Adhiniyam, 1981. This definition of consumer shall have
to be read down as including within it only such persons who receive the electricity for consumption
or distribution for consumption within the State. Without such reading down, the definition of
'consumer' would be rendered ultra vires of Articles 286 and 269 of the Constitution read with
Section 3 of the Central Sales Tax Act, 1956. /p> p>Consequences on free flow of trade /p> p>Yet
another reason why we cannot accept the line of reasoning advanced on behalf of the States of
Andhra Pradesh and Madhya Pradesh is that the same runs counter to the scheme of constitutional
provisions and specially the Sixth Amendment. As has been found by the Division Bench of Andhra
Pradesh High Court in its impugned judgment, if the reasoning suggested on behalf of the State of
A.P. was accepted, the State where the dealer supplying the electricity is located and the electricity
originates for sale, as also the States in which the purchaser of electricity is located and it is
delivered, shall both subject the electrical energy to taxation, by relying on the theory of territorial
nexus. Such a situation would be the one which was obtaining in the country with respect to sales
tax prior to coming into force of the Constitution and which led to complications and difficulties in
administration of sales tax legislation and therefore, was taken care of by the Sixth Amendment.
Such multiple taxation would result in hampering free movement of electricity between the States,
and therefore, would be prejudicial to freedom of trade, commerce and intercourse throughout the
territory of India, and for the unity and integrity of the country. That would give rise to the same
situation which was sought to be remedied by the Constitution and the Sixth Amendment. /p> p>On
behalf of the States of A.P. and M.P., it was submitted that subject of electricity has been
specifically dealt with by Articles 287 and 288 of the Constitution and by implication the Articles,
other than 287 and 288, should be read as not dealing with electricity. This submission is stated only
to be rejected. These articles make some provisions for electricity and water or electricity in the
special context dealt with by those articles and do not exclude applicability of other articles where
electricity has been dealt with as goods. /p> p>For the foregoing reasons, we are of the opinion that
no fault can be found with the judgment of the Andhra Pradesh High Court which is affirmed and
Civil Appeal No. 3112 of 1990 is dismissed with costs. Civil Writ Petition T.C. No.3 of 1998 is
allowed with costs and the demand raised by the Chief Electrical (Electricity Duty) and Chief
Electrical Inspector, Government of M.P. vide its letter dated 30.11.1995 is directed to be
quashed./p> /div> /body> /html>