Supreme Court of India
ESSAR STEEL INDIA LTD. AND ANR.versusSTATE OF GUJARAT AND ANR.
- Citation
- 2017 INSC 431
- Decided
- 2 May 2017
- Disposal
- Dismissed
- Bench
- A K SIKRI
Holding
The Court held that the statutory conditions for exemption under both Section 3(2)(vii)(a)(i) and the 1992 notification were not fulfilled, as the electricity was not jointly generated with the industrial undertaking and the generating sets were commissioned after the prescribed period, thereby denying the exemption.
Summary
ESSAR Steel Ltd. (appellant No.1) and its sister company ESSAR Power Ltd. (appellant No.2) sought exemption from electricity duty under the Bombay Electricity Duty Act, 1958, invoking Section 3(2)(vii)(a)(i) and a 1992 notification issued under Section 3(3). The claim was based on the contention that the power generated by the special‑purpose vehicle ESSAR Power was jointly generated for the industrial undertaking ESSAR Steel and that the generating sets were purchased within the prescribed period. The State of Gujarat rejected the exemption, the Gujarat High Court affirmed the rejection, and the appellants appealed to the Supreme Court. The Court held that the statutory conditions for exemption were not satisfied because 58% of the 515 MW capacity was sold to the Gujarat Electricity Board, which is not an industrial undertaking jointly generating the energy, and the generating sets were commissioned in August 1995, outside the 1991‑1992 window required by the notification. Consequently, the exemption claim failed and the appeal was dismissed.
Issues considered
- Whether the appellants qualify for exemption under Section 3(2)(vii)(a)(i) of the Bombay Electricity Duty Act, 1958, given that the electricity was sold to the Gujarat Electricity Board and not jointly generated with an industrial undertaking.
- Whether the appellants are entitled to exemption under the notification dated 27 February 1992 issued under Section 3(3) of the Act, considering the timing of purchase, installation and commissioning of the generating sets.
- Whether the absence of a Memorandum of Understanding between the generating company and the industrial undertaking defeats the claim of joint generation.
- Whether the failure to file the application within the 180‑day period bars the claim for exemption.
Legislation cited
- Bombay Electricity Duty Act, 1958s. 3(2)(vii)(a)(i), s. 3(3)
- Bombay Electricity Duty Rules, 1968s. Rule 11
- Electricity (Supply) Act, 1948s. 2(4A)
Subjects
electricity dutyexemptionjoint generationspecial purpose vehicleBombay Electricity Duty ActSection 3(2)notification 1992strict constructionpower purchase agreement
Judgment
[2017] 4 S.C.R. 767
ESSAR STEEL INDIA LTD. AND ANR. A
v.
STATE OF GUJARAT AND ANR.
(Civil Appeal No. 4842 of2017)
MAY02,2017 B
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Bombay Electricity Duty Act, 1958:
s.3(2)(vii)(a) and s.3(3) - Claim for exemption from duty by
appellant no.I under the provisions of s.3(2)(vii) and also under C
the notification dated 27.02.1992 issued uls.3(3) of 1958 Act- Held:
Appellants sold 58% of installed capacity to the Electricity Board -
Therefore, exemption u/s.3(2)(vii)(a) is not available since the energy
was not generated jointly with the Board - Further, appellant is not
entitled to the benefit of exemption as claimed under notification D
dated 27.2.1992 as th.e said notification specifically provided that
generating sets should have been purchased or installed or
commissioned during the period beginning from 1.1.1991 and ending
31.12.1992 while the generating sets in question were commissioned
in August 1995 - Electricity.
Dismissing the appeal, the Court E
HELD: I. Claim under Section 3(2)(vii)(a)(i)
1.1 Section 3 of 1958 Act deals with "duty on units of
energy consumed". Sub-Section 2 enumerates various
circumstances under which duty shall not be leviable on the units F
of energy consumed. 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."
The appellant no.I is a separate registered company which holds
42% equity shares of the appellant no.2. The appellant no.2 has G
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.
[Paras 14, 15] [776-8-C; 777-A-C]
H
767
768 SUPREME COURT REPORTS [2017] 4 S.C.R.
A 1.2 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
B 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 Gujarat Electricity Board. The letter
of the State Government dated 05.06.1995 stated that if there is
any excess power generated by EPL, the same may be purchased
C by the Board at the price decided by the Board. The Power
Purchase Agreement allocated the energy to the Gujarat
Electricity Board to the extent of 58°,(o 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
D statute are to be strictly construed specifically the exemption
notification and 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. The statutory provisions of Section 3(2)(vii)(a)
thus have to be strictly construed and in event the condition of
E generating energy jointly with any other industrial undertaking
is not fulfilled, the claim has to be rejected. [Paras 17-20] [778-
E-F; 779-A-B, F-G; 781-H; 782-A]
1.3 In the present case, there is no dispute to the fact that
appellant No.2 was created as a Special Purpose Vehicle by
F 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. The High Court although has noted
the fact that in the present case there is no such Memorandum
G 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
is not entitled for exemption. High Court rightly came to t~e
H
ESSAR STEEL INDIA LTD. AND ANR. v. STATE OF GUJARAT 769
ANDANR.
conclusion that conditions as enumerated in Section 3(2)(vii)(a) A
are not fulfilled. [Paras 23, 30) [782-G-H; 787-C-E]
2. Claim under notification dated 27.02.1992
The notification dated 27.02.1992 was issued in exercise
of power conferred by Section 3(3) of Bombay Electricity Act,
1958. The claim raised by the appellant under the said notification B
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 period from 01.01.1991 to
31.12.1992. The High Court has recorded categorical finding that c
the generating sets have been commissioned in the month of
August 1995. 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, non-fulfillment of condition D
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 assail the
finding recorded by the High Court that generating set was not
purchased from 01.01.1991 to 31.12.1992. There is no error in E
rejection of claim of appellant under the notification dated
27.02.1992. The High Court 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}. [Paras 31-35] [787-E-F;
788-D-E; 789-C-F]
F
A.P. Gas Power Corporation Ltd. v. AP State Regulatory
Commission and another (2004) 10 SCC 511 : [2004)
3 SCR 426 - distinguished.
Gujarat Urja Vikas Nigam Ltd. v. ESSAR Power Limited
(2016) 9 SCC 103 - held inapplicable. .G
Commissioner of Central Excise, Surat-I v. Favourite
Industries (2012) 7 sec 153; State of UP. and Ors. V.
Renusagar Power Company & Ors. (1988) 4 SCC 59 :
(1988) 1 Suppl. SCR 627 - referred to.
H
770 SUPREME COURT REPORTS [20I7] 4 S.C.R.
A Case Law Reference
. [2004) 3 SCR 426 distinguished Para 7
c2012) 1 sec 153 referred to Para 19
[1988) 1 Suppl. SCR 627 referred to Para 22
B (2016) 9 SCC 103 held inapplicable Para 28
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4842
of 2017.
From the Judgment and Order dated 07 .09 .20I 6 of the High Court
C of Gujarat at Ahmedabad in Letters Patent Appeal No. 518 of 20IO in
Special Civil Application No. I0946 of2009.
Mihir Joshi, Sr. Adv, Kyur Gandhi, MaheshAgarwal, Ms. Neeha
Nagpal (for E. C. Agrawala), Advs. for the Appellant.
C. A. Sundram, Sr. Adv, M. G Ramchandra, Ms. Hemantika Wahi,
D Ms. Puja Singh, Advs. for the Respondents.
The Judgment of the Court was delivered by
ASHOK BHUSHAN, J. 1. This appeal has been filed against
the Division Bench judgment of Gujarat High Court dated 07.09.20I6
dismissing Letters Patent Appeal of the appellants affirming the judgroent
E of Learned Single Judge dated 25.02.2010. Special Civil Application was
filed by appellant challenging the order dated 24.09.2099 passed by the
State Government as well as the demand noti'ce dated 06.10.2009.
Learned Single Judge dismissed the Writ Petition.
2. Brief facts of the case which are necessary to be noticed for
F deciding this appeal are: -
The appellant no. I is duly incorporated company under the
provisions of Companies Act, I956 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, I956, which is a
G generating company selling/supplying electrical energy. The appellant
no. I 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. I Company, the State
H Government granted exemption from payment of electricity duty for a
ESSAR STEEL INDIA LTD. AND ANR. v. STATE OF GUJARAT 771
AND ANR. [ASHOK BHUSHAN, J.]
period of 10 years commencing from 21.07.1990 with respect to the A
said Open Cycle Power Plant. Subsequently, the appellant no. l 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. l company was granted by the
State Government exemption from payment of electricity duty for a period B
ofl 5 years commencing from 21.07.1990. In the year 1991, the appellant
no. l 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 1991-92, the appellant no.I 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 C
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 the appellant no. l company for setting up the said Captive Power
Plant of300 MW. There was, however, a change in the Power Po}icy of D
Government of India, in the year 1991-92, 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.l Company, therefore,
· abandoned its plan to set up the said Captive Power Plant of300 MW in E
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. l company for supply of power to
the appellant no.1 company as well as to the Gujarat Electricity Board.
F
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% G
of the installed capacity, remaining capacity of 215 MW which constitute
42% to. the ES SAR Group of company as per the stipulation contained
in the Power Purchase Agreement dated 30.05.1996.
H
772 SUPREME COURT REPORTS [2017] 4 S.C.R.
A 4. The appellant no.I had filed an applicati0n 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.I to the Commissioner of
·s 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
C Order dated 23.01.2006 rejected the application of appellant no. I 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
D to pass a fresh Order. The State Government passed the detailed Order
dated 24.12.2009 rejecting the claim ofappellant no. I 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 dated 06.l 0.2009 was issued for payment of electricity
duty amounting to Rs.562/- Crores together with interest totaling
E Rs.I 038.27/- Crores for the period of April 2000 to Nigust 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
F Appeal was filed by the appellants. In Letters Patent Appeal, an interim
order was wanted 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.
G ii) The appellantno.l shall fi.trtherpay from 01.05.2010 a sum of
Rs.15 Crores every month against the outstanding dues of
electricity.
5. The Letters Patent Appeal ultimately came to be dismissed by
Division Bench on 07 .09.2016 against which judgment the present appeal
H has been filed.
ESSAR STEEL INDIA LTD. AND ANR. v. STATE OF GUJARAT 773
AND ANR. (ASHOK BHUSHAN, J.]
6. We have heard Shri Mihir Joshi, Senior Advocate for the A
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 B
and another, (2004) 10 sec 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 C
a Memorandum of Understanding ("MoU") which was not there in the
present case and secondly, on the grounq 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 D
Bombay Electricity Duty Rules, 1968 is erroneous and had the rejection
being only on the ground of non-filing 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 ~xemption under
notification dated 27. 02.1992 by reason of the fact that ESIL was jointly E
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. Itis 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
situated cannot be deprived of benefits of exemption. F
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 G
separate and independent legal entities. ESSAR Steel is not generating
energy. ES SAR 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. ES SAR Power Limited has established 515 MW power station, H
774 SUPREME COURT REPORTS (2017] 4 S.C.R.
A 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 capacity; ESSAR Power Limited generates and
sells electricity as a generating station and not as a captive Power Plant
ofGEB. The remaining capacity of215 MW, which constitutes 42%, is
B for ES SAR 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
C 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
D and ending on 31.12.1992. This does not cover order placed for the
purchase of generating 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,
E 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.
F 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. I had claimed exemption from duty under the provisions of
Section 3(2)(vii) as well as under the notification issued under Section
G 3(3) of I 958 Act for different period which exemption was earlier granted.
Details of benefit of exemption availed by appellant no. I 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:
H
ESSAR STEEL INDIA LTD. AND ANR. v. STATE OF GUJARAT 775
AND ANR. [ASHOK BHUSHAN, J.]
A
Sr. Date of Presaibed Applicable Source of Date of Exemption
No. Application Fotn1 No. provision for electricity Issue of period
seeking for making exemption supply Certificate
exemption application under GED of
from Duty Act, 1958 Exemption
(1) (2) (3) (4) (5) (6) (7) B
1. 21.7.1990 Fotn1'E' Sec. 3(2) (vii) 20MW 1.9.1995 . 21.7.1990
(a) (ii) + 1380KVA to
+ 590KVA 29.9.1999
+1500KVA
of Self-
generating c
sets of
ESSARSteel
2. 30.7.1990 Fotn1 'F' Sec. 3(2) (\ii) GEB 28.1.1992 19.12.1991
(b) connection to
No HT 159 26.3.1995 D
3. May, 1995 Fonn 'F Notitication dt. GEB 6.9.1995 31.3.1995
30.6.1993 conntction to
issued under ·No HT 0159! 30.3.2000
Sec. 3(3) HT 10029
+215 MW
from ESSAR E
Power
(exclusively
forHRC
Project)
4. 30.1.1996 Fotn1 E Sec. 3(2) (vii) 20MW 26.11.1998 15.12.1995 F
(a) (l) (existing) to
+II MW i.e. 29.9.2004
Co-
generation
plant
G
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
H
776 SUPREME COURT REPORTS [2017] 4 S.C.R.
A 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.
B Claim under Section 3(2)(vii)(a)(i)
14. Section 3 of 1958 Act deals with "duty on units of energy
consumed". Sub-Section 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:
c "3. Duty on units of energy consumed... ..... .
(2) Electricity duty shall not be /eviable 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
D
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
E
generating the energy.
(i) Fifteen years from the date of commencement of the
Bombay Electricity Duty (Gujarat Amendment) Act,
1983(hereinafter in this sub-section and sub-sections
(2A) and (2AA) referred to as "the commencement
F 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 co-generation.
(3) The State Government may, by notification in the Official
G 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
"
H
ESSAR STEEL INDIA LTD. AND ANR. v. STATE OF GUJARAT 777
AND ANR. [ASHOK BHUSHAN, J.)
15. The keywords in the statutory scheme are "generates energy A
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
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 B
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. I and appellant no.2 are C
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 ciated
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 D
24.09.2009 has extracted the recitals in Power 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 E
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 F
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'. G
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 H
778 SUPREME COURT REPORTS [2017] 4 S.C.R.
A or severally referred to as the 'Allocated Capacity') on the
terms and conditions set forth in this Agreement.
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
B
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:
c 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
D
"
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
E 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 Gujarat Electricity Board. The
conditions of the statutory provisions of Section 3(2)(vii)(a) are not
F fulfilled. The High Court has further held that both ESL and EPL being
distinct separate legal entities merely becausP 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.
G 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
H
ESSAR STEEL INDIA LTD. AND ANR. v. STATE OF GUJARAT 779
AND ANR. [ASHOK BHUSHAN, J.]
i.e. ES SAR Steel and ES SAR Oil as a special case. The letter of the A
State Government dated 05.06.1995 further stated that ifthere is any
excess power generated by EPL, the same may be 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:-
B
"The Govt. has consid~red 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 sei up a
generating station as a special case, and to supply power
generated by it to its sister conc~rn. i.e. ESSAR Gujarat, ESSAR C
Steels and ESSAR Oil again a~ a special case only subject to
fulfillment of requirements of legal provisions as laid down
under Section 15-A and 18-A of the Electricity Supply Act
and with the_ express condition that the power generafed
through this subject shall never as sold outside the State or to
any other person'.except as mentioned above. Moreover, in D
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
~~~~0~ E
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 F
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 settied that taxing statute are to be strictly c<mstrued 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 G
statutory provision. This Court in Commissioner of Central Excise,
Surat-I 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:-
H
780 SUPREME COURT REPORTS [2017] 4 S.C.R.
A "35. The notification requires to be interpreted in the light of
the 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
B
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:
c (SCC pp. 413-14, 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
D 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 noi
justified by the wording of the notification."
E (emphasis supplied)
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
F
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:
G (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. "
H (emphasis supplied)
ESSAR STEEL INDIA LTD. AND ANR. v. STATE OF GUJARAT 781
AND ANR. [ASHOK BHUSHAN, J.]
39. Jn Compack (P) Ltd. v. CCE, this Court has observed thus: A
(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. R,ukmani Pakkwell Traders] 6 is an authority for the
same proposition as also that the wordings. of some other B
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 of containers· would be base paper or
paperboard. In manufacture of the containers some other
• inputs are likely to be used for which MOD VAT credit facility C
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 (lf the language used D
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. Jn CCE v. Mahaan Dairies, this Court has held: (SCC p. E
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 F
or by adding words to the notification benefit cannot be
conferred. The Tribunal has based its decision on a decision
delivered by it in R.ukmani Pakkwell Traders v. CCE. We have
already overruled the decision in that case. In this case also
we hold that the decision of thii Tributialis unsustainable. It G
is accordingly set aside. "
(emphasis supplied)"
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 .
H
782 SUPREME COURT REPORTS [2017] 4 S.C.R.
A 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
B 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
C jointly generating the energy the claim is not covered under Section
3(2)(vii)(a). ·
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
D Renusagar Company had obtained a sanction to engage in the business
of supply of electricity to Mis HindustanAluminium 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
E 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
fienusagar be treated as one concern and Renusagar s power
plant must be treated as the own source of generation of
F 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(J)(c) of the Act. The learned Additional
Advocate-General for the State relied on several decisions,
some of which have been noted. "
G 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. I itself.
Had appellant No.2 would have been supplying energy to appellant No. I
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
H
ESSAR STEEL INDIA LTD. AND ANR. v. STATE OF GUJARAT 783
AND ANR. [ASHOK BHUSHAN, J.]
U.P. and Renusagar Company, thus, has no application in the facts of A
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 B
Pradesh Electricity Board had mooted the idea of setting up of 3 X 33
MW gas-based Combined 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 C
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
companLes and their sister concerns. The question which fell for
consideration before this Court was as to whether A.P.GPCL was required D
to take a license under the law for utilization/sale and supply of power
generated by the participating industries, their sister concerns and the
compai:iies to whom shares of APGPCL were transferred by the
participating industries.
25. This Court after noticing the contents of various clauses of E
Memorandum of Understanding and the provisions oflndian Electricity
Act, 1910 andAndhra 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 F
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
wh'ich may be considered under the same group. The
expression "sister concern" used in para 4 of the G
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 H
784 -SUPREME COURT REPORTS [2017] 4 S.C.R.
A carrying on the same nature of activities. They may be
addressed as sister concerns but wguld 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
industry cannot be said to be consumption or use of the power
B
by the participating industry itself. In absence of the element
of self-consumption by the generating company, it would not
fall in the category of "captive consumption". It would surely
be a supply to a non-participating industry and in that event
it would be necessary to have a licence under the relevant
c 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
D
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.
E 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. Mis Hindustan Aluminium
Corporation Ltd. was established in 1959 on assurance of
F providing cheap electricity to it. In the year 1964, however,,
Mis Renusagar Power Co. Ltd. was established as a wholly
owned and subsidiary of Mis Hindustan Aluminium
Corporation Ltd. It was generating electricity, but
incorporated separately and had its own separate
Memorandum of Understanding and Articles of Associatior1.
G 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 ame_ndments were, however, incorporated
from time to time and ultimately a provision was inserted
providing that there would be levied and paid to the State
H
ESSAR STEEL INDIA LTD. AND ANR. v. STATE OF GUJARAT 785
AND ANR. (ASHOK BHUSHAN, J.]
Government a duty called electricity duty on the energy sold A
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 U1rder
Section 28 of the Act of 1910. In such circumstances, it was B
held that even though Renusagar Power Co. Ltd. was a
subsidiary company owned by Mis 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 C
the participating industries and the 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 D
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 E
ofA.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 F
bear their own costs."
. 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 . G
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. I to the extent it holds 42% equity shares of appellant no.2 H
786 SUPREME COURT REPORTS [2017] 4 S.C.R.
A · 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
B referred to .. The 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 ofAppellate 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.
C 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
D 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 station to meet the requirement of electric output
E 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 Vil of the agreement. The
Commission is thus, right in observing that once the entire
capacity has been allocated irJ two parts in a particular
proportion, the contention of EPL that it could sell power to
F 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. lt could not thus be said that EPL had no
G 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
H
ESSAR STEEL INDIA LTD. AND ANR. v. STATE OF GUJARAT . 787
AND ANR. [ASHOK BHUSHAN, J.]
proportionate basis. The finding of the Commission in paras A
9. 5 to 9.12 of its order quoted above is the correct
interpretation of the agreement. We hold accordingly. "
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 B
with appellant no. I 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 thatthe High
Court had rejected the claim of payment only on the ground that there is· c
no such ~emorandum 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 D
1958 Act are not satisfied, hence, appellant no. I 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. E
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 F
Sachivalaya Gandhinagar
2711' February, 1992
BOMBAY ELECTRICITY DUTY ACT, 1958
No. GHC/92/JOIJCP/118812594/K
G
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 Gazette. In the whole of the State of Gujarat,
H
788 SUPREME COURT REPORTS [2017] 4 S.C.R.
A the Electricity Duty payable under item (6) ofPart 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 pro-rata cost sharing basis, for a period of
B
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
I" January, 1991 and ending on 31"' December, 1992.
c 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
D 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 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
E paragraph 12.0 of the judgment of Division Bench which is to the following
effect: -
"12.0. Now, so far as the alternative claim gf the appellants
to grant the exemption for a period of JO years under the
Notification dated 27.02.1992 is con1,erned, on considering
F ' 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. l - ESL. For claiming the benefit of notification
dated 27.02.19?2 it is to be established that the generating
G 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 ruring the aforesaid period. It
H
ESSAR STEEL INDIA LTD. AND ANR. v. STATE OF GUJARAT 789
AND ANR. [ASHOK BHUSHAN, J.]
cannot be disputed that in a taxing statute more particularly A
with respect to the exemption from payment of duty, all the
conditions which can be said to be statutory are reiquired 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.
8
Jn 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 C
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 1?95. Even if the second reason given by the High Court is D
ignored, non-fulfillment of condition no.(a) ofnotification 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 assail the
finding recorded by the High Court that generating set was not purchased
frorp.Ol.Ol.1991 to31.12.1992.
E
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 F
appeal is accordingly dismissed.
Devika Gujral Appeal dismissed.
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