State Governments cannot levy electricity duty on inter-State sale of electricity: Tripura High Court

ONGC Tripura Power Company Ltd. Vs State of Tripura (Tripura High Court)

In a significant legal victory for electricity-generating companies, the Tripura High Court has held State Governments cannot levy electricity duty on inter-State sale of electricity. ONGC Tripura Corporation Ltd had challenged the provisions of the Tripura Electricity Duty Act, 2019 (TEDA) by a petition in the High Court through their advocate Parinay Deep Shah of Urja Law Chambers.

The Division Bench comprising the Chief Justice, Akil Kureshi and Justice S.G. Chattopadhyay quashed Section 4 (4) (d) of the Tripura Electricity Duty Act, 2019 (TEDA), reasoning that the State legislature is not competent to levy electricity duty on the inter-State sale of electricity and allowed OTPC’s prayer for a refund to the extent the tax has not been passed on to the consumers.

The High Court held that Articles 286, 269 and 269A restrict the State legislature’s power to levy tax on the inter-State sale of goods.

The Bench dealt with the changes to taxation laws by GST regime through constitutional amendments and enactment of the Integrated Goods and Services Tax Act, the Central Goods and Services Tax Act and the State Goods and Services Tax Act. The Bench accepted Mr Shah’s argument that the Schedule 7 entries are not the source of the power of legislation but are mere legislation fields on which the State or Union Legislature can frame a law and that the power to legislate and its limitations can be traced in the Constitution.

The present decision assumes significance because the Govt of Tripura exempted levy of duty on supply to Tripura State Electricity Corporation Ltd; thus, it exempted consumers in Tripura from payment of the tax. But for this Judgment, such a levy may have become a precedent for all State Governments to tax the residents of States other than their own.

FULL TEXT OF THE JUDGMENT/ORDER OF TRIPURA  HIGH COURT

Considering the issues involved we have heard learned counsel for the parties for final disposal of the writ petition at the admission stage. The petitioner has challenged the vires of Section 4(4)(d) of the Tripura Electricity Duty Act, 2019 (hereinafter to be referred to as the E.D. Act, for short), on the ground that the same seeks to levy duty on inter-State sale of electricity which is beyond the competence of the State legislature.

2. Brief facts are as under:

Petitioner ONGC Tripura Power Company Limited (OTPC, for short) is a generating company and has set up a power generation station in the State of Tripura and generates electricity based on Gas Turbine Units and Steam Turbine Units. The petitioner sales bulk of its electricity generated from the said power project to seven north-eastern States including the State of Tripura. A small portion comprising of approximately 13.5% of the power is sold by the petitioner through bilateral contracts with States or directly through power exchange to the traders.

3. The Government of Tripura promulgated an Ordinance called Tripura Electricity Duty Ordinance, 2019 (hereinafter to be referred to as the said Ordinance of 2019) under which the State would levy duty on sale or consumption of electrical energy. Section 4 of the said Ordinance pertained to levy of electricity duty. Sub-section (4) thereof provided that the duty shall also be levied on different items mentioned in clauses (a) to (d) thereof, clause (d) being the following:

“(d) electricity sold outside the State and licensees shall have to pay electricity duty on sold energy charges.”

In exercise of rule making powers under the Ordinance the State of Tripura had also framed Tripura Electricity Duty Rules, 2019. Rule 5 thereof provided that the rate of electricity duty shall be prescribed by the Commissioner with prior approval of the State Government by notification from time to time on the aggregate value of energy charges and fixed charges. Under a notification dated 03.10.2019 the Commissioner of Electricity Duty in exercise of such powers had also notified the rate of electricity duty on aggregate value of energy charges and fixed charges. The notification, however, exempted the generators to the extent of supplies made to the Tripura State Electricity Corporation Limited.

4. Subsequently, the State legislature framed the E.D. Act, 2019 and the Ordinance of 2019 was repealed. The provisions of the Ordinance thus merged in the Act framed by the State legislation. The preamble to the Page 4 of 50 E.D. Act, 2019 states that the Act was enacted to provide for levy of a duty on consumption of electrical energy in the State of Tripura and the matters connected therewith and incidental thereto. The term “electricity duty” is defined in Section 2(6) as to mean a duty levied under Section 4 of the Act. Section 2(7) defines the term “energy” as to mean electrical energy when generated, transmitted, supplied or used for any purpose except the transmission of a message. The term “licensee” is defined under Section 2(9) of the Act as to mean, besides others, a person licensed under the Electricity Act, 2003 to supply energy. Section 4 pertains to levy of electricity duty. Sub-section (1) of Section 4 provides that there shall be levied and paid to the State Government a duty called “electricity duty” at the rate as prescribed by the Commissioner with the approval of the State Government by issuing notification from time to time on the aggregate value of energy charges and fixed charges. Sub-section (2) of Section 4 provides that every licensee in the State of Tripura shall pay in the prescribed manner at the rate notified under sub-section (1) on the aggregate value of energy charges and fixed charges within and outside the State and when a licensee has more than one licenses, duty shall be calculated and levied under the said section separately in respect of each license. Sub-section (3) of Section 4 provides for levy of electricity duty on consumers under which every consumer  belonging to any of the classes shall pay a duty every month to the Government in the prescribed manner at the rates notified under sub-section (1) on the aggregate value of energy charges and fixed charges of energy consumed. Sub-section (4) of Section 4 of the Act provides that duty shall also be levied on electricity consumption or generation and sale under different situations mentioned in clauses (a) to (d) contained therein. Clause (d) which is under challenge reads as under:

“4. Levy of electricity duty:

(4) Duty shall also be levied on-

(d) electricity sold outside the State and licensees shall have to pay electricity duty on sold energy charges.”

This provision which is impugned in this petition thus seeks to levy duty on electricity sold outside the State.

5. The petitioner wrote to the Commissioner of Electricity Duty on 01.11.2019 and took up the issue of impermissibility for the State to tax inter-State sale of electricity. Detailed correspondence between the petitioner and the Government authorities followed, however, it is not necessary to take note of the contents of all these letters and communications except for a letter dated 31.01.2020 written by the Deputy Commissioner of Electricity Duty, Government of Tripura to the Managing Director of the petitioner company in which it was conveyed that perusal of Power Purchase Agreement between the Assam State Electricity Board and the petitioner and the Governor of Manipur would show that “the point of sale is not explicitly mentioned therein. In the light of above agreements, it cannot be said that the sales of electricity between the OTPC and the buyer States are inter-State sales. Thus, the State is empowered to impose duty on sale of electricity by OTPC…….” This communication we have referred to since in this letter the Deputy Commissioner has taken a stand that the duty is demanded since the sale is intra-State sale of electricity. As we would demonstrate later, before this Court the State has taken an entirely different stand namely that the State legislature has the competence to levy duty on inter-State sale of electricity on account of amendment in Entry 54 of List-II of the Seventh Schedule read with Entry 92-A of List-I of the said Schedule. In other words, before us no dispute has been raised by the State that the transactions of sale of electricity by the petitioner to other north-eastern States and other purchasers outside the State are inter-State sale.

6. Since the authorities were unmoved, this petition was filed in which the prayer made is for declaring Section 4(4)(d) of the E.D. Act, 2019 unconstitutional and beyond the legislative competence of the State legislature. Consequential relief prayed is for refund of the electricity duty already collected. In the petition, the petitioner has stated that part of such electricity duty is passed on to the consumers and in some cases the petitioner has absorbed the duty component without passing it on to the consumers. This element may become relevant if we were to allow the petitioner’s challenge to the vires of the Act.

7. The petitioner has placed heavy reliance on a decision of the Supreme Court in case of State of Andhra Pradesh and others vrs. National Thermal Power Corporation Ltd. and others reported in (2002) 5 SCC 203 in which the Constitution Bench of the Supreme Court had held that the State legislature lacks competence to levy duty on inter-State sale of electricity. The Stand of the respondents is that after the Supreme Court rendered this judgment there have been various constitutional amendments. In particular, heavy reliance was placed on amendment to Entry 54 of the State list read with Entry 92-A of the Union list to contend that the ratio of the decision of the Supreme Court in case of National Thermal Power Corporation Ltd. (supra) is no longer applicable and the State legislature is now competent to frame a law for collection of duty on inter-state sale of electricity.

8. The contention of the petitioner can be summarized in its own words as under:

“18. It is submitted that in the instant case, the Petitioner supplies power to the seven North Eastern States, namely, Assam, Meghalaya, Manipur, Nagaland, Arunachal Pradesh, Mizoram and Tripura. In addition to the same, the Petitioner also sells power outside the State at the power exchange or through bilateral contracts etc. Since the Petitioner’s Project is located in the State of Tripura, therefore, the sale of power within the State of Tripura shall fall within Entry 53 and it is within the legislative competence of the State to tax such sale of power. Sale of power to the other six North Eastern States shall fall within Entry 54 and will be subject to Entry 92A of List I and cannot be taxed by the Government of Tripura. Similarly, sale of power outside the State through merchant sale is also subject to Entry 92A of List I and cannot be taxed by the Government of Tripura. In view of this same, it is clear that the Impugned Provision which levies electricity duty on electricity sold outside the State is unconstitutional and is in the teeth of the law laid down by the judgment of the Supreme Court in the NTPC case. The Government of Tripura does not have the power to tax inter-State sale of electricity and as such the Impugned Provision i.e., Section 4(4)(d) of the ED Act, 2019 is unconstitutional and liable to be struck down.”

9. The contentions of the State similarly can be summarized in its own words from the reply statement as under:

“8. That, by virtue of the aforesaid Constitutional and other statutory amendments post 2016-2017, the exclusion clause then applicable on the state legislature prohibiting enactment of Taxing statue imposing tax on supply of goods or of services outside the state now stand limited only to 6 items as mentioned in Entry 54 of the State List and the definition of the term “goods” as contained in Section 2(d) of the Central Sales Tax Act, 1956. Now Entry 92A of List I of the Seventh Schedule will be read, interpreted and apply only in respect of those “goods” which has been defined by the Parliament in the Taxation Laws (Amendment) Act, 2017 by virtue of powers conferred under Article 286(2) of the Constitution of India. Resultantly Entry 53, List II of Seventh Schedule now stands as an independent fountain source of State Legislative Power and even if read conjointly with Entry 54, as of date the same is not sub-serviant to Entry 92A of List I, as was the position pre 101st Constitutional Amendment. The net result of the aforesaid amendments and present position of law is that the state legislature of Tripura has been vested with power to enact statute imposing and prescribing tax on sale and supply of electricity outside the state on any licensee as defined under law.

Consequently Tripura Electricity Duty Act, 2019 (Tripura Act, No.8 of 2019) and more particularly section 4(4)(d) thereof is a valid piece of legislation and the same is not liable to struck down or interfered with in any manner.

9. That, in view of the statutory provision prevailing as of date, the judgment rendered by the Hon’ble Apex Court in the case of State of A.P. & Ors V.S NTPC & Ors as reported in  (2002) 5 SCC 302, decided on 22/04/2002 i.e pre 101st Constitution Amendment era is not a guiding ratio any more for the purpose of deciding the present lis. Even if the ratio culled out in paragraph 24 of the judgment of the Hon’ble Apex Court in NTPC supra is applied to the post 101st Constitutional Amendment of 2016 read with Taxation Laws (Amendment) Act, 2017, imposition of tax on sale or purchase of goods including electricity is not subjected to any limitation as was existing then vide Entry 54 List II prior to the 101st Constitutional (Amendment) Act, 2016. Hence, in any view of the matter Writ Petitioner’s planks of attack against the Tripura Electricity Duty Act, 2019 fail and the Writ Petition is liable to be dismissed.”

10. Before we proceed to analyze the legal position, it may be recorded that as clearly emerging from the affidavit filed on behalf of the respondents and as was argued before us by the learned Advocate General, the stand of the State is clear. It was not canvassed before us that the sale of electricity by the petitioner to the purchasers outside the State was not an inter-State sale. The stand of the Government is that the same can be taxed under Section 4(4)(d) of E.D. Act, 2019 and that on account of constitutional amendments it is open for the State legislature to frame such a law levying duty on inter-State sale of electricity. This clarification was necessary since, as noted, in one of the letters, the Deputy Commissioner of Electricity Duty had taken the stand that as per the power purchase agreement, it was not clear as to at which point the sale takes place thus hinting that the sale may be a intra-state sale. This line of argument has been abandoned by the State and we have therefore proceeded on the admitted position that the sales in question are inter-state sales.

11. As is well-known, replacing several taxing statutes, across the country Goods and Services Tax regime was brought in, in the year 2017. This required various Constitutional amendments and framing of statutes by the Union as well as the State legislatures. Prior to these amendments Entries 53 and 54 contained in the State list under Schedule II which are of considerable importance for us read as under:

“Entry 53: Taxes on the consumption or sale of electricity;

Entry 54: Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92-A of List I.”

Entry 92-A which was inserted in the list I i.e. the Union list in the year 1956 and which has remained unlamented since then, reads as under:

“Entry 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.”

In case of National Thermal Power Corporation Ltd. (supra) 1 these three entries came up for consideration. It was a case in which certain State legislations had framed laws for charging duty on inter-State sale of electricity. The Constitution Bench of the Supreme Court held that the electricity is goods and though specifically referred to in Entry 53, would also be covered under Entry 54 (as it stood at the relevant time). We may recall, Entry 54 in its original form pertained to taxes on sale or purchase of goods other than newspapers. This power of the State legislation, however, was subject to the provisions of Entry 92-A of the Union list. In National Thermal Power Corporation Ltd. (supra)2 it was held that the State legislation had no authority to frame a law to tax inter-State sale of electricity since it amounted to sale of goods and Entry 54 of List II was subject to Entry 92-A of List I and Entry 92-A enabled the Union legislation to frame laws for levying tax on sale or purchase of goods other than newspapers where such sale or purchase takes place in the course of interState trade or commerce. We will refer to this judgment at much greater length later on since this is not the only ground on which the Supreme Court had come to the conclusion that the State legislation levying tax on interState sale of electricity was beyond its legislative competence.

12. At this stage, we may refer to early decisions in the field of relevant tax statutes and the legislative changes which some of these leading judgments of the Supreme Court brought about and which would enable us to appreciate the ratio of the decision in case of National Thermal Power Corporation Ltd. (supra) 3 in proper perspective and it would also enable us to examine the Constitutional and legislative changes in relation to the GST regime. In case of Bengal Immunity Company Limited vrs. State of Bihar and others reported in AIR 1955 SC 661 the question of the authority of the State of Bihar to levy tax on the sales made by the appellant-company in the course of inter-State trade or commerce came up for consideration. The Constitution Bench of the Supreme Court declared the law unconstitutional. This decision was based on Article 286 of the Constitution as it was originally enacted. By majority the Supreme Court had held that different sub-clauses of clause (1) of the Article and sub-clauses (2) and (3) were intended to deal with different topics and one could not be projected or read into another. It was held that the bans imposed by Article 286 of the Constitution on the taxing power of the States are independent and separate and each one of them has to be got over before the State legislature can impose tax on transaction of sale or purchase of goods. Article 286 of the  Constitution was thereafter amended. Clause (1) thereof provided that 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—(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. Simultaneously Entry 92-A was inserted in List I authorizing the Union legislature to levy 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. Corresponding amendment was made in Entry 52 excluding such field of taxation from the competence of the State legislatures. Article 269 was also amended by providing that the Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. In exercise of such powers the Parliament enacted the Central Sales Tax Act, 1956 (the CST Act, for short). These legislative changes and the effect thereof were discussed in yet another Constitution Bench judgment of the Supreme Court in case of Tata Iron and Steel Company Limited, Bombay vrs. S.R. Sarkar and others reported in (1961) 1 SCR 379. It was a case in which the petitioner TISCO was manufacturing and selling iron and steel goods. It had a factory at Jamshedpur in Bihar and Head Sales Office in West Bengal. For its sale of  such goods outside the State, it was served with a notice from the Commercial Tax Officer of West Bengal for submitting its statement of sales from Jamshedpur during the specified period. The Supreme Court by majority held that the State of West Bengal had no competence to levy tax on the sales made by the petitioner from Jamshedpur to West Bengal.

13. In case of Commissioner of Sales Tax, Madhya Pradesh, Indore vrs. Madhya Pradesh Electricity Board, Jabalpur reported in (1969) 1 SCC 200, a three Judge Bench of the Supreme Court had held that electricity is goods for the purpose of imposition of sales tax.

14. With this background, we will shortly refer to the decision of Supreme Court in case of National Thermal Power Corporation Ltd. (supra)4 at much greater length. Before that, however, we may take note of the applicable provisions of the Constitution as they stood when the Supreme Court rendered the said decision. Part XI of the Constitution pertains to relations between the Union and the States. Chapter I of Part XI pertains to legislative relations. Article 245 contained in this chapter reads as under:

“245. Extent of laws made by Parliament and by the Legislatures of States.—(1) Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State.

(2) No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation.”

15. Article 246 pertains to subject matter of laws made by Parliament and by the Legislatures of States and reads as under:

“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 “Union List”).

(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 “Concurrent List”).

(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”).

(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.”

16. Article 254 pertains to inconsistency between laws made by Parliament and laws made by the Legislatures of States. Clause (1) of Article 254 provides that if any provision of law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause (2), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void.

17. Clause (12) of Article 366 which is a definition provision of the Constitution defines the term “goods” as to include all materials, commodities and articles.

18. Entry 92-A which, as noted, was inserted in List I of Seventh Schedule by the Constitution Sixth Amendment Act, 1956 and which we have reproduced, pertains to 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.

19. We have already reproduced Entry 53 of List II and unamended Entry 54 of the said list.

20. In background of such Constitutional provisions, the Supreme Court in case of National Thermal Power Corporation Ltd. (supra)5 tested the powers of the State legislature to levy duty on inter-State sale of electricity. It was a case in which the State of Andhra Pradesh was levying electricity duty on the sale of electricity by the NTPC to the Electricity Boards situated outside the State of Andhra Pradesh. This was challenged by NTPC as without jurisdiction. Similarly the State of Madhya Pradesh had also demanded electricity duty from NTPC on the electricity generated by it at the two stations situated within the State which was fed into Northern grid and supplied to several States outside the State of Madhya Pradesh. The Supreme Court referred to and affirmed the view of the earlier three Judge Bench in case of Madhya Pradesh Electricity Board, Jabalpur (supra)6 that electricity is goods. It referred to the decision in case of 20th Century Finance Corporation Limited and another vrs. State of Maharashtra  reported in (2000) 6 SCC 12 and observed that even in the understanding of the Parliament the inter-State sale of electrical energy was liable to Central Sales Tax under Section 6 of the Act. The Supreme Court thereafter referred to Entries 53 and 54 of List II in juxtaposition to Entry 92-A of List I and held and observed as under:

“25. 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 the Sixth Amendment from another angle. The 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 92-A 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 interState 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.”

21. The decision of National Thermal Power Corporation Ltd. (supra)7 , however, has to be examined further since the conclusion of the Supreme Court that the State legislature was not authorised to levy tax on inter-State sale of electricity was not based merely on its interpretation and the analysis of the interplay of the Entries 53 and 54 of List II read with Entry 92-A of List I. The judgment was based on far more fundamental principle namely that the entries in the lists of Seventh Schedule are not the source of power of legislation but are fields of legislation and before the State legislature can enact a law in relation to any of these entries of the State list, it must overcome other constitutional limitations imposed on its legislative powers. In this context, it was held and observed as under:

“26. The prohibition which is imposed by Article 286(1) of the Constitution is independent of the legislative entries in the Seventh Schedule. After the decision of the larger Bench in Bengal Immunity Co. Ltd.(supra) and the Constitution Bench decision in Ram Narain Sons Ltd. v. CST [AIR 1955 sc 765] 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 the Seventh Schedule has been couched. The dimension given to the field of legislation by the language of an entry in List II of the 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 the 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. v. S.R. Sarkar [AIR 1961 SC 65] 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 Corpn. Ltd.(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 Act, 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 the Seventh Schedule or not.

xxx xxx xxx

30. 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. NTPCL generates electricity and pursuant to these contracts, supplies the same from its power stations situated in the State 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.

31. 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 Corpn. case (supra) 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 Section 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 is transmitted outside the State and whether the electricity is or is not consumed within the State). The same definition has been adopted in the 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.”

The decision of Supreme Court in case of National Thermal Power Corporation Ltd. (supra)8 thus has two dimensions. First part of the Supreme Court judgment can be summarized as holding that in view of Entries 53 and 54 of List II as they stood at the relevant time read with Entry 92-A of List I, the electricity being goods, any State legislation in terms of Entry 54 had to be subject to Entry 92-A of the Union List which reserved the power of the Parliament to frame law for any inter-State sale of goods. The second dimension of this judgment is that quite apart from these fields of legislation, the State legislation was hampered by the limitation of not authorized to frame a law to tax inter-State sale of goods.

22. It was in this context observed that after the decision of larger Bench of the Supreme Court in case of Bengal Immunity Company Limited (supra)9 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. It was emphasized that the dimension given to field of legislation by the language of Entry in List II of the 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. It was reiterated that the 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.

23. With this analysis of the judgment of the Supreme Court in case of National Thermal Power Corporation Ltd. (supra)10 we may take note of the Constitutional and legislative changes brought about by GST regime. As is well-known, various State as well as Central taxing statutes were subsumed in the GST regime and three principal Acts were framed namely Integrated Goods and Services Tax Act, Central Goods and Services Tax   Act and the Goods and Services Tax Acts framed by the respective State legislatures. To frame these taxing statutes, major constitutional amendments had to be made. Article 246-A was inserted by the Constitution (One Hundred and First Amendment) Act, 2016 which reads as under:

“246A. Special provision with respect to goods and services tax.—(1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.

(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.”

Under clause (1) of Article 246-A thus notwithstanding anything contained in Articles 246 and 254, and, subject to clause (2), the Parliament and the State Legislature would now have the power to make laws with respect to goods and services tax imposed by the Union or the State. Thus irrespective of the different taxing entries in Lists I and II the Union as well as the State legislature could frame laws for imposing goods and services tax. However, significantly clause (2) of Article 246-A still retained the exclusive power of Parliament to make laws with respect to goods and services tax where the supply of goods, or of services, or both  takes place in the course of inter-State trade or commerce. Explanation to Article 246-A provides that the provisions of the said Article shall in respect of goods and services tax referred to in clause (5) of Article 279-A take effect from the date recommended by the Goods and Services Tax Council. Article 279-A was also inserted simultaneously. Clause (5) of Article 279-A provides that the Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel. Thus, these petroleum products would be brought over to GST regime from such date as may be recommended by the GST Council and in order to avoid any vacuum, explanation to Article 246-A, as noted, provides that the provisions of Article 246-A shall in respect of these products take effect from such date as recommended by the Council.

24. Article 269-A was inserted by the same Amending Act providing for levy and collection of goods and services tax in course of inter-State trade or commerce. Clause (1) of Article 269-A provides that goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations  of the Goods and Services Tax Council. Clause (5) of Article 269-A provides that Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.

25. Clause (12-A) was inserted in Article 366 providing definition of “goods and services tax” as to mean any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption. Clause (26-A) in Article 366 was also inserted to define “services” as to mean anything other than goods.

26. Entry 92-A of List I remained unchanged so also Entry 53 of List II. However, Entry 54 was substituted by the following:

“54. Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of interState trade or commerce or sale in the course of international trade or commerce of such goods.”

27. Thus, the original Entry 54 which pertained to taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92-A of List I is now replaced by an expression namely, taxes on the  sale of petroleum crude, high speed diesel, motor spirit, natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods. Two significant things that need to be noted in this change are that Entry 54 which previously included sale or purchase of all kinds of goods other than newspapers, is now confined to only six products, i.e. the enumerated petroleum products and alcoholic liquor for human consumption. The second change was that reference to this legislative power being subject to the provisions of Entry 92-A of List I was deleted. However, the same language which is used in Entry 92-A namely, where the sale or purchase takes place in the course of inter-State trade or commerce was incorporated in Entry 54 itself for exclusion of power of the State legislature.

28. Parallel to these Constitutional amendments, certain significant changes were also made in CST Act under The Taxation Laws (Amendment) Act, 2017. Clause (d) of definition Section 2 which defined the term “goods” as to include all materials, articles, commodities and all other kinds of movable property, but not including newspapers, actionable claims, stocks, shares and securities, was now confined to only petroleum crude, high speed diesel, motor spirit, natural gas, aviation turbine fuel and  alcoholic liquor for human consumption. The link between the Constitutional amendment and the amendment in the CST Act can thus be clearly seen. As we have seen, these six items namely the five petroleum products and alcoholic liquor for human consumption, have not yet been brought over to GST regime and, therefore, the CST Act now contains the definition of goods which is much narrower and is confined to only these six specified products. Correspondingly, even in Entry 54 the State legislature has much narrower powers to tax the sales of goods which are only in the nature of the specified petroleum products and alcoholic liquor for human consumption.

29. The statement of objects and reasons for enactment of the IGST Act would show that the central sales tax which is being collected and retained by the exporting States is non-vatable and as a result is a load on the cost of the product. In view of this, a law was proposed which will confer power on the Central Government for levying goods and services tax on the supply of goods or services or both which takes place in the course of interState trade or commerce. The proposed law, it was felt would remove the lacunas in the central sales tax. The Bill for Integrated Goods and Services Tax was presented, inter alia, for providing levy of tax on all inter-State supplies of goods or services or both except supply of alcoholic liquor for human consumption; at the rates not exceeding 40% as recommended by the Goods and Services Tax Council. The preamble to the Act provides that the Act was enacted to make provisions for levy and collection of tax on interState supply of goods or services or both by the Central Government and for the matters connected therewith. Section 5 which is a charging provision provides for levy and collection of integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption.

30. The statement of objects and reasons for enactment of CGST Act would show that there were various taxes levied by the Central as well as the State Governments. There is cascading effect of taxes as taxes levied by the Central Government are not available for set off. To remove these difficulties all the various taxes were sought to be subsumed by a single tax called the goods and services tax which will be levied on supply of goods or services or both. Central Goods and Services Tax Bill was, therefore, presented which proposed to confer power on the Central Government for levying goods and services tax on the supply of goods or services or both which takes place within a State. The Act would, authorise levying of tax on all inter-State supplies of goods or services or both, except supply of alcoholic liquor for human consumption at notified rates not exceeding specified limit. Section 9 which is a charging provision provides for levy of tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption. Under section 174 the Act repealed the Central Excise Act, 1944, the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, the Additional Duties of Excise (Goods of Special Importance) Act, 1957 and certain other taxing statutes.

31. Simultaneously with the framing of CGST and IGST Acts, the Tripura Legislative Assembly also framed the State GST Act called the Tripura State Goods and Services Tax Act, 2017. Section 9 which is contained in Chapter III pertaining to levy and collection of tax is a charging provision. Sub-section (1) of Section 9 provides that subject to the provisions of sub-section (2), there shall be levied a tax called the Tripura State Goods and Services Tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption at specified rates. Under section 174 various local Acts such as, Tripura Value Added Tax Act, 2004, Tripura Entertainment Tax Act, 1997, Tripura Tax on Luxuries in Hotels and Lodging Houses Act, 1990 and certain taxing provisions contained in Tripura Municipal Act, 1994 were repealed.

32. From these constitutional amendments and the GST statutes, it can be seen that various taxing statutes have now been subsumed under these three GST Acts and from taxing the manufacture of product and sale of goods, the tax is collected on supply of goods or services. The sales tax is retained only for five specified petroleum products and alcoholic liquor for human consumption. With this clarity in mind, we may test the argument of the State Government that on account of amendment in Entry 54 of List II, the State legislature now has unlimited and unrestricted power to frame a law for taxing inter-State sale of electricity. In essence, as recorded earlier, the argument of the learned Advocate General was that previously on account of the language used in Entry 54 which pertained to all goods other than newspapers, the Supreme Court in case of National Thermal Power Corporation Ltd. (supra)11 while harmonizing Entries No.53 and 54 had come to the conclusion that electricity being goods, would also fall under Entry 54 besides being specifically covered under Entry 53. Since Entry 54 authorizes State legislature to frame law for sale of goods but was subject to Entry 92-A, now that such restriction on the powers under Entry 54 of being subject to Entry 92-A no longer applies, the State legislature is freed from  the restrictions recognized on its legislative power by the Supreme Court in case of National Thermal Power Corporation Ltd. (supra) 12 .

33. In our opinion, this reading of the situation has many flaws. Firstly, Entry 54 which was previously made specifically subject to Entry 92-A of the Union list, has now been substantially amended in two respects. Instead of previously covering all kinds of goods other than newspapers, Entry 54 is now confined to six items, i.e. five specified petroleum products and alcoholic liquor for human consumption. Secondly, the phraseology used in Entry 92-A is now incorporated in Entry 54 itself namely excluding the cases of (which are included in entry 92A) sale in course of inter-state trade or commerce. Perhaps, this is one of the reasons why the Parliament did not think it necessary to use the expression “subject to Entry 92-A of List I” in Entry 54. Surely, the State legislature cannot frame a law for taxing inter-State sale of electricity with reference to Entry 54 since in its amended form now this entry confines the power of the State legislation to only six specified items.

34. This of course is one part of the discussion. The learned Advocate General is correct in pointing out that Entry 54 of List II havingx  undergone a major change, the logic adopted by the Supreme Court in case of National Thermal Power Corporation Ltd. (supra)13 that electricity being goods would also be covered in Entry 54 besides Entry 53, is no longer applicable. However, if the assertion of the learned Advocate General is that with the aid of Entry 53 of List II the State legislature is competent to frame a law to levy duty on inter-State sale of electricity, the same in our opinion would be reading the judgment of the Supreme Court and the applicable Constitutional provisions only in part. As is well-settled through serious of judgments, the entries in the lists in Schedule VII are not the source of power of legislation but are fields of legislation in relation to which the State or Union legislation has the authority to frame a law. The power to legislate has to be traced in the Constitution and likewise the limitations on such powers also are listed in the Constitution. Reference in this respect can be made to the decision in case of Calcutta Gas Company (Proprietary) Ltd. vrs. State of West Bengal and others reported in AIR 1962 SC 1044 in which it was observed as under:

“Before construing the said entries, it would be useful to notice some of the well settled rules of interpretation laid down by the Federal Court and this Court in the matter of construing the entries. The power to legislate is given to the appropriate Legislatures by Art. 246 of the Constitution. The 13 (2002) 5 SCC 203 Page 35 of 50 entries in the three Lists are only legislative heads or fields of legislation: they demarcate the area over which the appropriate Legislatures can operate.”

35. In case of National Thermal Power Corporation Ltd. (supra)14 it was also observed as under:

“27. 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. v. The State of West Bengal and 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.”

36. In the later decision in case of Jindal Stainless Limited and another vrs. State of Haryana and others reported in (2017) 12 SCC 1 which was a nine Judge Bench judgment of the Supreme Court in which speaking for the majority T.S. Thakur, C.J. had reiterated this settled constitutional principle. To this judgment we would refer at a slightly later stage in another context. However, for the present, we may notice that in the said decision in paragraph 25 and sub paragraph which follows the said paragraph (in SCC) the learned Judge had listed the constitutional limitations on the power of the State legislatures to levy taxes and to enact legislations in the fields reserved for them under the relevant Entries of Lists II and III of Seventh Schedule. In paragraph 26 it was observed that: “

26. It would thus appear that even when Articles 246(2) and (3) confer exclusive power on the State Legislatures to make laws with respect to matters in the Seventh Schedule such legislative power is exercisable subject to constitutional limitations referred to above. What is significant is that the power of the State Legislatures to levy taxes is also subject to the limitations of Article 304(a) of the Constitution appearing in Part XIII thereof, which Part regulates trade, commerce and intercourse within the territory of India and comprises Articles 301 to 307.”

37. These decisions, Constitutional amendments and statutory provisions were referred to at some length in order to demonstrate that post GST related amendments in the Constitution also, ratio of the decision of the Supreme Court in case of National Thermal Power Corporation Ltd. (supra)15 is not whittled down and the concept of territorial limitations on State legislature has not been done away with. Article 245, as noted, provides that subject to the provisions of the Constitution, the Parliament may make laws for the whole or any part of the territory of India and the Legislature of a State may make laws for the whole or any part of the State. Article 246-A which was inserted by the 101st Amendment also while enabling the Union as well as the State legislatures to frame laws for levying goods and services tax, notwithstanding anything contained in Articles 246 and 254, nevertheless retained this limitation on the power of the State legislature when in clause (2) it provided that the Parliament has exclusive power to make laws with respect to goods and services tax where the supplies of goods, or of services, or both takes place in the course of inter-State trade or commerce. Thus, the power of the Parliament to levy goods and services tax on supply of goods or of services or both in course of inter-State trade or commerce was exclusive and to the exclusion of the powers of the State legislatures. Further, in tune with this philosophy, clause (5) of Article 269-A authorizes the Parliament to frame a law to formulate the principles for determining the place of supply, and when a supply of goods, or of services or both takes place in the course of inter-State trade or commerce. Thus, the power to levy tax on inter-State supply of goods or services is retained by the Parliament and also the power to frame the law specifying as to when supply of goods, or of services can be said to have taken place in the course of inter-State trade or commerce. Article 286 which pertains to restrictions as to imposition of tax on the sale or purchase of goods, before the amendment in the year 2016 under clause (1) provided that no law of the State shall impose or authorize the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State; or (b) in the course of import of the goods into or export of the goods out of the territory of India. Clause (2) of Article 286 provided that except in so far as the Parliament may by law provide no law of the State shall impose or authorize to impose a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of interState trade or commerce. After the 101st amendment language used in this Article has undergone changes. Clause (1) now provides that no law of a State shall impose or authorize the imposition of a tax on the supply of goods or of services or both, where such supply takes place outside the State or in the course of import of goods or services or both into or export of the goods or services or both out of the territory of India. Under clause (2) the Parliament retains the power to frame principles for determining when a supply of goods or of services or both can be said in any of the ways mentioned in clause (1). Article 286 thus prior to its amendment by 101st Amendment Act, 2016, was concerning the sale or purchase of goods. Even after the amendments by the said Amending Act when post this amendment the phrase “the sale or purchase of goods” was replaced by “the supply of goods or of services or both”, the heading of the Article remained the same namely “restrictions as to imposition of tax on the sale or purchase of goods”. In the amended form now, as noted, clause (1) of Article 286 does not permit a State law to impose or authorize imposition of tax on supply of goods or services where such supply takes place (a) outside the State; or (b) in the course of the import of the goods or services into or export of goods or services out of the territory of India. We must read clause (2) of Article 246- A along with Article 286. We may recall, clause (2) of Article 246-A provides that Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods or of services or both takes place in the course of inter-State trade or commerce. Thus, the previous restriction on the State legislature to levy tax on sale of goods when such sale takes place in the course of inter-State trade or commerce with introduction of GST regime has been maintained in same manner by providing that Parliament alone can make laws for levying goods and service taxes on supply of goods or services in the course of inter-State trade or commerce.

38. We have noted that the contention of the State is that upon amendment of Entry 54 of List II the same is no longer subject to Entry 92- A of List I and as a result Entry 53 of List II “now stands as an independent fountain source of State legislative power and even if read conjointly with Entry 54, as of date the same is not subservient to Entry 92-A of List I as was the position pre 101st Constitutional amendment”. This argument proceeds on a wrong legal principle that entries in the lists to the Seventh Schedule are source of legislative power which theory as noted earlier has been rejected by the Supreme Court in number of decisions. Perhaps the contention of the State also is that since Entry 54 no longer refers to term “goods”, the State legislature is freed from its limitation to levy tax on interState sale of goods other than the six goods, i.e. 5 specified petroleum products and alcoholic liquor for human consumption referred to in Entry 54. Again there is an inherent fallacy. Term “goods” has been defined in the Constitution under clause (12) of Article 366 as to include all materials,  commodities and articles. Electricity continues to be treated as goods for the purpose of this clause also. Further, sub-section (24) of Section 2 of IGST Act provides that words and expressions used and not defined in the said Act but defined in the CGST Act shall have the same meaning as assigned to them in the said Act. In turn, CGST Act defines term “goods” in sub-section (52) of Section 2 as to mean every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. Thus, IGST Act which aims to levy tax on supply of goods which is in course of inter-State trade or commerce would bring within its sweep supply of electricity also. Thus there is already a Central legislation for levy of duty on inter-State supply of electricity. The State legislature providing for levy of duty on inter-State sale of electricity would thus encroach an occupied field. Any such legislation would also shatter the territorial limitations on State legislature.

39. Having thus viewed the Constitutional topology in the field of taxation, we do not think that the GST related amendments in the Constitution have rendered the ratio of the decision of the Supreme Court in case of National Thermal Power Corporation Ltd. (supra)16 inapplicable in relation to the assertion of the State legislature of its power to frame a law for levying tax on inter-State sale of electricity.

40. Before closing this discussion, we are not oblivion of the Constitution Bench judgment of the Supreme Court in case of Jindal Stainless Limited and another (supra)17. It was a case in which the larger Bench of the Supreme Court was testing the legislative competence of the State legislatures to levy entry tax on the goods entering the State boundaries. Such entry taxes were challenged mainly on the ground that the same imposed barriers on free trade and commerce. Heavy reliance was placed on a decision of Supreme Court in case of Atiabari Tea Company Ltd. vrs. The State of Assam and others reported in AIR 1961 SC 232. It was a case in which the appellant was growing tea in West Bengal and Assam and transporting the tea so produced to Calcutta for marketing. Bulk of such production would be carried from the State of Assam, however, a small portion in transit to the State of West Bengal would re-enter the State of Assam. In such background, the Assam legislature sought to levy tax on such goods carried by road or inland water in the State of Assam. This law was challenged and such challenge was upheld by majority judgment on the ground that such taxation was opposed to the constitutional guarantee of free   trade and commerce. In case of Jindal Stainless Limited and another (supra) 18, however, the Supreme Court took a different view and by majority held that imposing tax on entry of goods into the State cannot be seen as a restriction on free inter-State trade and commerce. In the process, earlier judgment in case of Atiabari Tea Company Ltd. (supra)19 was overruled. This would negate the argument of the counsel for the petitioner that the law in question breaches the constitutional principle of free inter-State trade and commerce. However, in the present case, the State does not claim to levy entry tax but seeks to tax the inter-State sale of electricity which as we have noted more than once, was held impermissible by Supreme Court in case of National Thermal Power Corporation Ltd. (supra)20. We, therefore, hold and declare that Section 4(4)(d) of the E.D. Act, 2019 is unconstitutional and ultra vires the power of the State legislature.

41. Final relief that can be granted to the petitioner must be subject to the well established principle of unjust enrichment. In large number of decisions, the Supreme Court has laid down that whenever a question of refund of tax or duty arises, the petitioner before the Court can claim such refund only to the extent it has borne the element of duty or tax, as the case  may be. If the petitioner has already passed on the burden of tax to other person or ultimate consumer, refunding the duty even on a declaration of the taxing statute being unconstitutional, will amount to unjust enrichment. The concept of unjust enrichment has been discussed at length by the Constitution Bench judgment of the Supreme Court in case of Mafatlal Industries Ltd. and others vrs. Union of India and others reported in (1997) 5 SCC 536 in which it was observed as under:

“108.(iii) A claim for refund, whether made under the provisions of the Act as contemplated in proposition (i) above or in a suit or writ petition in the situations contemplated by proposition (ii) above, can succeed only if the petitioner/plaintiff alleges and establishes that he has not passed on the burden of duty to another person/other persons. His refund claim shall be allowed/decreed only when he establishes that he has not passed on the burden of the duty or the extent he has not so passed on, as the case may be. Whether the claim for restitution is treated as a constitutional imperative or as a statutory requirement, it is neither an absolute right nor an unconditional obligation but is subject to the above requirement, as explained in the body of the judgment. Where the burden of the duty has been passed on, the claimant cannot say that he has suffered any real loss or prejudice. The real loss or prejudice is suffered in such a case by the person who has ultimately borne the burden and it is only that person who can legitimately claim its refund. But where such person does not come forward or  where it is not possible to refund the amount to him for one or the other reason, it is just and appropriate that amount is retained by the State, i.e., by the people. There is no immorality or impropriety involved in such a proposition.

The doctrine of unjust enrichment is a just and salutary doctrine. No person can seek to collect the duty from both ends. In other words, he cannot collect the duty from the purchaser at one end and also collect the same duty from the State on the ground that it has been collected from him contrary to law. The power of the court is not meant to be exercised for unjustly enriching a person. The doctrine of unjust enrichment is, however, inapplicable to the State. State represents the people of the country. No one can speak of the people being unjustly enriched.”

42. In case of Jindal Stainless Limited and another (supra)21 in a concurring opinion Banumathi, J had discussed this issue at some length. Following observations may be noted:

“475. Lastly, it is necessary to consider an important issue raised by the assessees on the payment of tax/refund of tax in case the validity of the legislations is upheld or otherwise as the case may be. It has come on record that many entry tax legislations of the State are enacted pursuant to Bhagatram [1995 Supp (1) SCC 673] and Bihar Chamber of Commerce [(1996) 9 SCC 136]. But Jindal Stainless Ltd. (2) [(2006) 7 SCC 241] which we have now overruled, has led to a scenario of discordant judicial pronouncements, whereby some High Courts have struck down the impugned legislation as being non-compensatory, while the others have upheld the laws declaring them compensatory. In some States, the High Courts have passed interim orders directing the petitioners to pay 33% of the demand and in some cases 50% of the demand. When the matters were admitted by the Court, interim orders were passed directing the assessees to pay 50% of the demand. But, this Court cannot lose sight of the fact that the assessees have not pleaded and produced evidence to establish that they have not passed on the tax burdens to the consumers. In absence of such a submission, the normal presumption is that they have passed on the tax burden. Had they contended otherwise, burden would have been on them to allege and establish the same. In the absence of any such allegation and proof, the claim of refund is not called for.

478. By a catena of judicial pronouncements, this Court has fairly laid down the concept of “unjust enrichment” in respect of tax laws. The doctrine of “unjust enrichment” is that no person can be allowed to enrich inequitably at the expense of another. A right of recovery/payment under the doctrine of “unjust enrichment” arises where retention of a benefit is considered contrary to justice or against equity. The concept of “unjust enrichment” is applicable for the purpose of grant of refund. The concept provides that if a person pays tax/duty to the Government in terms of the prevailing tax statutes and passes it on to the consumers and, subsequently, the tax/duty is found not payable, refund cannot be claimed from the government authorities, as whatever liability he had incurred has already been recovered. And, if he gets the refund, he would be unjustly enriched.

480. In Godfrey Phillips India Ltd. v. State of U.P. [(2005) 2 SCC 515], the constitutional validity of the Uttar Pradesh Tax on Luxuries Act, 1995 as also other State Acts was challenged inter alia on the ground of legislative competence of the State Legislatures. The Court allowed the petition and held that the State Legislatures were not competent to impose luxury tax on tobacco and tobacco products and the Acts were declared ultra vires and unconstitutional. In the intervening period, however, tax was collected by the appellants from the consumers and also paid to the State Governments. The Court held as under: (SCC p. 554, paras 94-95)

“94. It was stated on behalf of the State Governments that after obtaining interim orders from this Court against recovery of luxury tax, the appellants continued to charge such tax from consumers/ customers. It is alleged that they did not pay such tax to the respective State Governments. It was, therefore, submitted that if the appellants are allowed to retain the amounts collected by them towards luxury tax from consumers, it would amount to “unjust enrichment” by them.

95. In our opinion, the submission is well founded and deserves to be upheld. If the appellants have collected any amount towards luxury tax from consumers/customers after obtaining interim orders Page 48 of 50 from this Court, they will pay the said amounts to the respective State Governments.”

From the above decision in Godfrey Phillips India Ltd., it is clear that even when the legality of a tax has been challenged successfully, there can be no question of the State tax being retained by the dealer/manufacturer notwithstanding its illegality.

481. It is well settled that a claim of refund can be allowed only when the claimant establishes that he has not passed on the tax burden to the consumers. No refund can be granted so as to cause windfall gain to any person when he has not suffered the burden of tax. The possibility of the tax burden having been passed on to the consumers by the assessees cannot be ruled out in the present case. Applying the law laid down above to the present case, it emerges that the assessees cannot claim refund irrespective of whether the impugned legislations are declared valid or unconstitutional. Unless the assessees establish that they have not passed on the tax burden to the consumers, they cannot make a claim for refund and unjustly enrich themselves.”

43. The petitioner, therefore, can claim refund of duty already collected only to the extent it can establish that the duty element was owned by the petitioner without passing it on to the purchaser or the end consumer. In the petition itself the petitioner has averred that some of the duties the petitioner has borne whereas the rest of the duty element has been passed on. We would entrust the task of verifying this factual aspect to the Secretary, Finance, Government of Tripura.

44. In the result, petition is disposed of with following directions and declarations:

(i) Section 4(4)(d) of the E.D. Act, 2019 is unconstitutional and ultra vires, being beyond the competence of the State legislature;

(ii) No duty on the petitioner’s inter-State sale of electricity shall henceforth be levied and collected;

(iii) Duty already collected is declared illegal;

(iv) With respect to the duty already collected, the petitioner shall produce its full accounts before the Secretary, Finance within a period of one month from today pointing out the extent of duty borne by itself and the element of duty passed on by the petitioner.

The Secretary thereupon shall verify such documents and pass an order refunding the duty to the extent it is not passed on by the petitioner to the purchaser or any other consumer. Such order shall be passed after allowing the authorized representative of the petitioner to be heard, if so desired by the petitioner. The order shall be passed within three months of the petitioner filing its documents and accounts before the Secretary, Finance Department;

(v) To the extent the duty is found refundable, the same shall be refunded within four months after the Secretary, Finance passes the order. As long as these timelines are maintained by the respondents, of course subject to the petitioner itself filing necessary documents before the Secretary, Finance within one month from today, such refund shall carry no interest, failing which the refund shall carry simple interest @ 6% per annum, upon completion of the periods granted in this order till actual payment.

45. Pending application(s), if any, stands disposed of.

Notes:-

1 (2002) 5 SCC 203

2 (2002) 5 SCC 203

3 (2002) 5 SCC 203

4 (2002) 5 SCC 203

5 (2002) 5 SCC 203

6 (1969) 1 SCC 200

7 (2002) 5 SCC 203

8 (2002) 5 SCC 203

9 AIR 1955 SC 661

10 (2002) 5 SCC 203

11 (2002) 5 SCC 203

11 (2002) 5 SCC 203

12 (2002) 5 SCC 203

13 (2002) 5 SCC 203

14 (2002) 5 SCC 203

15 (2002) 5 SCC 203

16 (2002) 5 SCC 203

17 (2017) 12 SCC 1

18 (2017) 12 SCC 1

19 AIR 1961 SC 232

20 (2002) 5 SCC 203

21 (2017) 12 SCC 1