Emphasising that levy is not a tax on generation, the Delhi High Court explained that electricity consumed within a power plant for operating boilers, turbines and other generating equipment constitutes ‘consumption’ under the Delhi Municipal Corporation Act, 1957. The Court held that electricity used by a generating station for running its own plant and machinery amounts to actual consumption of electricity. Such self-use does not lose its character as ‘consumption’ merely because it facilitates further generation of power.
The Court emphasized that the taxable event under Section 113(2)(d) of the Delhi Municipal Corporation Act, 1957 is consumption of electricity. Consequently, taxation of auxiliary consumption cannot be characterized as an impermissible tax on electricity generation. Rejecting NTPC’s challenge, the Court ruled that Bye-Law 3(3) does not create a new levy. It merely identifies the person liable to pay tax when electricity is generated and consumed by the same entity. The bye-law was therefore found to be within the scope of the parent legislation.
The Court held that the inclusion of auxiliary consumption costs in tariff determination does not amount to payment of electricity tax. Tariff recovery and statutory taxation operate in different fields, and the municipal levy therefore does not result in double taxation. While statutory powers must ordinarily be exercised within a reasonable period, the Court observed that the tax liability arose automatically under the statute. Therefore, a delayed demand notice by the municipal authorities did not extinguish the underlying tax liability.
Briefly, NTPC Ltd. challenged the validity of Bye-Law 3(3) of the Delhi Municipal Corporation (Assessment and Collection of Tax on the Consumption, Sale or Supply of Electricity) Bye-Laws, 1962, under which the Municipal Corporation sought to levy electricity tax on electricity generated and consumed within NTPC’s own Badarpur Thermal Power Station (BTPS).
The Corporation raised a demand of approximately Rs. 197.15 crores for the period from 1 June 2006 to 15 October 2018 towards tax on auxiliary consumption of electricity used in the power generation process. NTPC contended that such consumption was merely an incident of generation and could not be separately taxed as ‘consumption’ under the statute.
The Division Bench comprising Justice Anil Kshetarpal and Justice Bharat Parashar observed that the true nature of a tax is determined by its taxable event. Under Section 113(2)(d) of the Delhi Municipal Corporation Act, 1957, the levy is on the consumption of electricity and not on its generation. The Court held that once electricity is actually used, even within the generating station itself, the event of consumption takes place. Therefore, auxiliary consumption by a power plant is still ‘consumption’ and remains taxable.
The Court relied upon several Supreme Court decisions which consistently hold that electricity consumed by its own generator is still consumption for purposes of electricity duty and taxation. Merely because electricity is consumed to facilitate further generation does not convert the levy into a tax on generation.
The Court rejected NTPC’s argument that auxiliary consumption is inseparable from generation. It noted that electricity used for operating boilers, turbines, pumps and other generating equipment is not electricity lost in transmission but electricity actually utilized. Such utilization amounts to consumption in law. The Court further held that the identity of the consumer, the source of electricity and the purpose for which electricity is used have no bearing on the incidence of a consumption tax.
The Court held that Bye-Law 3(3) is not ultra vires the parent Act. According to the Court, the charging provision in Section 113(2)(d) already authorizes taxation of electricity consumption. The impugned bye-law merely identifies the person liable to pay tax when the electricity consumed has been self-generated. It neither creates a new tax nor expands the taxable event beyond what the Act itself contemplates. The Court emphasized that even if Bye-Law 3(3) had not existed, self-consumption of electricity would still fall within the ambit of the charging provision. The bye-law was therefore regarded as declaratory and facilitative rather than substantive.
NTPC and certain distribution companies argued that the cost of auxiliary consumption had already been built into the electricity tariff and that a separate municipal tax would amount to double taxation. The Court did not accept this contention. It held that tariff determination and taxation operate in entirely separate fields. Tariff is a mechanism for recovering generation costs, whereas tax is a statutory levy imposed by law.
The Court further observed that electricity supplied to end consumers and electricity consumed within the power plant are two different quantities of electricity consumed by two different consumers. Since the auxiliary consumption itself had never been taxed earlier, the levy on such consumption could not be characterized as double taxation.
The Court accepted the legal proposition that where no limitation period is prescribed, statutory powers must nevertheless be exercised within a reasonable time. However, it found that in the present case the delay did not invalidate the demand. The Court noted that the tax liability accrued monthly by operation of law and not because of the issuance of the demand notice.
The Court also recorded that NTPC was under a statutory obligation to maintain accounts and file returns relating to electricity consumption, but there was no material showing compliance with those obligations. Therefore, NTPC could not avoid a pre-existing statutory liability merely because the Corporation raised the demand later.
