GULJAG INDUSTRIES LTD. V. THE COMMISSIONER,COMMERCIAL TAXES and ORS.

CW/1557/2018

AI Insights

Guljag Industries Ltd. filed a series of writ petitions challenging the demand for electricity duty on energy transferred to its sister concern, Guljag Gases Pvt. Ltd. The petitioner argued that the energy transfer should be considered as captive consumption and not subject to duty, as both companies are closely held and operate from the same premises. However, the respondents contended that the energy transfer was a sale, and thus, duty was applicable. The court examined precedents and statutory provisions, ultimately concluding that the energy transfer was a sale and upheld the duty demand.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 725995 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 20-07-2022
• Assessment Year: misc
• Other Referred Cases: State of U.P. Vs. Renusagar Power Co. & Ors., A.P. Gas Power Corporation Ltd. Vs. A.P. State Regulatory Commission & Anr., Collector of Central Excise & Ors. Vs. Solaris Chemtech Ltd. & Ors., Maruti Suzuki Limited Vs. Commissioner of Central Excise, Delhi III
• Laws Referred To: Rajasthan Electricity Duty Act, 1962
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: HEMANT DUTT
• Assessee Lawyers: SANJEEV JOHARI; LALIT PARIHAR
• Keywords: Captive Power Plant; Electricity Duty; Sale of electricity; Exemption from electricity duty
• Section: 3

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR (1) D.B. Civil Writ Petition No. 2486/2018 Guljag Industries Ltd., Nahta Bhawan, Chopasani Road, Jodhpur Raj. Through The General Manager Accounts Mr. Anil Bhandari S/o Mr. D.r. Bhandari. ----Petitioner Versus 1. The Commissioner, Commercial Taxes, Kar Bhawan, Ambedkar Circle, C-Scheme, Jaipur Raj. 2. The Commercial Taxes Officer, B- Circle, Department Of Commercial Taxes, Kar Bhawan, Jodhpur Raj. 3. The Commercial Taxes Officer., Special Circle-Ii, Kar Bhawan, Jodhpur Raj. ----Respondents Connected With (2) D.B. Civil Writ Petition No. 1557/2018 Guljag Industries Ltd., Nahta Bhawan, Chopasani Road, Jodhpur Raj. Through The General Manager Accounts Mr. Anil Bhandari S/o Mr. D.r. Bhandari. ----Petitioner Versus 1. The Commissioner, Commercial Taxes, Kar Bhawan, Ambedkar Circle, C-Scheme, Jaipur Raj. 2. The Commercial Taxes Officer, B-Circle, Department Of Commercial Taxes, Kar Bhawan, Jodhpur Raj. 3. The Commercial Taxes Officer, Special Circle-Ii, Kar Bhawan, Jodhpur Raj. ----Respondents (3) D.B. Civil Writ Petition No. 1558/2018 Guljag Industries Ltd., Nahta Bhawan, Chopasani Road, Jodhpur Raj. Through The General Manager Accounts Mr. Anil Bhandari S/o Mr. D.r. Bhandari. ----Petitioner Versus 1. The Commissioner, Commercial Taxes, Kar Bhawan, (2 of 13) [CW-2486/2018] Ambedkar Circle, C-Scheme, Jaipur Raj. 2. The Commercial Taxes Officer, B-Circle, Department Of Commercial Taxes, Kar Bhawan, Jodhpur Raj. 3. The Commercial Taxes Officer, Special Circle-Ii, Kar Bhawan, Jodhpur Raj. ----Respondents (4) D.B. Civil Writ Petition No. 1559/2018 Guljag Industries Ltd., Nahta Bhawan, Chopasani Road, Jodhpur Raj. Through The General Manager Accounts Mr. Anil Bhandari S/o Mr. D.r. Bhandari. ----Petitioner Versus 1. The Commissioner, Commercial Taxes, Kar Bhawan, Ambedkar Circle, C-Scheme, Jaipur Raj. 2. The Commercial Taxes Officer, B-Circle, Department Of Commercial Taxes, Kar Bhawan, Jodhpur Raj. 3. The Commercial Taxes Officer, Special Circle-Ii, Kar Bhawan, Jodhpur Raj. ----Respondents (5) D.B. Civil Writ Petition No. 2484/2018 Guljag Industries Ltd., Nahta Bhawan, Chopasani Road, Jodhpur Raj. Through The General Manager Accounts Mr. Anil Bhandari S/o Mr. D.r. Bhandari. ----Petitioner Versus 1. The Commissioner, Commercial Taxes, Kar Bhawan, Ambedkar Circle, C-Scheme, Jaipur Raj. 2. The Commercial Taxes Officer, B- Circle, Department Of Commercial Taxes, Kar Bhawan, Jodhpur Raj. 3. The Commercial Taxes Officer., Special Circle-Ii, Kar Bhawan, Jodhpur Raj. ----Respondents For Petitioner(s) : Mr. Sanjeev Johari, Senior Advocate assisted by Mr. Lalit Parihar For Respondent(s) : Mr. Hemant Dutt (3 of 13) [CW-2486/2018] HON'BLE MR. JUSTICE SANDEEP MEHTA HON'BLE MR. JUSTICE KULDEEP MATHUR Order 20/07/2022 The instant bunch of writ petitions has been preferred by the petitioner M/s Guljag Industries Ltd. for assailing action of the respondents in demanding electricity duty from the petitioner and to assail the orders passed by the Appellate Authority and the Revisional Authority dated 15.03.2010 and 17.10.2017 respectively, affirming the demand for electricity duty raised against the petitioner by the Commercial Taxes Authority, Jodhpur. Shri Sanjeev Johari, learned Senior Counsel assisted by Shri Lalit Parihar, Advocate, submitted that the petitioner company is involved in various commercial activities and established a captive power plant for the purpose of its own consumption and the consumption of its sister concern “Guljag Gases Pvt. Ltd.” He submitted that both the companies are closely held and the Board of Directors belong to same family. The industrial units of both the companies are located within the same chunk of land bearing Khasra No.166 at Village Palari Khichiyan, District Jodhpur. Thus, as per Shri Johari, the consumption of electricity by sister concern Guljag Gases Pvt. Ltd., has to be treated as consumption of captive power and not as sale and hence, the same cannot be subjected to electricity duty. The impugned action of the respondents in demanding electricity duty from the petitioner on the premise that the petitioner company, indulged in sale of electricity to Guljag Gases Pvt. Ltd., is totally unjustified and illegal and hence, the impugned demand notices and so also, the orders passed by the Appellate (4 of 13) [CW-2486/2018] Authority and Revisional Authority, affirming the demand of electricity duty vide impugned demand orders, deserve to be struck down. Shri Johari, further submitted that the Deputy Commissioner, (Appeals), Commercial Taxes Department, Jodhpur, decided the controversy in favour of the petitioner vide order dated 08.10.2003 (Appeal No.13/RST/JU-B/203-2004), but the Revisional Authority, without any justification, accepted the revisions of the respondent department and set aside the orders passed by the Deputy Commissioner. His fervent contention was that the order dated 08.10.2003, passed by the Deputy Commissioner, (Appeals), Commercial Taxes Department, Jodhpur, in favour of the petitioner, stands all tests of reasonableness and legality and hence, there was no justification for the Revisional Authority to have interfered therein. He contended that the Corporate Veil has to be lifted and it would become clear that both the companies are functioning in the same premises and the business interests are so intermixed that the two cannot be separated. The Board of Directors of both companies are members of the same family and hence, the company Guljag Gases Pvt. Ltd., is nothing but a subsidiary of the petitioner M/s. Guljag Industries. In support of his contentions, placed reliance on Hon’ble the Supreme Court Judgment in the case of State of U.P. Vs. Renusagar Power Co. & Ors. reported in (1988) 4 SCC 59, and urged that the writ petitions deserve acceptance and the impugned notices and the orders passed by the Appellate Authority and the Revisional Authority, deserve to be declared invalid and quashed. (5 of 13) [CW-2486/2018] Per contra, Shri Hemant Dutt, learned counsel representing the respondents Commercial Taxes Department, urged that the view taken by Hon’ble the Supreme Court in the case of M/s. Renusagar Power Co. (supra), has been distinguished in the case of A.P. Gas Power Corporation Ltd. Vs. A.P. State Regulatory Commission & Anr. reported in (2004) 10 SCC 511. He urged that the circular dated 12.12.1989 issued by the department, makes it clear that the exemption from paying electricity duty on consumption of energy is available only to a person who has generated the same for his /its own use. He urged that it is an admitted position, that the petitioner sold electricity to the company Guljag Gases Pvt. Ltd., and such transaction cannot be covered under the condition “consumption of electricity generated for own use” and hence, the respondents were absolutely justified in charging electricity duty from the petitioner on the energy sold to Guljag Gases Pvt. Ltd.. He placed reliance on the following judgments in support of his contentions and implored the Court to dismiss the writ petition and affirm the assessment orders and so also, the orders passed by the Appellate Authority and the Revisional Authority :- (1) Collector of Central Excise & Ors. Vs. Solaris Chemtech Ltd. & Ors. reported in (2007) 7 SCC 347 and, (2) Maruti Suzuki Limited Vs. Commissioner of Central Excise, Delhi III reported in (2009) 9 SCC 193. We have given our thoughtful consideration to the submissions advance at bar and have gone through the material available on record. (6 of 13) [CW-2486/2018] The relevant statutory provision, i.e. Section 3 of the Rajasthan Electricity Duty Act, 1962, is reproduced hereinbelow for the sake of ready reference :- “3. Electricity duty on energy consumed.- There shall be levied for, and paid to, the State Government on the energy consumed by consumer or by a person other than a supplier generating energy for his own use or consumption a duty (hereinafter referred to as the “electricity duty”) computed at such rate as may be fixed by the State Government from time to time by notification in the Official Gazette: Provided that— (1) in respect of consumption of energy under a temporary connection obtained by a consumer from the supplier for a period not exceeding such number of days, for such purpose and exceeding such units as may be prescribed, the duty may be computed at a rate as may be fixed by the State Government form time to time by a notification in the Official Gazette; (1-A) The total of the duty so levied and the net rate charged per unit shall not exceed the rate as may be notified by the State Government from time to time by a notification in the Official Gazette; and (1-B) where energy is consumed by a cultivator in agricultural operations under a non-metered supply, the electricity duty shall be levied and charged at a rate as may be notified by the State Government from time to time. (2) the electricity duty shall not be levied on the energy consume— (7 of 13) [CW-2486/2018] (a) by the Government of India; (b) in the construction, maintenance or operation of any Railway by the Government of India; (bb) Where the energy is generated at a voltage not exceeding 100 volts; (c) [xxx] (d) by the following classes of institutions, namely:— (i) hospitals or dispensaries, which are not maintained for private gain, (ii) recognised educational institutions, (iii) place of public worship, subject to the condition that the exemption under this sub clause shall not be applicable to energy consumed in buildings or part of buildings, used for commercial or residential purposes. (3) where the State Government is of the opinion that it is necessary or expedient in the public interest so to do, it may, by notification in the Official Gazette, exempt fully or partially, whether prospectively or retrospectively, from payment of electricity duty payable on energy consumed by any consumer or class of consumers, without any condition or with such condition as may be specified in the notification.] reduce or remit.- (a) the electricity duty on the energy consumed- (i) by a consumer in any industry in the manufacture, production processing or repair of goods; (8 of 13) [CW-2486/2018] (i-a) by a person generating energy for his own use or consumption; (ii) by or in respect of any mine as defined in the Mines Act, 1952 (Central Act 35 of 1952); (b) Whether prospectively or retrospectively the electricity duty on the energy consumed by or in respect of any municipal board or council or Panchayat or Panchayat Samiti or other local authority for the purpose of or in respect of public street lighting; subject however, in the case of clause (a), to the condition that any reduction or remission so made shall not be applicable to energy consumed in respect of any premises used for commercial or residential purposes.” A bare perusal of the statutory provision, makes it clear that exemption from payment of electricity duty on energy consumption, is available to a person other than a supplier generating electricity for “his/its own use or consumption”. During the course of arguments, a pertinent query was put to learned Senior Counsel Shri Johari as to whether the petitioner company and Guljag Gases Pvt. Ltd. to whom, the electricity generated by the petitioner company was supplied, are different entities under the provisions of Income Tax Act to which, Shri Johari candidly conceded that both are separate juristic persons under the Income Tax and allied statutes. Another pertinent query was put to Shri Johari as to whether the transfer of electricity by the petitioner to M/s Guljag Gases Pvt. Ltd., was made in form of sale. Shri Johari frankly conceded that for the purposes of Income Tax Act, the energy transferred by (9 of 13) [CW-2486/2018] the petitioner company to Guljag Gases Pvt. Ltd. is definitely required to be treated to be a sale. For the sake of repetition, it may be stated here that a plain reading of the statutory provision, would make it clear that the exemption from a payment of electricity duty is available only to a consumer, who generates electricity for its own use that to say, captive generation of power for own consumption. It being an admitted position that the petitioner and Guljag Gases Pvt. Ltd., are distinct entities/ juristic persons as per law, simply because both the industries are located on the same parcel of land or that their Board of Directors are from the same family, that would not imply by any stretch of imagination that one is the subsidiary of the other. It is not in dispute that the goods being manufactured by the two companies are different. In the case of State of U.P. Vs. Renusagar Power Co. & Ors. (supra), Hon’ble the Supreme Court considered the prevailing fact situation and concluded that Renusagar Power Company was actually the power source of Hindalco. The company Renusagar Power Ltd., was incorporated for the purpose of generating energy to be supplied to M/s Hindalco Ltd. Consequently, it was not a case where, the energy generation company i.e. M/s. Renusagar Power Co., was generating and transferring electricity to another company, loosely termed as sister concern. It was held that :- “Whenever felt necessary, the State or the Board have themselves lifted the corporate veil and have treated Renusagar and Hindalco as one concern and the generation in Renusagar as the own source of generation of Hindalco. The profits of Renusagar have (10 of 13) [CW-2486/2018] been treated as the profits of Hindalco. There was no question of evasion of taxes but the manner of treatment of the power plant of Renusagar as the power plant of Hindalco and the Government taking full advantage of the same in the case of power cuts and denial of supply of 100 per cent owner to Hindalco, underline the facts and, as such, imply acceptance and waiver of the postion that Renusagar was a power plant owned by Hindalco. Hindalco and Renusagar are inextricably linked up together. Renusagar has in reality no separate existence apart from and independent of Hindalco. Thus persons generating and consuming energy are the same. Therefore, by lifting the corporate veil Hindalco and Renusagar should be treated as one concern and Renusagar’s power plant must be treated as the own source of generation of Hindalco. Renusagar should therefore, be liable to duty on that basis.” Thus, the facts being under consideration of Hon’ble the Supreme Court in the case of Renusagar Power Co. Ltd., were totally distinguishable from the case at hand because neither of the two companies i.e. M/s Guljag Industries Ltd. and Guljag Gases Pvt. Ltd., was incorporated so as to act as a power source of the other. The facts under consideration of Hon’ble the Supreme Court in the case of A.P. Gas Power Corporation Ltd. (supra), are closer to the facts of the case at hand. That was also a case of sister concerns. Hon’ble the Supreme Court, considered the controversy ‘in extenso' and held as below :- “48. As a result of the discussions held above and the findings as recorded by us, the position that emerges is that participating industries and the industries to whom participating industries have transferred their shares, (11 of 13) [CW-2486/2018] consumption of electricity by them within the limits of the value of their share capital in A.P. GPCL would only amount to captive consumption and for such utilisation or consumption of self-generated electricity no licence would be required under any provision of law. So far as the sister concern or concerns which have been defined as those under the same group as participating industries are concerned, it would require to have a licence if the electricity is made available or provided to them for consumption as, in our view, it shall fall within the ambit of distribution, sale or supply of the electricity and not captive consumption of power. It would be permissible without licence only in case of exemption, if granted in that behalf, by the competent authority.” In the case of Collector of Central Excise & Ors. Vs. Solaris Chemtech Ltd. & Ors. reported in (2007) 7 SCC 347, Hon’ble the Supreme Court went onto hold that the electricity generated by the company was consumed by the residential colony of the factory workers, families, schools, etc. but even in those conditions, the exemptions of captive power consumption, would not be applicable. Similar controversy was considered by Hon’ble the Supreme Court in the case of Maruti Suzuki Limited Vs. Commissioner of Central Excise, Delhi III reported in (2009) 9 SCC 193, and it was held as below :- “In CCE v. Rajasthan State Chemical Works the test laid down by this Court is whether the process and the use are integrally connected. As stated above, electricity generation is more of a process having its own economics. Applying the said test, we hold that when the electricity generation is an input used in the manufacturing activity and the “input” used in that (12 of 13) [CW-2486/2018] electricity generation is an input used in the manufacture of final product. However, to the extent the excess electricity is cleared to the grid for distribution or to the joint ventures, vendors, and that too for a price (sale) the “process and the use test” fails. In such a case, the nexus between the process and the use gets disconnected. In such a case, it cannot be said that electricity generated is “used in or in relation to the manufacture of final product, within the factory”. Therefore, to the extent of the clearance of excess electricity outside the factory to the joint ventures, vendors, grid, etc. would not be admissible for CENVAT credit as such wheeled out electricity, cleared for a price, would not fall within the definition of “input” in Rule 2(g) of the CENVAT Credit Rules, 2002. This view is also expressed in para 9 of the judgment of this Court in CCE v. Solaris Chemtech Ltd.” Undeniably, the petitioner M/s Guljag Industries and the company Guljag Gases Pvt. Ltd., are involved in manufacturing different items and thus, one cannot be considered to be the subsidiary of another. In wake of the discussion made hereinabove, we are of the view that transfer of energy by the petitioner M/s Guljag Industries Ltd. to the Company Guljag Gases Pvt. Ltd., even if the latter is considered to be sister concern in the loose parlance cannot be treated to be generation of electricity for own use and hence, respondents were perfectly justified in levying electricity duty on the energy transferred by the petitioner Company to the Company Guljag Gases Pvt. Ltd. The impugned assessment orders passed by the Appellate Authority and the Revisional Authority dated 15.03.2010 and 17.10.2017 respectively, affirming the levy (13 of 13) [CW-2486/2018] of electricity duty, do not suffer from any illegality or infirmity whatsoever, warranting interference therein. As a consequence, the writ petitions fail and are dismissed as being devoid of merit. A copy of this order be placed in each file. (KULDEEP MATHUR),J (SANDEEP MEHTA),J 108 to 112-/Devesh Thanvi/- "