THE RULE OF ALTERNATE LEGAL REMEDY DOES NOT OUST THE INTERFERENCE OF HIGH COURTS IN WRIT PETITION

CASE DIARY
Name of the case	M/s Magadh Sugar & Energy Ltd. v. The State of Bihar & Ors.
Application Ref.	Civil Appeal No. 5728 of 2021
Appellant	M/s Magadh Sugar & Energy Ltd.
Respondent	The State of Bihar & Ors.
Judiciary	Supreme Court of India
Bench	·         Justice Dr. Dhananjaya Y Chandrachud ·         Justice Vikram Nath ·         Justice B V Nagarathna
Date of judgment	Sept. 24, 2021

PART - A: OVERVIEW

·     The Apex Court on the 24^th day of September 2021 rendered its judgment in an appeal preferred by the Appellant in the jurisdiction of the Hon’ble Supreme Court against the order passed by a division bench of Hon’ble Patna High Court in the writ petition instituted by the Appellant which challenged the imposition of electricity duty and penalty by the Respondent under the Bihar Electricity Act, 1948 (hereinafter “the Electricity Act”).

·     The highest judiciary carved out the exceptions that emanate out of Article 226 of the Constitution of India, that embark the interference of the High Courts in writ petitions.

·     The Court dealt with interpretation of Sections 2 and 3 of the Electricity Act in tandem with Entry 53 of List II of the Constitution which has its connection with levy of tax on sale and consumption of electricity.  

 

PART – B: FACTS OF THE CASE

·     The Appellant is primarily a sugar mill company which is engaged in the manufacture and sale of white crystal sugar.  The waste of sugarcane namely bagasse generated out of the manufacturing process (of sugar) is further employed for generating electricity for own consumption by the Appellant and the surplus energy is supplied to the Bihar State Electricity Board (“BSEB”). This supply to BSEB dates back since March 2008.

·     The Electricity Act through Section 3, consequent to subsequent amendment in 2002 empowered the Respondent to levy tax on the basis of the units or the value of energy consumed or sold at rates specified by the State Government by a notification. However, till 2012, the Electricity Act did not embody a definition of ‘the value of energy consumed’, which subsequently was inserted as Section 2(ee) in the Electricity Act, through the Bihar Finance Act, 2012, with retrospective operation from 17^th day of October 2002.

·      In January 2015, the Respondent issued a notice to the Appellant for its failure to file returns under Section 6B (1) of the Electricity Act, concealment of the sale of electricity of approximately Rs 56 crores and for raising a demand of electricity duty and penalty of about Rs. 67 crores.

·     Replying to the Notice, dated 5^th day of February 2015, the Appellant contended that Section 3 empowers levy of tax on value of energy as defined under Section 2(ee) which further brings sale to customers or consumers into the ambit of such a levy. BSEB is only a licensee which distributes electricity received from the Appellant and does not itself consume the electricity. Hence BSEB is only a licensee and not a consumer, adjoining the fact that no levy should have been made.

·       These contentions were rejected by the Respondent and an appeal against the same was preferred in the jurisdiction of the Hon’ble Patna High Court.

·     The High Court dismissed the writ petition instituted by the Appellant citing two counts namely 1. The alternate remedy available in the form of adjudicatory mechanism prescribed in the Electricity Act; 2. The matter involves the factual dispute between the parties and does not require interference by the High Court.

PART - C: CONTENTION OF THE PARTIES

C.1. CONTENTIONS OF THE APPELLANT

The Appellant during the course of appeal to the Apex Court made the following submissions:

·      Section 3, the charging section read with Section 2(ee) postulates that tax shall be levied either on the units or on the value of the energy consumed or sold. The value of energy is the charge / cost attributable to be paid by the consumer to the person supplying electricity.

·    BSEB is a licensee covered under Section 2(d), which clearly is not a consumer. The Appellant generated and provided surplus energy to BSEB for further distribution. Therefore it is a supply for further distribution and not for direct consumption thereby satisfying the condition for non-imposition of duty under Sections 2 and 3 (read collectively).

·      BSEB is already taxed and further taxing the Appellant on same supply would tantamount to double taxation.

·      The Appellant is not liable to file return under the Electricity Act, as the onus of paying tax does not arise on the Appellant.

·     BSEB is a licensee without a dispute and the exercise of power by the Respondent is wholly without jurisdiction. This scenario excludes the application of alternate remedy in a writ petition, which the High Court has overlooked. Reliance on Raza Textiles Ltd. v. ITO ((1973) 1 SCC 633), State Trade Corporation of India Ltd. v. State of Mysore (AIR 1963 SC 548) and Radha Kishan Industries v. State of Himachal Pradesh (2021 SCC OnLine SC 334).

C.2. CONTENTIONS OF THE RESPONDENT

The Respondent during the course of appeal to the Apex Court relied on the following submissions:

·     The levy of tax under Section 3 involves two parts viz. levy on units or on the value of the energy. Adjoining the definition under Section 2(ee), value of energy means sale to consumer. Though the sale to a licensee is not covered by the first part, it is covered by the second portion of Section 3, which refers to the ‘units’ of energy sold.

·    Section 3 is read in a restricted manner so as to exclude ‘units’ of energy sold, which in further derails the operations of other sections in the law viz. Section 3(2)(c), Section 4 and Section 4A which deal with levy of tax on ‘unit of energy’ basis.

·     Entry 53 of List II of the Constitution must purposively be construed to include the sale by the Appellant to a licensee for eventual consumption, thereby empowering the levy of tax on Appellant.

·     Section 4A(2) states that amount of duty paid at ‘each preceding stage of sale’ shall be adjusted at the subsequent stage. Therefore the question of double taxation does not arise.

PART – D: QUESTION OF LAW INVOLVED

The perusal of the case by different levels of judiciary in the case under consideration has raised the following questions of law involved:

a.     Does the presence of an alternate legal remedy oust the scope of interference by High Court in case of writ petitions invoked under Article 226?

b.      Does adjudication of factual scenario precede the test of question of law involved?

 

PART – E: RULING BY THE APEX COURT

·     It is not disputed that BSEB is a licensee covered under Section 2(d) and Appellant was supplying surplus electricity to BSEB. The definition of a consumer under Section 2(b) specifically excludes a licensee. None of the facts stands in dispute except in so far as the power of the Respondent to levy tax on the Appellant considering the position of the Appellant involved therein.

·       Reliance is placed on Sree Meenakshi Mills Ltd. v. Commissioner of Income Tax (AIR 1957 SC 49) to expound that judiciary at the face of it, first considers the existence of dispute in a case and in the absence of the same, proceeds to judge the points of law involved in a case. The test that is to be applied for the determination of a question of law is whether the rights of the parties before the court can be determined without reference to the factual scenario.

·     In the present case, the High Court was entrusted with the determination of the meaning of the phrases used in Section 3 of the Act to determine if the supply of electricity by the Appellant would fall within its ambit, which require no adjudication of the facts as they remain undisputed by both the parties.

·       In the writ petition instituted in the present case, attention is attributable to the question of law as to whether the tax can be levied on the supply of electricity by a power generator (which also manufactures sugar) supplying electricity to a distributor and whether the Respondent has the legislative competence to levy duty on the sale of electricity to an intermediary distributor.

·     Ordinarily, High Courts ought to exercise restraint to entertain a writ petition under Article 226 in presence of an equally effective alternate remedy prescribed under the respective laws.

·     When a right is created by a statute, which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226 of the Constitution.

·     The presence of alternate remedy under any other law does not bar the power of the High Court to interfere and from exercising its jurisdiction in certain contingencies. Reliance is also placed on Assistant Commissioner of State Tax v. M/s Commercial Steel Limited (Civil Appeal No. 5121 of 2021).

·     There are exceptions to the rule of alternate remedy in a writ petition, wherein the autonomy and interference of the High Court is necessary, which arise when:

a)      the writ petition has been filed for the enforcement of a fundamental right protected by Part III of the Constitution;

b)      there has been a violation of the principles of natural justice;

c)      the order or proceedings are wholly without jurisdiction; or

d)      the vires of a legislation is challenged;

·    Reliance is placed on State of HP v. Gujarat Ambuja Cement Ltd ((2005) 6 SCC 499) wherein the Apex Court expounded scope of writ petition in a taxation issue. The Court held:

“Normally, the High Court should not entertain writ petitions unless it is shown that there is something more in a case, something going to the root of the jurisdiction of the officer, something which would show that it would be a case of palpable injustice to the writ petitioner to force him to adopt the remedies provided by the statute.”

·     Entry 53 of List II of the Seventh Schedule of the Constitution provides for taxes on consumption or sale of electricity. Entry 53 invokes read with Entry 54 invokes provision for taxation only in case of consumption of electricity since the fact that the meaning assigned to the word ‘sale’ and ‘consumption’ would be the same since the very act of sale of electricity means that it is being consumed because electricity can neither be preserved nor stored.

·      The present case and the petition therein embarked the jurisdiction of the Respondent to invoke tax on the Appellant and the matter is amenable and entertained to the writ jurisdiction of the High Court. Consequently the matter is remitted back to the High Court for fresh disposal.

PART – F: ANALYSIS

·      In the present case, the court has not dwelled into the factual scenarios as the contention on the same was not raised by any of the parties. Had contrary been the case, then the case would involve a scenario of mixed question of facts and law which could have been remitted back to the adjudicating authority under the Bihar Electricity Act without necessitating the interference through Article 226 of the Constitution.

·    The traditional settled proposition with respect to writ petition instituted under Article 226 of the Constitution is that the exercise of power by the High Court is to be done only in certain scenarios wherein it can be established that the specific law deprives the parties of any other remedy. There are catena of cases opining the traditional stand in case of writs:

a.      K.S. Rashid and Son v. The Income-Tax Investigation: (1954 AIR 207)

“The remedy provided in art. 226 of the Constitution is a discretionary one and the High Court has always the discretion to refuse to grant any writ if it is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere.”

b.      TIN Plate Co. of India Ltd. v. State of Bihar: (Appeal (civil) 1782 of 1997) 

“It is no doubt true that when an alternative and equally efficacious remedy is open to a person, he should be required to pursue that remedy and not to invoke extraordinary jurisdiction of the High Court under Article 226 of the Constitution and where such a remedy is available, it would be a sound exercise of discretion to refuse to entertain the writ petition under Article 226 of the Constitution.”

·    The settled and traditional proposition stands at fact that a person has to ventilate other remedies before the appropriate forum prior to the instigation of a writ jurisdiction.

·   The other way at looking at the case would be of a scenario wherein the competence of an adjudicatory authority which bends beyond his jurisdiction and non-existence of a provision in the statute to challenge such competence. Though the law does contain mechanism to adjudicate the conduct of the Respondent in terms of levy of penalty and tax, yet the issue of the levying tax which purportedly finds its scope outside the charging section i.e. jurisdictional issue, remains unanswered. This adjoins the purpose and intent for interference by the High Court under Article 226 through the exceptions laid down.

·    The Apex Court in Executive Engineer v. Seetaram Rice Mill ((2012) 2 SCC 108) held that interest of administration of justice shall be better subserved if the cases are heard by the courts only where they involve primary questions of jurisdiction or the matters which go to the very root of jurisdiction and where the authorities have acted beyond the provisions of the Act.

·     The legislative purview behind Entry 53 and 54 of the State List is that the tax must be imposed on something that has reached the end use to the consumer i.e. in the present case electricity. The transition of electricity from the Appellant to BSEB does not qualify to be a consumption as the electricity is further supplied to the consumers by BSEB and not the Appellant.

·     Sale of electricity which is not a sale for consumption would be beyond the purview of the State Legislature to enact and thus the charging Section 3(1) of the Electricity Act has to be read in the said light as levy of electricity duty for consumption or sale for consumption of electricity.

The Judgment can be accessed at:

https://main.sci.gov.in/supremecourt/2017/39071/39071_2017_34_1501_30288_Judgement_24-Sep-2021.pdf

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