Bihar State Electricity Board & ANR Vs.
M/S. Usha Martin Industries & ANE  INSC 534 (8 May 1997)
C. SEN, K.T. THOMAS
Mr. Justice Suhas C. Sen Hon'ble Mr. Justice K.T. Thomas Dushyant Dave, Sr.
Adv., Ranjit Kumar, Ms. Binu Tamta, Padam Khaitan, Suman Khaitan, P.N. Misra,
and Pramod Swarup, Advs.
him for the appearing parties
following Judgment of the Court was delivered:
Civil Appeals Nos. 3461, 3462, 3462A of 1992 and Civil Appeal Nos. 3409 - 3411
of 1997 (Arising out of S.L.P. (C) Nos. 11094, 11098 & 11106 of 1995)].
is an appeal from an order passed by the Patna High Court, Ranchi Bench,
holding that the charge levied by Bihar State Electricity Board for supply of
electricity to M/s. Usha Martin Industries, the respondents herein, was
excessive as the uniform tariff was not reduced even when Excise Duty on
electricity was abolished.
of the view that the High Court was clearly in error in coming to this
decision. Electricity has to be supplied by the Board to persons other than
licensees at a price fixed by the Board. In fixing the price, the Board has to
take into consideration various factors laid down in Section 49 of the
Electricity (Supply) Act, 1948. The Board is also under a statutory mandate to
charge price from its customers in such a way that the total revenue received
by it in a year is more than its expenditure. Section 59 enjoins the Board to
generate profit of at least 3 per cent of the value of the fixed assets of the
Board. The State Government may direct the Board to generate even larger
is a matter of policy. It is for the Board and the State to decide the rate at
which electricity will be supplied. Under no circumstance, can the Court lay
down what should be the proper price and direct the Board to reduce its tariff
fixed under Section 49. In effect, what the High Court has done is to direct a
loss-making public undertaking to incur further losses by lowering its tariff.
By giving this direction, the High Court clearly exceeded its jurisdiction and
lost sight of the statutory provisions.
of the view that the High Court Should not have interfered with the pricing of
the electricity sold by the Board on the ground that the liability to pay central
excise duty has come to an end on and from 1st October, 1984. Mr. Dave,
appearing on behalf of the respondent-Company, has contended that the tariff
fixed by the Board was inclusive of excise duty. Therefore, when the duty was
withdrawn, the Board was under a legal obligation to reduce the tariff.
is nothing in the Electricity (Supply) Act, 1948 which casts upon the Board a
duty to reduce the tariff which has been fixed by it in consultation with the
State Government merely because any tax payable by the Board has been reduced
or withdrawn. The Electricity (Supply) Act, 1948 lays down the principles on
the basis of which uniform tariff for supply of electricity has to be fixed. It
does not lay down anywhere in the Act that the tariff fixed by the Board in
consultation with the State Government must be reduced, if for any reason the
costs estimated to be incurred by the Board stands reduced on any account.
Reduction of costs may take place for very many reasons including lowering or
abolition of the central excise duty, the Board could have decided to reduced
the uniform tariff. But having regard to the economic realities, the Board
chose not to do so. The Board cannot be compelled to reduce the tariff
regardless of the economic factors and the losses incurred by it.
Dave contended that, to start with, central excise duty was charged separately
by the Board. It was not treated as part of the uniform tariff. But that
practice was abandoned by the Board on and from the 6th April, 1979. Central excise duty was imposed on generation of
electricity at the rte of 0.02 paise per unit for the first time in 1978. The
Board thereupon levied a surcharge at the rate of 0.03 paise per unit on
consumption of electricity by a Notification which was as under :- "BIHAR
STATE ELECTRICITY BOARD, PATNA NOTIFICATION No. Com/TAR - 1003/78/265/Patna the
13th May, 1978 In partial modification of notification No.Com/IAR/1037/75/ 315
dated the 12th July, 1975, it is hereby notified for general information that
consequent upon imposition of Central Excise Duty by the Govt. of India on
electricity generation and by virtue of the power conferred under Section 46
and 49 of the Electricity (Supply) Act, 1948 the Bihar State Electricity Board
hereby levies a surcharge at the rate of three paise per unit on electricity
consumption by all categories of every ces except agricultural service with
effect from 1.3.1978.
Consumers will be billed accordingly for the consumption for March 1978
onwards." On April
6, 1979, the Board
revised the electricity charges and framed a fresh uniform tariff by another
Notification in exercise of the powers conferred by Section 46 and 49 of the
Electricity (Supply) Act. The energy charges for HTS - II i.e. High Tension
Service consumers ranged between 22 paise to 26 paise per unit. By Clause 16.4
of the said Tariff Notification, it was provided that duty that had already
been levied by the Government of India on generation of power stood merged in
the rate of tariff provided in the Schedule to the said tariff. The surcharge
of 0.03 paise per unit was abolished.
Schedule to the tariff applicable to the respondent-Company, no separate charge
was shown on account of duty of Central Excise.
electricity charges were revised from time to time. For this purpose further
Tariff Notification were issued in the year 1981 and again in the year 1983.
Tariff Notification dated 18th September, 1981 starts with the recital that "the State Government hereby frames
revised tariff for all categories of consumers served or to be served by the
Board and lays down the terms and condition for supply of electricity to its
consumers." The revised tariff was to come into effect from 1st October, 1981. A tariff Schedule was annexed to
16.4 of the Notification provided:- "16.4. Central Excise Duty - The
Central Excise Duty already levied by the Government of India on generation of
power has been merged in the above mentioned rates where applicable. The impact
of any subsequent increase notification by the Government of India in the
existing rate of Central Excise Duty will be computed and realised from the
consumers." In the Tariff Schedule the rates payable by the consumers were
stated. There was no surcharge or separate charge on account of Central Excise
in the Tariff Notification dated 17th June, 1983 it was stated that by virtue
of the power conferred under Sections 46 and 49 of the Electricity (Supply)
Act, 1948, the Bihar State Electricity Board with the approval of the State
Government framed the revised tariff for all categories of consumers served or
to be served by the Board and laid down the terms and conditions for supply of
electricity to its consumers. It was repeated in Clause 16.4 that Central
Excise Duty on generation of power has been merged "in the above mentioned
rates where applicable". It was specified that the impact of any
subsequent increase notified by the Government of India in the existing rate
would be computed and realised from the consumers.
Charge of Central Excise on electricity was withdrawn with effect from 1st October, 1984. The contention on behalf of the
respondent-Company which found favour with the High Court was that the Board
was under an obligation to reduce its tariff when the Central Government
withdrew the duty of excise payable by the Board on generation of electricity.
argument overlooks the statutory scheme for charging tariff for supply of
electricity. By the Notifications of 1981 and 1983, the Board has fixed a rate of
tariff to be paid by its customers. The tariff may have included in it the
burden of Central Excise Duty payable by the Board. But what the consumers paid
was nothing but the uniform tariff fixed by the Board. It was specifically
stated in the Tariff Notification that the amount of Central Excise payable by
the Board has been merged in the uniform tariff. By Clause 16.4 power was
reserved for the Board to raise tariff in case the Central Government enhanced
the duty of excise. It does not follow from this that if the duty was reduced
or done away with altogether, the rate of tariff will have to be brought down
behalf of the respondents, Mr. Dave drew our attention to Section 64-A of the
Sale of Good Act which lays down:- "64-A. In contracts of sale, amount of
increased or decreased taxes to be added or deducted.- (1) Unless different
intention appears from the term of the contract in the event of any tax of the
nature described in sub-section (2) being imposed, increased, decreased or remitted
in respect of any goods after the making of any contract for the sale or
purchase of such goods without stipulation as to the payment of tax where tax
was not chargeable at the time of the making of the contract, or for the sale
or purchase of such goods tax paid where tax was chargeable at that time,- (a)
if such imposition or increase so takes effect that the decreased tax or
increased tax, as the case may be, or any part of such tax is paid or is
payable, the seller may add so much to the contract price as will be equivalent
to the amount paid or payable in respect of such tax or increase of tax, and he
shall be entitled to be paid and to sue for and recover such addition;
(b) if such decrease or remission so takes effect that the decreased tax only,
or no tax, as the case may be, is paid or is payable, the buyer may deduct so
much from the contract price as will be equivalent to the decrease of tax or
remitted tax, and he shall not be liable to pay, or be sued for, or in respect
of, such deduction.
The provisions of sub-section (1) apply to the following taxes, namely;
duty of customs or excise on goods;
tax on the sale or purchase of goods." It was contended by Mr. Dave that
Section 64-A of the Sale of Goods Act clearly recognises the right of the
purchaser (Usha Martin Industries) to claim that the relief of abolition of
Central Excise Duty must be given to the purchaser by decreasing the rate of
tariff for the consumption of electricity. It was contended that the tariff
payable, though statutorily fixed, is nothing but the price of the electricity
supplied by the Board to consumers. The price included Central Excise Duty.
Therefore, on abolition of Central Excise Duty, this price has to be brought
down by excluding the amount of the Central Excise Duty.
are several difficulties in accepting this argument. The first and foremost is
that this contention was not taken before the lower authorities including the
Tribunal. The applicability of Section 64-A will depend upon the agreement
between the parties. No evidence was led before the authorities below to show
that the parties intended that the relief of excise duty if abolished or
reduced would be passed on to the consumers. It was specifically stated in
Clause 16.4, one of the clause of Tariff Notification, that if the excise duty
was enhanced, the tariff would be raised. No provision was made for reduction
of tariff under any circumstance. The specific provision for raising tariff in
case of enhancement of excise duty and absence of any such provision for
reduction of tariff in case of lowering or abolition of excise duty go to show
that there was intention on the part of the Board to reduce the tariff in case
of lowering or abolition of the excise duty. The provision of Section 64-A can
only apply if intention to the contrary did not appear from the terms of the
the tariff is fixed by exercise of statutory power. It is not fixed as a result
of any bargaining by and between the Board and the Consumer. It is a uniform
tariff which every consumer will have to pay for the electricity consumed by
him. In fact, the consumer has no option but to pay the tariff fixed by the
Board in exercise of power conferred by Section 49.
been contended by Mr. Dave that tariff is nothing but a series of schedules or
rates of duties or taxes or a table of rates. The Board has agreed to supply
energy to the consumers at certain rates. The contract between the Board and
the respondent-Company is for sale of goods (electricity). Section 9 of the
Sale of Goods Act provides that the price in a contract to sell may be fixed by
the contract or may be left to be fixed in a manner thereby agreed or may even
by determined by the course of dealings between the parties.
argument overlooks the fact that the price in the instant case was fixed in
exercise of statutory power. It included Central Excise Duty on electricity
with effect from 1.3.1978. On 6.4.1979 the Central Excise Duty payable on
generation of electricity was merged in the tariff. The result was that the
excise duty was included in the price for supply of electricity charged by the
Board and lost its separate identity.
general principle of law to be applied in case like this was stated by Lord
Goddard LJ in Love v. Norman Right (Builders) Ltd., (1994) 1 All E.R. 618, as
under :- "So far as the purchaser is concerned, he pays for goods what the
seller demands, namely, the price even though it may include taxes. That is the
whole consideration for the sale and there is no reason why the whole amount
paid to the seller by the purchaser should not be treated as the consideration
for the sale and included in the turnover." This decision was cited with
approval by this Court in the case of Hindustan Sugar Mills v. State of Rajasthan
& Ors., (1978) 4 SCC 271, where it was observed:- "Take for example
excise duty payable by a dealer who is a manufacturer. . . . Ordinarily, it is
not shown as a separate item in the bill but it is included in this price
charged by him. The "Scale Price" in such a case could be the entire
price inclusive of excise duty because that would be the consideration payable
by the purchaser for the sale of the goods . . . . . But even so it would be
part of the sale price because it forms a component of the consideration
payable by the purchaser to the dealer . . . and on this reasoning, it would
make no difference whether the amount of excise duty is included in the price
charged by the dealer or is shown as a separate item in the bills. In either
case, it would be part of the sale price." Mr. Dave contended that even on
general principle of law the rate fixed under the tariff included Central
Excise Duty, even if it was not mentioned separately in express words.
unable to uphold any of these arguments. The proposition laid down in the case
of Love v. Norman Right (Builders) Ltd. (1994) 1 All E.R. 618, goes directly
against the argument advanced by Mr. Dave. M/s. Usha Martin Industries is the
purchaser of electricity. The price it pay will include costs of production,
profits plus taxes. But the purchaser pays nothing but the price. The
consideration for the sale of electricity is the price charged by the Board.
The law laid down by Lord Goddard LJ in Love v.
Right (Builders) Ltd., in a case under purchaser tax was applied by this Court
in the case of Hindustan Sugar Mills v. State of Rajasthan & Ors. (Supra).
After referred to the judgment of Goddard LJ, it was reiterated that the sale
price would be the entire price inclusive of excise duty because that would be
the consideration payable by the purchaser for the sale of goods.
instant case, after imposition of Central Excise Duty on production of
electricity at the rate of 0.02 paise per unit, the Board did not revise the
uniform tariff, but decided to levy a surcharge of 0.03 paise per unit even
though the duty payable was only 2 paise per unit. Reasons have been given in
justification for surcharge of 3 paise per unit even though the duty levied was
only 2 paise per unit which were found valid by the Division Bench of the Patna
High Court. On and from 2.6.1979, the surcharge was merged in uniform tariff by
a notification issued by the Board. There is no dispute that the uniform tariff
was fixed in conformity with the principle contained in section 49 of the Act.
Along with other costs incurred by it, the Board also took into account the
excise duty payable by the Board.
not the case of the respondent-Company that the Board is making excessive
profit or any profit at all. The excise duty is only one small item in the
total expenditure incurred by the Board for generation of electricity. There is
no law which requires the Board to reduce the tariff, if any one of the items
of expenditure incurred by the Board has been reduced.
Court pointed out in the case of Parag Ice & Oil Mills vs. Union of India,
(1978) 3 SCR 293, that in the ultimate analysis the mechanics of price fixation
is necessarily to be left to the judgment of the executive.
principle was reiterated in the case of Rohtas Industries Ltd. & Ors. vs.
Chairman, Bihar State Electricity Board & ors., 1984 (Supp) SCC 161, where
fuel surcharge levied by the Board was challenged as arbitrary and
learned Attorney-General appearing on behalf of the Board has placed before us
tabulated statement showing the working results (financial) of the Board in the
years subsequent to 1977-78. It is found therefrom that the net result of the
Board's working in each of the years 1978-79 to 1981- 82 was a substantial
deficit or loss. The deficit in 1978-79 was Rs. 15.31 crores, in 1979-80 Rs. 10.27
crores, in 1980-81 Rs. 32.69 crores and in 1981-82 Rs. 18.60 crores. The
statement also shows that the revenue earned per unit of electric energy sold
was much lower than the actual cost of production incurred by the Board per
unit. The cost of production per unit in the four years aforementioned was
51.00 p., 65.10 p., 73.86 p., and 87.16 p., respectively, whereas the revenue
per unit was only 38.48 p., 47.17 p., 5307 p., and 66.39 p., respectively. It
is thus found that notwithstanding the mandatory provision contained in Section
59 of the Act, the Board has been selling energy t rates which are lower than
the actual cost incurred by its per unit actual cost incurred by it per unit of
production. Such being the factual situation, there is absolutely no basis for
the contention urged or behalf of the appellants that the tariff fixation the
vice of arbitrariness and is liable to be interfered with by the Court on that
ground." The period involved in that dispute was the years 1978- 79 and
1981-82 (This period is also relevant for the purpose of this case). In that
case scope of Section 59 of the Act was examined and it was observed that no
attempt has been made on behalf of the respondent-Company to show that the
Board was making undue profit. The Central Excise Duty has been merged in the
uniform tariff. The petitioner, in effect, is seeking a reduction of the
uniform tariff fixed by the Board. It is not the case of the petitioner that
the tariff has been fixed regardless of considerations which have to be taken
into account under section 49. The mechanics of price fixation has to be left
to the judgment of the executive.
of the view, the High Court was clearly in error in directing modification of
the tariff fixed by the Board.
appeal is allowed. The impugned judgment of the High Court is set aside. There
will be no order as to costs.
APPEAL Nos. 3409-3411 OF 1997 (ARISING OUT OF S.L.P. (C) NOS. 11094, 11098
& 11106 OF 1995)].
view of our judgment in Civil Appeal Nos. 2347-48 of 1988, the above appeals
are also allowed. There will be no order as to costs.
APPEAL NOS. 3461, 3462, 3462A OF 1992 In view of our judgment in Civil Appeal
Nos. 2347-48 of 1988, the above appeals are dismissed. There will be no order
as to costs.