Tax on Electricity purchased from Open Access Source is applicable at the rate on which the consumer had purchased Electricity: Karnataka High Court [Read Judgment]

The Karnataka High Court ruled that whenever a consumer purchases electricity from Open Access Source, the tax on electricity will be chargeable at the rate at which the consumer purchased electricity, instead of the higher charges at which it is supplied by a licensee.

The petitioner, M/s Southern Ferro Ltd. has challenged the demand to pay a sum of Rs.94,47,534 being a demand for payment of tax on electricity consumed by the petitioner .

The petitioner contended that apart from electricity supplied by the licensee i.e. Hubli Electricity Supply Company Limited (HESCOM), it is also supplying energy from the energy exchange every month which is called as purchase of electricity from Open Access Source. Petitioner contends that the price paid for purchase of electricity through Open Access Source is different than the price paid by it for the electricity sold to it by the licensee, HESCOM.

The petitioner admitted that it is liable to pay tax on the electricity consumed by it whether it is purchased from the HESCOM or purchased from Open Access Source. Petitioner, however, contends that the electricity tax i.e., to be paid should be levied on the price at which it purchases, be it from the licensee or from the Open Access Source.

The electricity purchased from HESCOM, it is liable to pay tax at the rate of 6% on the procurement price. It is stated that similarly in respect of electricity purchased from Open Access Source, electricity tax would have to be levied at the rate of 6% on the price at which the electricity was procured from the Open Access Source.

However, HESCOM had issued a demand calling upon the petitioner to pay tax on electricity consumed at the rate of 6% on the charges that HESCOM had fixed for the sale of the units.

It has been submitted that since the petitioner had procured electricity at a lower rate from the Open Access Source, HESCOM could not demand tax at the rates at which it supplied.

The petitioner, therefore, contends that the demand made by computing tax for electricity consumed at the rates prescribed by HESCOM would be illegal and would be liable to be quashed.

On the other hand, the department argued that the petition is not maintainable since the company had admittedly submitted a representation to the State Government requesting grant of 24 monthly installments for payment of arrears of tax on electricity.

The single judge bench of Justice N.S. Sanjay Gowda while allowing the petition said that if the argument of the State is accepted that electricity tax is payable at the rate at which the licensee sells the electricity to consumers, it would fundamentally defeat the very purpose for which the electricity reforms were initiated which enabled the consumers to procure electricity from private purchasers and through Open Access Source.

The court held that the demand made by HESCOM by computing the tax at the rate at which it was selling electricity to its consumers cannot be the basis for levying and collecting the electricity tax and therefore, quashed. HESCOM shall now calculate the electricity tax at the rate at which the petitioner had purchased the electricity from Open Access Source and issue a revised demand within a period of two weeks.

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