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PETITIONER: BIHAR STATE ELECTRICITY BOARD & ANR.

       Vs.

RESPONDENT: M/S. USHA MARTIN INDUSTRIES & ANR.

DATE OF JUDGMENT:       08/05/1997

BENCH: SUHAS C. SEN, K.T. THOMAS

ACT:

HEADNOTE:

JUDGMENT: Present:               Hon’ble 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. with him for the appearing parties                       J U D G M E N T      The following Judgment of the Court was delivered: [With 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)]. SEN, J.      This 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.      We are  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 profits.      Pricing 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.

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    We are  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. There 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. Mr. 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.      2.   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

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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.      In  the  Schedule  to  the  tariff  applicable  to  the respondent-Company, no  separate charge was shown on account of duty of Central Excise.      Thereafter, 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.      The 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 the  Notification. Clause 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 Duty.      Similarly, 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.      The  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.      This  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

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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 automatically.      On  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;      and      (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.      (2) The  provisions of  sub-section      (1) apply  to the  following taxes,      namely;      (a) any  duty of  customs or excise      on goods;      (b) any 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.      There  are   several  difficulties  in  accepting  this

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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 contract.      However, 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.      It has  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.      This 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.      The 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

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    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.      We are  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. Norman 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.      In the 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. It is  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.      This 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. This  principle   was  reiterated  in  the  case  of  Rohtas

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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 unreasonable.      "The    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.      We are of the view, the High Court was clearly in error in directing modification of the tariff fixed by the Board.      The appeal  is allowed.  The impugned  judgment of  the High Court is set aside. There will be no order as to costs.      CIVIL APPEAL  Nos. 3409-3411  OF 1997  (ARISING OUT  OF S.L.P. (C) NOS. 11094, 11098 & 11106 OF 1995)].

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    Leave granted.      In 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.      CIVIL 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.