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CASE NO.: Appeal (civil)  1998 of 2002

PETITIONER: M.P. Cement Manufacturers’ Association

RESPONDENT: State of Madhya Pradesh & Ors.

DATE OF JUDGMENT: 09/12/2003

BENCH: RUMA PAL & P.VENKATARAMA REDDI

JUDGMENT: J U D G M E N T

WITH

CIVIL APPEAL Nos.1999-2006, 2253-2254, 2538 OF 2002,  CIVIL APPEAL No.9658 OF 2003 @ SLP (C) No.13153  OF 2002, CIVIL APPEAL No.9659 OF 2003 @ SLP (C)  No.1609 OF 2003, CIVIL APPEAL No.9660 OF 2003 @  SLP (C) No.11939 OF 2003, WRIT PETITION (C) No.356 OF  2002 AND WRIT PETITION (C) No.236 OF 2003.  

RUMA PAL, J.

       Delay condoned.

Leave granted in special leave petitions.  

       The constitutional validity of the amendment to the  Madhya Pradesh Upkar Adhiniyam 1981 (the 1981 Adhiniyam)  is the subject matter of challenge in these matters.  The  amendment was initially made by an ordinance promulgated on  29th June 2001 by the State Government and entitled the  "Madhya Pradesh Upkar (Sanshodhan) Adhyadesh, 2001"  (hereafter referred to as the ’Ordinance’).  By the amendment, a  cess @ 20 paise per unit was imposed on the captive power  producer on the total units of electrical energy produced.   The  Act which has subsequently replaced the Ordinance is known  as the Madhya Pradesh Upkar (Sanshodhan) Adhiniyam, 2001  (hereinafter referred to as ’the Amending Act).  The provisions  of the 2001 Ordinance and Act are identical.  

The appellant in the first matter is an association  representing the interest of its members who are cement  manufacturers and owners of captive power plants.  The  connected appeals are by the captive power producers  themselves.  The amendment has been challenged broadly  speaking on three grounds : first \026 that by the amendment the  Legislature sought to impose a cess on the production of  electrical energy which it was legislatively incompetent to do  because any tax legislation on the production of electricity is  covered exclusively by Entry 84 of List-I to the Seventh  Schedule of the Constitution; second \026  that the Ordinance was  passed without fulfilling the mandatory pre-condition of  consultation with the Electricity Regulatory Commission as  provided under Section 12 (3) of the Madhya Pradesh Vidyut

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Sudhar Adhiniyam, 2000; third \026 that the levy was violative of  Article 14 of the Constitution.  Virtually the same arguments  were raised before the High Court.  

The respondents are the State of Madhya Pradesh and  the Madhya Pradesh State Electricity Board (MPSEB).  They  have submitted that the word ’production’ in the impugned   amendment had been used in  conjuction with the phrase  "whether for sale or supply to \005." and was intended to relate  only to sale and consumption of electricity. An Explanation was  introduced by the Madhya Pradesh Upkar (Sansodhan)  Adhiniyam, 2003 to clarify the ambiguity and to make it clear  that the levy imposed by the 2001 amendment was on the  electric energy  sold  or  supplied by or from captive power  units.  It was submitted that the doubt, if any, should be  resolved in favour of upholding the constitutional validity of the  amendment.  It was also contended that Entry 53 of List II was  wide enough to cover the exercise of power of the State  Legislature in introducing the impugned amendment.  On the  question of non-compliance with the provisions of Section 12  (3) of the Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000, it is  stated that the Sudhar Adhiniyam was enacted on 3rd July 2001  whereas the impugned ordinance was promulgated on 29th  June 2001 and as such, Section 12 (3) had no application. The  further argument is that Section 12 (3) of the Sudhar Adhiniyam  could not be construed as a restraint on the Legislature as no  Legislature can bind any future legislative action of the  Legislature.  The third contention on this aspect is that the  Courts could not review the legislative process.  On the  question of violation of Article 14, it is submitted that a cess is a  tax which may constitutionally be levied on the capacity of a  particular class of assessees to pay.  It is submitted that the  appellants cannot be equated with the MPSEB and that in any  event there was no pleading to justify any finding on the issue  of discrimination.

The High Court dismissed the writ petitions.  According to  the High Court the levy imposed by the impugned amendment  was on sale and consumption of electricity and that "by mere  use of word "production" in Section 3(2) it does not cease to be  cess on the consumption of electrical energy".  According to the  High Court, "production is simply a measure of tax for the  purpose of calculation of the amount of cess to be paid by the  Captive Power Producer whose plant is located in the factory  premises and whatever electrical energy is generated is  consumed in the same premises and on the units so  consumed".   The High Court concluded that in substance, the  impugned cess is on energy consumed and so falls under Entry  53, List II, and was not excise duty even if the measure of both  is at the same stage.            On the argument alleging violation of Section 12(3) of the  Sudhar Adhiniyam, it was held: "We find that imposition of cess was under  consideration of the State for some time past.  It  was discussed with the Industry and formed part of  Captive Power Policy before Ordinance was  promulgated.  In case the Respondents wanted to  rush through the measure, it could be done long  back.  It is not incumbent for the Government to  discuss a matter with public before it is legislated.   Therefore, the Ordinance could be promulgated at  any time, the Government deemed necessary to do  so.  Moreover, the Bill was presented before the  Legislature, which had passed it".

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The plea of violation of Article 14 was negatived because  a valid distinction could be drawn between MPSEB and captive  power generating concerns like the appellants.  The cess of 20  paise per unit was held not to be confiscatory and as such not  violative of Article 14.

LEGISLATIVE COMPETENCE The two competing entries in the Seventh Schedule to the  Constitution are Entry 84 of List-I and Entry 53 of List-II.  They  respectively read: "List-I

"84. Duties of excise on tobacco and other goods  manufactured or produced in India except \026  

(a)     alcoholic liquors for human consumption.

(b)     opium, Indian hemp and other narcotic drugs  and narcotics, but including medicinal and  toilet preparations containing alcohol or any  substance included in sub-paragraph (b) of  this entry.

List-II  

"53.  Taxes on the consumption or sale of  electricity".   

       Electricity is goods [See Commissioner v. MPEB {(1969)  1 SCC 200, 204].  Thus, the levy of excise duty on the  production of electricity which falls within the phrase "other  goods manufactured" in Entry 84 of List-I" is within the  exclusive jurisdiction of Parliament and the State has the  competence to levy tax only on the sale and consumption of  electricity1.  This position is accepted by the respondents.  

The  Madhya Pradesh Electricity Duty Act , 1949 provides  for the levy of a duty on the consumption  or sale of electrical  energy and  under Section 3 of this Act , subject to certain  statutory exceptions, every distributor and every producer of   electrical energy is required to pay a monthly duty "on the  electrical energy sold or supplied to a consumer or consumed  by himself, for his own purpose or for purposes of  his township  or colony".  Under the Upkar Adhiniyam, 1981, an energy  development cess is levied under Section 3 on every distributor  of electrical energy at a rate of one paisa per unit "on the total  energy sold or supplied to a consumer or consumed by himself  or his employees during any month".  The similarity in the  phraseology used in both these statutes in describing the  incidence of tax \026 namely sale or supply of electricity \026 is  significant.  

By the impugned amendment in 2001, Section 3 of the  1981 Adhiniyam was substituted to provide for payment of an  Energy development cess by producers of electricity as well.   While setting out the substituted section, we have highlighted  those portions of the section which were introduced by way of  amendment. "3. Levy of energy development cess \027 (1) Every  distributor of electricity energy shall pay to the State  Government at the prescribed time and in the

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prescribed manner an energy development cess at  the rate of one paise per unit on the total units of  electrical energy sold or supplied to a consumer or  consumed by himself or his employees during any  month:

Provided that no cess shall be payable in respect of  electric energy, -

(i)     (a) sold or supplied to the Government of  India for consumption by that Government;   or

(b) sold or supplied to the Government of  India or a railway company for  consumption in the construction,  maintenance or operation of any railway  administered by the Government of India:         

(ii)    sold or supplied in bulk to a Rural Electric Co- operative Society registered under the  Madhya Pradesh Co-operative Societies Act,  1960 (No. 17 of 1961).

Explanation:  For the purpose of this sub- section ’month’ means such period as may be  prescribed.

2.      Every producer producing electrical  energy by his captive power unit or diesel  generator set of capacity exceeding 10 Kilowatt  in total shall pay to the State Government an  energy development cess at the rate of 20 paise  per unit on the total units of electrical energy  produced whether for sale or supply to a  consumer or for consumption by himself or his  employees during any month:

Provided that no cess shall be payable in  respect of electrical energy produced by \026

(i)     the Government of India for consumption  by that Government;

(ii)    the Government of India or a railway  company for consumption in the  construction, maintenance or operation of  any railway administered by the  Government of India;

(iii)   the State Government for consumption by  that Government;

(iv)    a Rural Electric Co-operative Society  registered under the Madhya Pradesh Co- operative Societies Act, 1960 (No. 17 of  1961);  

(v)     the local bodies including Municipal  bodies and Panchayats for consumption in  public street lamp or lamps in any market  place or water works or any other places of  public resort maintained by such bodies:

Provided further that the amount of energy

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development cess shall be collected by the  Madhya Pradesh State Electricity Board  and the amount so collected shall be made  available to the State Government.

(3)     The proceeds of the cess under sub-section  (1) and (2) shall first be credited to the Consolidated  fund of the State and the State Government may at  the commencement of each financial year, after due  appropriations has been made by law, withdraw  from the Consolidated Fund of the State an amount  equivalent to the proceeds of cess realized by the  State Government in the preceding financial year  and shall place it to the credit of a separate fund to  be called the Energy Development Fund and such  credit to the said fund shall be an expenditure  charged on the Consolidated Fund of the State  Government of Madhya Pradesh.

(4)     The amount in the credit of the funds shall, at  the discretion of the State Government be utilised  for:-          (a)     research and development in the field of  energy including electrical energy as well as  other conventional and non-conventional  sources of energy;

(b)     improving the efficiency of generation,  transmission, distribution and utilisation of  energy including reduction of losses in  transmission and distribution;

(c)     research in design, construction,  maintenance, operation and materials of the  equipment used in the field of energy with a  view to achieve optimum efficiency, continuity  and safety;

(d)     survey of energy sources including non- perennial sources to alleviate energy  shortage;

(e)     Energy conservation programmes;

(f)     Extending such facilities and services to the  consumers as may be deemed necessary;

(g)     Creation of a laboratory and testing facilities  for testing of electrical appliances and  equipments and other equipments used in the  field of energy;

(h)     Programmes of training conducive to achieve  any of the above objectives;

(i)     Transfer of Technology in the field of Energy;

(j)     Any purpose connected with improvement of  generation, transmission, distribution or  utilisation of electrical and other forms of  energy, as the State Government may, by  notification, specify.

Explanation: In this sub-section ’energy’

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includes all conventional and non- conventional forms of energy.  

(5)     If any questions arises as to whether the  purpose for which the fund is being utilised is a  purpose falling under sub-section (4) or not, the  decision of the State Government thereon shall be  final and conclusive."

The High Court’s decision was given with reference to this  amendment.

       A plain reading of Sub-Section (2) of Sub-Section 3  introduced by the amendment to the 1981 Adhiniyam makes it  clear that the levy of cess was "on the electrical energy  produced".  The phrase "whether for sale or supply" merely  clarified that all electricity produced irrespective of its  destination would be liable to cess at the specified rate.  The  use of the word "whether" after the phrase "energy produced"  means that the cess would apply on units produced whichever  of the alternatives mentioned after the word  "whether", namely,  sale or supply or consumption is the case.    There is no reason  to assume that the words used did not reflect the intention of  the Legislature.  The imposition envisaged was on the  production of electricity units.   The charge was on generation  and not on the sale or consumption of electricity.  There is a  conscious linguistic departure from the language used in  Section 3 of the Electricity Duty Act, 1949 and indeed the  language used in Section 3(1) of the same Act where the cess  is levied on the total units of electrical energy sold or supplied  by distributors of electrical energy.  When dealing with  producers under sub-Section (2) of the same section, the cess  is required to be paid "on the total units of electrical energy  produced".  If, as is contended by the respondents, the  incidence of levy under Section (1) and sub-section (2) were  identical, the same language should have been used in both  sub-sections.  The deliberate change in language reflects an  intention to alter the subject matter of levy as far as producers  were concerned.

Our interpretation of sub-section (2) of Section 3 is  buttressed by and in keeping with the language and effect of  the proviso to the said sub-section.  It has been held that the  normal function of the proviso is to except something out of the  enactment or to qualify something enacted therein which but for  the proviso would be within the purview of the enactment2.  The  proviso to Section 3(2) excepts "electrical energy produced"  from payment of the cess in five cases.  This would show that  the general application of Section 3(2) to which an exception  was being carved by the proviso was in respect of the  production of electrical energy.  Were it not for the exception in  the proviso to Section 3(2), what would be subjected to tax  would be electrical energy produced by the five categories  mentioned under the proviso.  Although in categories (i), (ii), (iii)  and (v) the exemption is granted with reference to the utilisation  of the electrical energy produced, under exception (iv) \026  significantly, all electrical energy produced by a Rural Electrical  Co-operative Society registered under the M.P.   Co-operative    Societies  Act, 1960  is  exempted.  The difference of language  between the proviso to sub-section (2) of Section 3 and the  proviso to sub-section (1) of Section 3 is also telling.  Under the  proviso to sub-section (1), the exception is of electrical energy  sold or supplied to specified authorities.

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       That the intention of the Legislature was to levy cess on  the production of electricity is also borne out from the  Statement of Objects and Reasons which accompanied the Act  which replaced the Ordinance.  It says:   "With a view to impose cess on the electricity  generated by the producers from their Captive  Power Plants/Diesel Generating Sets for self  consumption or for  sale at the rate of 20 paise per  unit on all generated electricity units, it has been  decided to amend the Madhya Pradesh Upkar  Adhiniyam, 1981 (No. 1 of 1982) suitably."

       There can, in the circumstances, be no doubt that the levy  was sought to be imposed on the generation of electricity by the  amendment, a levy which the State admittedly was incompetent  to impose3.    

       The interpretation of the amendment by the High Court  and as canvassed by the respondents that the cess was  actually on sale and consumption and that production was  merely the measure of tax is unacceptable.  Such a  construction is contrary to the express words of the statute.  Doubtless, while considering a challenge to the constitutionality  of a statutory provision, the Court will lean in favour of  upholding its validity. {See: State of Karnataka v. Ranganatha  Reddy [(1977) 4 SCC 471]}.  But this does not mean that in this  process of leaning the Court must perform verbal gymnastics to  overcome a patent lack of legislative competence.  As said by  the Constitution Bench of this Court in Madhuram Agrawal V.  State of Madhya Pradesh [(1999) 8 SCC 667]: "The intention of the legislature in a taxation statute  is to be gathered from the language of the  provisions particularly where the language is plain  and unambiguous.  In a taxing Act it is not possible  to assume any intention or governing purpose of the  statute more than what is stated in the plain  language.  It is not the economic results sought to  be obtained by making the provision which is  relevant in interpreting a fiscal statute.  Equally  impermissible is an interpretation which does not  follow from the plain, unambiguous language of the  statute.  Words cannot be added to or substituted  so as to give a meaning to the statute which will  serve the spirit and intention of the legislature."

Although a dispute was sought to be raised by the  appellants as to whether electricity can be stored or not, (this  despite the decision to the contrary by the Constitution Bench  of this Court in State of Andhra Pradesh v. National Thermal  Power Corpn. Ltd. [(2002) 5 SCC 203], it is not necessary to  enter into this controversy for the purpose of deciding this issue  as it is the common case of the parties before us that between  the generation and consumption of electricity there will be  transmission loss and the amount of electricity generated need  not necessarily be the amount of electricity consumed/sold.   In  any event, the practice which is actually followed in metering  the generated  electricity  would  not make the incidence of tax  different.  "The method of collection does not affect the essence  of the duty, but only relates to the machinery of collection for  administrative convenience.  Whether in a particular case the  tax ceases to be in essence an excise duty, and the rational  connection between the duty and the person on whom it is

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imposed ceased to exist, is to be decided on a fair construction  of the provisions of a particular Act"4.  Section 3(2) of the  amendment speaks of cess on electrical energy generated and  that must be taken as conclusive of the object and nature of the  levy.

Had matters stood there, the appeals would have had to  be allowed and the decision of the High Court reversed.  But  after the decision of the High Court, there was a further  amendment effected  to the 1981 Adhiniyam by the Madhya  Pradesh Upkar (Sanshodhan)  Adhiniyam, 2003.  The 2003  amendment introduced an Explanation at the end of Section 3  of sub-Section (2).  The Explanation is as follows:- " Explanation \026 For the purpose of this sub-section,  the Cess shall be levied on units of electrical energy  sold or supplied from captive power units or Diesel  Generator sets to a consumer or consumed by the  Producer or his employees.".

The issue now is \026 can the 2003 Explanation cure the  2001 levy?  

The legislature has the power to validate an invalid levy  and to do so retrospectively.  The proscription provided in the  context of judicially invalidated legislation would not apply as  the 2001 amendment had not, till the promulgation of the 2003  Act, been held to be invalid by any Court.  The legislature can  also change the character of the tax or duty from impermissible  to permissible but the tax or levy should be within its legislative  competence5.  However, in our view, these principles would not  apply to the 2003 Amendment since it is in the form of an  Explanation to Section 3(2).  The object of an Explanation to a  statutory provision has been culled out from the earlier judicial  decisions and succinctly restated in S. Sundaram Pillai & Ors.  v.V.R. Pattabiraman & Ors. [(1985) 1 SCC 591 at 613].   " Thus, from a conspectus of the authorities referred  to above, it is manifest that the object of an  Explanation to a statutory provision is \026  

a)      to explain the meaning and intendment of the  Act itself,   b)      where there is any obscurity or vagueness in  the main enactment, to clarify the same so as  to make it consistent with the dominant object  which it seems to subserve,

c)      to provide an additional support to the  dominant object of the Act in order to make it  meaningful and purposeful,

d)      an Explanation cannot in any way interfere  with or change the enactment or any part  thereof but where some gap is left which is  relevant for the purpose of the Explanation, in  order to suppress the mischief and advance  the object of the Act it can help or assist the  Court in interpreting the true purport and  intendment of the enactment, and

e)      it cannot, however, take away a statutory right  with which any person under a statute has  been clothed or set at naught the working of  an Act by becoming an hindrance in the

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interpretation of the same."          

According to the appellants, since Section 3(2) continued  to remain the charging Section, the effect of the Explanation  could be construed either as replacing the impost under Section  3(2) or as an alternative cess or as being an additional cess.   The first construction had not been argued by the respondents.   The second alternative would give the assessing officer an  impermissible discretion and the third alternative would mean  that the vice of constitutional incompetence would continue to  attach to the impugned levy.

The respondents have argued that the decision of the  High Court with regard to the interpretation put to Section 3(2)  is correct.  Indeed, they could hardly contend otherwise. We  have not agreed with the interpretation of Section 3(2) put by  the High Court judgment.  Section 3(2) continues to be the  charging Section. The Explanation, according to the  respondents served the purpose of merely clearing up any  ambiguity in Section 3(2) and reaffirmed the object of the cess  levied thereunder.  

The expression used by the Explanation is "for the  purpose of sub-section (2) of Section 3, the cess shall be levied  on units of electrical energy sold or supplied".  Since the  purpose of sub-section (2) of Section 3 continues to be a levy  on production, the word ’levied’ in the context would at the  highest mean ’assessment’ and not ’imposition’.  It is not the  respondents’ case that any new or additional or alternative cess  was sought to be introduced by the Explanation. Thus despite  the Explanation, the charge in Section 3(2) continues to be on  the production of the electrical energy units and nothing else.  The proviso to sub-section (2) of Section 3 continues to except  electrical energy produced from the cess in certain cases.  The  Explanation, if it is read with the main provision, introduces  certain contradictions and vagueness.  A charging provision  should be explicit, certain and clear in order to bind the subject.   The outcome of the introduction of the Explanation to an  otherwise unchanged Section 3(2) is a singularly ill drawn  provision.  The 2003 amendment was obviously introduced for  the purpose of rectifying the obvious error in Section 3(2), an  object which cannot be achieved by introducing an Explanation  since an Explanation cannot be read as changing or as  interfering with the incidence of the levy.  It is not for us,  particularly when legislative clarity is required since the  statutory provision imposes a tax, to untangle the legislative  confusion.  

The legislature could have avoided the controversy, if it  had wished to make the incidence of tax explicitly on sale or  consumption, by the simple expedient of so providing.   The  Legislature in its wisdom did not choose to do so. To use the  words voiced by Jessel M.R.6: "I must say that whoever is responsible for drafting  \005.. of this Act \005. has taken a great deal of trouble  to raise a very difficult question, when he might with  the greatest ease by using appropriate and well- known terms have avoided any question whatever."  

We are, therefore, of the opinion that the cess chargeable  at all material times under Section 3(2) is only on the production  of electrical energy units as far as producers of electricity for  captive consumption are concerned and the Explanation does  not serve to change the character of the tax from an

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impermissible to a permissible levy.

SECTION 12(3) OF THE SUDHAR ADHINIYAM         The challenge to Section 3(2) of the 1981 Adhiniyam on  the ground of violation of Section 12(3) of the Madhya Pradesh  Vidyut Sudhar Adhiniyam, 2000 (hereinafter referred to as  ’Sudhar Adhiniyam’) is not necessary to be decided in view of  our interpretation of the Section and the finding that it was an  incompetent piece of legislation.  However, since the scope of  Section 12(3) of the Sudhar Adhiniyam has been argued in  depth, we think it appropriate not to leave the dispute  unanswered.

The Sudhar Adhiniyam was published in the Madhya  Pradesh Gazette (Extra-Ordinary) on 20.2.2001 after receiving  the assent of the President.  It came into force on 3.7.2001.  By  the Sudhar Adhiniyam, the State Electricity Regulatory  Commission has been set up and various provisions have been  made for the following avowed objects: "(i)    restructuring of the Electricity Industry;

(ii)    rationalisation of Generation, Transmission,  Sub-Transmission, Distribution and Supply of  Electricity in the State;

(iii)   Regulating the licensing of transmission and  supply of electricity;

(iv)    regulating the purchase, Transmission, Sub- Transmission, Distribution, Supply and utilisation of  electricity;

(v)     providing quality of service and the tariff and  other charges considering the interest of the  consumers and utilities;

(vi)    taking measures conducive to the  development and management of the electricity  industry in the State in an efficient, economic and  competitive manner."

Section 12(3), which is allegedly violated by the  respondent \026 State, reads as under: "12 (3).        The State Government shall consult the  Commission in relation to any policy directive which  it proposes to issue or any legislation is proposed to  be enacted affecting the Electricity Industry it shall  duly take into account the recommendation if any,  given by the Commission within such reasonable  time as the State Government may specify."

       There can be no doubt, in view of the authoritative  pronouncement of the law in Maharaj Umeg Singh and  Others v. The State of Bombay and Others  [(1955 (2) SCR  164] that a State legislature cannot be fettered from exercising  its plenary powers of legislation within the ambit of the  legislative heads specified in the lists (II) & (III) of the 7th  Schedule to the Constitution, unless the prohibition is contained  in the Constitution itself.  It had been argued in Maharaj Umeg  Singh’s case that agreements of merger entered into by the  Rulers of the respective States with the Dominion of India and  the collateral letters of guarantee passed by the Ministry of  States precluded the State legislature from denying the rights

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under these two instruments.  The argument was negatived  saying:   "Once the topic of legislation was comprised within  any of the entries in the Lists II & III of the Seventh  Schedule to the Constitution the fetter or limitation  on such legislative power had to be found within the  Constitution itself and if there was no such fetter or  limitation to be found there the State Legislature  had full competence to enact the impugned Act no  matter whether such enactment was contrary to the  guarantee given, or the obligation undertaken by   the Dominion Government or  the Province of  Bombay or even the State of  Bombay".

Unlike the decision in Maharaj Umeg Singh’s case, the  so-called legislative ’fetter’ in the case before us is itself  contained in valid legislation viz. the Sudhar Adhiniyam, 2000.   The State was competent to enact the Sudhar Adhiniyam,  2000.  The respondents have not urged to the contrary.  So  now we have two pieces of legislation viz. the Sudhar  Adhiniyam, 2000 and the Amendment Act of 2001, both  enacted by the State which are both equally valid.   

The first question, therefore, is \026 whether Section 12(3)  does in fact impose any fetter on the power of State to  legislate?  Sub-section (3) refers to "any policy directive which it  proposes to issue" or  "any legislation proposed to be enacted  affecting the Electricity Industry ".  It does not stop the State  from enacting the legislation but merely states that prior to any  legislation being proposed, the Government shall "duly take into  account the recommendation, if any, given by the Commission".   It was and is open to the State Legislature to repeal this law.   As long it continues to be operative, it must be assumed that it  was not a mere exercise in futility and some effect must be  given to the words of the sub-section (3) of Section 12.  As we  read the sub-section, it is a mandate to the policy makers who,  before proposing legislation, are required to consult the State  Regulatory Commission.   

       Under the Sudhar Adhiniyam, the State Commission is a  juristic entity [Section 3(1)].  The Members of the Commission,  according to Section 5 of the Sudhar Adhiniyam, shall be  persons of ability, integrity and standing who have adequate  knowledge and experience of, or have shown capacity in  dealing with problems relating to engineering, economics,  commerce, finance, law, administration or management\005".   Under Section 9 of the Sudhar Adhiniyam, the Commission has  been vested with the powers inter alia \027 (a)     to regulate the purchase, distribution, supply  and utilization of electricity, the quality of  service, the tariff and charges payable  considering the interest of the consumer and  the Electricity Industry both;  

(c)     to determine the tariff for electricity,  wholesale, bulk, grid or retail in accordance  with the provisions of this Act.

       In particular the Commission has been given the power to  determine the tariff under Section 26 of the Sudhar Adhiniyam,  2000.   For discharging its functions, the Commission has been  given wide ranging powers to carry out the objects for which it  has been set up including the powers of a Civil Court in certain

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specified matters [Section 10].

It is true that the Sudhar Adhiniyam, 2000 although  published in the Official Gazette prior to the promulgation of the  impugned Ordinance, came into force after such promulgation.   Nevertheless, the Act which replaced the Ordinance was  introduced as a Bill when the Sudhar Adhiniyam was operative  and was certainly in place when the Explanation was added to  Section 3(2) in 2003.  There was admittedly no consultation by  the State Government with the Commission at any stage  though the levy of cess by the impugned legislation affects the  electricity industry.

We are not concerned with why the legislature provided  for this mandate of prior consultation but the importance of  consultation at a pre-decisional stage has been recognised by  Narayanan Sankaran Mooss v. The State of Kerala and  another [(1974) 2 SCR 60, page 70]:\027 "\005   First impressions and provisional judgments  have a tendency to become ultimate ideas and final  judgments.  They would settle unconsciously on the  investigator’s mind as the imperceptible dust- particles on an optical lens.  They would dim his  understanding and obfuscate his observation.   Facts which will dovetail with them would arrest his  attention; facts which will conflict with them would flit  his observation.  If by any chance he happens to  notice refractory facts, he would seek to reconcile  them with his first impressions and provisional  judgment. This understanding of human psychology  seems to have persuaded Parliament to interpose  the condition of the Board’s consultation to the  Government’s action.  The Board is an independent  body.  It consists of three members.  One of them is  a technical expert, the other is financial expert, and  the third an administrative expert.  While  considering the facts presented to it by the  Government and by the licensee in his explanation,  the Board will undoubtedly act with an open and  unconditioned mind and will be able to offer  unbiased counsel to the Government\005."

In our opinion, the consequence of non-consultation in  terms of Section 12 (3) of the Sudhar Adhiniyam would not be  an incompetent piece of legislation but a legislation introduced  in breach of a salutary requirement to consult an expert  statutory body.  The statutory requirement for consultation with  a body of experts before proposing legislation will serve as an  in-built safeguard against a challenge under Article 14 of the  Constitution apart from anything else.    Nevertheless, we do not propose to decide \027 whether by  reason only of such non-consultation, Section 3(2) of the 1981  Adhiniyam is violative of Article 14, nor do we propose to  decide whether the cess of 20 paise is excessive, nor the other  grounds urged by the appellants pertaining to Article 14. We  have referred to the provisions of Sudhar Adhiniyam so that the  State Government may in future act in consonance with Section  12(3).   An additional challenge has been raised to the  constitutional validity of sub-sections (3), (4) and (5) of Section  3 in Civil Appeal No.2003 of 2002 alleging violation of Articles  202, 204, 207, 260 and 267 of the Constitution.

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       In order to appreciate the submission, we may  recapitulate briefly the effect of these sub-sections.  Under sub- section (3), the proceeds of the cess levied under sub-section  (1) and (2) are required to be credited to the Consolidated Fund  of the State.   The State Government may then withdraw an  amount equivalent to the proceeds of cess realised in the  preceding financial year and place it to the credit of a separate  fund called the Energy Development Fund.  Such credit to the  fund would be an expenditure charged on the Consolidated  Fund.  The State Government has also the discretion to use the  amount in the credit for the various purposes specified in sub- section (4). A further discretion is given to the State  Government under sub-section (5) to finally and conclusively  decide whether the funds were in fact being utilised for a  purpose falling under sub-section (4).

       Apart from the submission that the respondents had not  disclosed any information as to what had been done by the  State after collecting the cess from its consumers and how the  cess collected in fact been utilised since 1981 although called  upon to do so, it is argued by the appellants that no fund could  be earmarked or appropriated or expended from the  Consolidated Fund of the State except in accordance with the  provisions of Articles 196, 198, 199 and 200 of the Constitution  which requires the expenditure to be passed by the State  Legislature and it cannot be left to the State Executive to  determine the expenditure at its discretion.  This argument was  raised before the High Court but not dealt with. Nor do we do so  since we have upheld the appellants’ contentions on the very  imposition of the cess under Section 3(2).

In the circumstances, we allow the appeals.  Section 3(2)  of the Upkar Adhiniyam, 1981 as introduced by the Amendment  Act, 2001 and amended in 2003 is declared ultra vires the  Constitution as being outside the legislative competence of the  State.  As far the amounts collected by the respondents under  Section 3(2) are concerned, the collection was in a sense  protected by the decision of the High Court.  The ’protection’  became precarious when this Court while granting leave on the  special leave petitions on Ist March, 2002 had refused interim  relief stating that the question of refund with interest was an  issue to be decided at the final hearing.  In the circumstances,  we direct that the respondents will be liable to refund the cess  collected after Ist March, 2002 to the appellants together with  interest at 9% p.a.  There will however be no order as to costs.

WRIT PETITION (C) Nos.356 OF 2002 AND 236 OF 2003.  

       In terms of our above judgment, the writ petitions stand  disposed of accordingly.