Electricity Duty Exemption Dispute: Essar Steel vs. State of Gujarat
The case of Essar Steel India Ltd. and Anr. vs. State of Gujarat and Anr. revolves around the issue of exemption from electricity duty, which Essar Steel sought under the provisions of the Bombay Electricity Duty Act, 1958. The dispute originated from the Gujarat High Court’s judgment dismissing Essar Steel’s claim, which led to this appeal before the Supreme Court of India.
The primary question before the Court was whether Essar Steel was entitled to an exemption from electricity duty for power generated and consumed by its associated entity, Essar Power Limited. The State of Gujarat had earlier refused the exemption, leading to a legal battle.
Background of the Case
Essar Steel, a company engaged in steel manufacturing, had set up a gas-based steel plant in Hazira in 1990. It initially established a 20 MW Open Cycle Power Plant for captive power consumption, which later expanded into a 30 MW Combined Cycle Mode Power Plant. The State of Gujarat had granted exemption from electricity duty for 15 years starting from 1990.
Subsequently, Essar Steel planned to establish another 300 MW Captive Power Plant but later promoted a separate entity, Essar Power Limited, to generate and supply electricity. The Government approved a 510 MW generating station at Hazira, out of which 300 MW was allocated to Gujarat Electricity Board (GEB), and the remaining 215 MW was supplied to Essar Steel.
Legal Arguments Presented
Petitioner’s Arguments
- Essar Steel argued that it was entitled to electricity duty exemption as per Section 3(2)(vii)(a)(i) of the Bombay Electricity Duty Act, 1958, which provided exemptions for energy generated and consumed by industrial undertakings.
- It contended that the electricity supplied to it by Essar Power Limited should be considered as captive consumption since Essar Steel held 42% equity in Essar Power.
- Essar Steel relied on the precedent set in A.P. Gas Power Corporation Ltd. vs. AP State Regulatory Commission, where captive consumption was recognized for an entity based on equity shareholding.
- The State of Gujarat had extended similar exemptions to Gujarat Industrial Power Company Limited (GIPCL), and denying the same to Essar Steel was discriminatory.
Respondent’s Arguments
- The State of Gujarat countered that Essar Steel and Essar Power were distinct legal entities, and Essar Steel was not generating power, either singly or jointly with another industrial undertaking.
- The sale of electricity by Essar Power to Essar Steel was governed by a Power Purchase Agreement (PPA), making it a commercial transaction rather than captive consumption.
- Exemption under the 1958 Act was granted only if the generating entity produced power for its own use, which was not the case here.
- The State also argued that Essar Power supplied 58% of its power to GEB, which was not an industrial undertaking, and thus, the statutory conditions for exemption were not met.
Supreme Court’s Judgment
Key Observations by the Court
- The Court held that electricity duty exemptions under Section 3(2)(vii)(a)(i) required joint generation and consumption by industrial undertakings. In this case, Essar Steel and GEB were not jointly generating power.
- Merely holding a 42% equity stake in Essar Power did not establish that Essar Steel was jointly generating electricity.
- The Supreme Court emphasized that tax exemptions must be interpreted strictly, and any ambiguity should be resolved in favor of the State.
- The Court distinguished this case from A.P. Gas Power Corporation Ltd., where the generating entity was jointly owned and directly allocated power to its members.
Rejection of Notification-Based Exemption
Essar Steel also sought exemption under a government notification dated 27.02.1992, which granted relief to industrial undertakings generating power jointly for their own use. However, the Court rejected this claim because:
- The power plant was commissioned in August 1995, whereas the notification required the plant to be set up between 01.01.1991 and 31.12.1992.
- Essar Steel had only placed orders for the power plant during the specified period but had not completed its installation or commissioning.
- Applications for exemption were not made within the required time frame.
Final Verdict
The Supreme Court dismissed the appeal, holding that Essar Steel did not meet the conditions for exemption under either Section 3(2)(vii)(a)(i) of the Bombay Electricity Duty Act, 1958, or the 1992 notification. The Court upheld the decision of the Gujarat High Court and ruled that the electricity duty must be paid as demanded by the State.
This case reinforces the principle that tax exemptions must be granted only when the statutory conditions are strictly met. The judgment also underscores the importance of corporate structures in determining tax liabilities and benefits.
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Download Judgment: Essar Steel India Lt vs State of Gujarat and Supreme Court of India Judgment Dated 02-05-2017.pdf
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