S.N. Jha, C.J.
1. The dispute in this writ petition relates to competence of the Government of Jammu and Kashmir to levy electricity duty on generation of electric energy in exercise of power under Section 3(1) of the Jammu and Kashmir Electricity (Duty) Act, 1963, which is sought to be done by notification, SRO 141 dated 21st April, 1999. The petitioner seeks quashing of the said notification and demands made thereunder, and writ in the nature of prohibition restraining the State of Jammu and Kashmir from imposing any tax/levy/cess/duty on generation in the hydel power projects of the petitioner-company located in the State.
2. The petition was filed principally against the State of Jammu and Kashmir and its officials. The Union of India, the Government of NCT, Delhi and States of Haryana, Himachal Pradesh, Rajasthan, Uttar Pradesh, Punjab and Chandigarh Administration, being beneficiaries of the electricity produced in the hydel power projects of the petitioner-corporation in the State of Jammu and Kashmir, were impleaded as proforma respondents. By order dated 5th February, 2002 the State of Haryana was transposed as co-petitioner on application made by it alleging that its interest is likely to be adversely affected by the result of writ petition. Having regard to the nature of the controversy involved, we have reservations if the State of Haryana can be a co-petitioner. In any view, after such transposition, it did not file any Supplementary affidavit/petition to warrant separate consideration of its case.
3. Adverting to the writ petition, the case of the petitioner is that it is a government company incorporated under the Companies Act, 1956-fully owned and controlled by the Central Government functioning under the administrative control of Government of India, Ministry of Power. Its activities relate to planning, promoting and organizing an integrated and efficient development of hydroelectric power in all its aspects, including planning, investigation, research, design of power projects, construction, generation, operation and maintenance of hydroelectric power stations, transportation of power generated at such hydel stations in accordance with the policy laid down by the Government of India from time to time. In the State of Jammu and Kashmir the projects are Salal Hydroelectric Project in Jammu region and Uri Hydroelectric Project in Kashmir valley with an installed capacity of 690 MW and 490 MW respectively. The tariff with respect to these projects is notified by Government of India under Section 43A(2) of the Indian Electricity Act. The power generated at the power stations is shared by different states of the northern region, including Jammu and Kashmir in the ratio decided by the Government of India. The details of the sharing are contained in annexures 2A to 2F. It is not necessary to refer to these details except to state that Jammu and Kashmir being the host state, it enjoys 12% free electricity and further unalloted 15% share is also presently supplied to the State in addition to its share. The petitioner has also given corresponding details of other hydroelectric stations owned and operated by the petitioner-corporation in other States pointing out that though these projects are situated outside Jammu and Kashmir, the electricity generated therein is also supphed to the State of Jammu and Kashmir as per allocation of power made by the Government of India.
4. The case of the petitioner is that the State of Jammu and Kashmir is the biggest beneficiary of central projects in the matter of sharing of electricity generated at different hydroelectric power stations, including 12% free electricity at the hydel power stations situated in the State. It has been stated that the entire capital outlay investment in these projects was by raising loans and assistance from different financial institutions including World Bank. However, though the biggest beneficiary, the state is in huge arrear of tariff and other dues for the electricity sold to it. At the time of filing of the writ petition the State of Jammu and Kashmir was in arrear of Rs. 462.56 crores vide annexure V to the writ petition. According to the petitioner-corporation, the impugned notification seeking to impose electricity duty is a colourable device to avoid payment of the said arrears.
5. The case of the petitioner further is that the Jammu and Kashmir Electricity (Duty) Act was enacted in 1963 but till date rules have not been framed which could facilitate filing of returns, issue of notices, assessment and collection of electricity duty and, thus, there is no machinery to implement the provisions of the Act. Nevertheless, by the impugned notification, SRO 141 dated 21st April, 1999, the government seeks to levy electricity duty @ 50 paisa per unit on the electricity generated in the hydroelectric projects in the state. By the impugned demands, dated 23rd June, 1999, in fact, for the months of April and May, 1999 alone the petitioner-corporation has been directed to deposit the sum of Rs. 68,70,35,500/-.
6. The case of the petitioner further is that the impugned notification/demands will have the inevitable effect of making hydro power more expensive adversely affecting further investment in hydro sector which will be against the policy of the Government of India regarding hydro power development. It will have dampening effect on further investments on hydroelectric projects in the State of Jammu and Kashmir leaving vast potential of hydro power unutilized. It will also make power more expensive in the State leading to increase in economic burden of the ultimate, consumers. It may have a spiralling effect on the hydro power economics in the neighbouring states.
7. The validity of the impugned notification is also sought to be challenged on legal grounds. It is submitted that levy of duty on generation of electricity is the preserve of the Parliament by virtue of Entry 84 of List I of the VII Schedule to the Constitution of India and the state legislature is not competent to enact any law on the subject. As a matter of fact, J&K; Electricity (Duty) Act, 1963 has been enacted to provide for levy of electricity duty on sale and consumption of electricity and not on generation thereof and, therefore, in purported exercise of power under Sub-section (1) of Section 3 of the Act no such duty can be levied on generation by the impugned notification. The writ petition also refers to Article 286(1) of the Constitution of India which specifically bars the state legislature from enacting laws taxing out of state sales or inter-state sales of electricity, pointing out that my tax or duty imposed by any state on electricity generated by a particular project in that state is bound to have extra territorial operation since the burden of such tax/duty is to be shared by the other states and, ultimately, the consumers in those states. Reference is also made to Section 114 of the State Constitution corresponding to Article 165 of the Constitution of India which prohibits imposition of tax save by authority of law.
8. The stand of the State of Jammu and Kashmir is that the state government is competent to levy duty on generation of electricity. The petitioner-corporation has been generating electricity within the state and supplying it to different States, including the State of Jammu and Kashmir for decades without paying any duty in terms of Jammu and Kashmir Electricity (Duty) Act, 1963. Bills were raised @ 4 paise per unit applicable to persons generating electricity for his own use in terms of Sub-section (2) of Section 3 of the said Act. The petitioner denied liability on technical ground that in the absence of notification no duty was payable. This, according to the State, amounts to admission of the petitioner-corporation otherwise to pay the electricity duty. Without relinquishing its claim to recover duty @ 4 paise per unit, the State Government decided to issue notification under Sub-section (1) of Section 3 -- which empowers the government to fix the rate of duty -- @ 50 paise per unit. The validity of SRO 141 is sought to be sustained on the ground that by virtue of the residuary legislative power under Section 5 of the Jammu and Kashmir Constitution, the state legislature was competent to make law on the subject of electricity. Section 3 of the Act provides for levy of duty on the energy at such rates as may be notified by the Government and thus in exercise of the said power the State Government was fully competent to levy duty on the electric energy generated in the hydel power projects in the State by notification. The factual aspects of the case as stated above while noticing the petitioner's case, were also dealt with in the objections which it is not necessary to notice for disposal of the case.
9. Apart from the State of Jammu and Kashmir, the States of Rajasthan and Punjab also filed objections virtually admitting the case of the petitioner-corporation.
10. When the writ petition came up for hearing before the learned Single Judge of this Court, he took the view that certain questions of law arise for decision in this case and it is proper that they are dealt with by the Division Bench and, accordingly, referred the case to the Chief Justice vide order dated 28th September, 1999. The questions of law formulated by the learned Judge-are:
1. Whether Section 3 of Jammu and Kashmir Electricity (Duty) Act, 1963 authorizes the State Government to levy electricity duty on electric energy generated, as in the present case ?
2. If question No. 1 is found in the affirmative, whether in the absence of their being any rule, regulation as well as criteria to work out the quantum of electricity which is actually liable for levy of duty in terms of impugned SRO 141/99 State can create demand against the petitioner....?
11. Shri J.P. Singh, learned counsel for the petitioner submitted that the Electricity (Duty) Act has been enacted, as would appear from its preamble, 'to levy duty on the sale or consumption of electricity' and not generation thereof and, as such, the impugned notification, SRO 141, seeking to levy electricity duty on generation of electricity is ultra vires the Act. To buttress the argument, he referred to Sections 3 and 8 of the Act. We shall notice these provisions later in this judgment. Shri Singh submitted that, as a matter of fact, the legislature of the state of Jammu and Kashmir is not competent to enact any law with respect to generation of electricity and, therefore, the levy of electricity duty by notification in purported exercise of the power under the said Act is totally illegal and without jurisdiction and the whole exercise is misconceived. He pointed out that under Entry 84 of List 1 of the Seventh Schedule to the Constitution of India it is the Parliament alone which is competent to make law with respect to duties of excise on goods manufactured or produced in India except (a) alcoholic liquors for human consumption; and (b) opium, Indian hemp and other narcotic drugs and narcotics. Shri Singh further pointed out that the entries of List I except the last one i.e. Entry 97 are applicable to the state of Jammu and Kashmir. Shri Singh submitted that the subject 'duties of excise on goods manufactured' is the preserve of Parliament and, therefore, the state legislature is incompetent to make law with respect to duty on generation i.e. manufacture or production of electrical energy.
12. Shri A.H. Naik, learned Advocate General appearing for the State of Jammu and Kashmir, submitted that validity of the Electricity (Duty) Act is not under challenge in the present proceeding and, therefore, the question of competence or otherwise of the state legislature to enact the law does not arise. He submitted that, in any view, under Section 5 of the Constitution of Jammu and Kashmir the executive and legislative power of the State extends to all matters except those with respect to which the Parliament has power to make laws for the State under the provisions of the Constitution of India. In other words, except the subjects coming within the exclusive domain of the Parliament by virtue of different entries, the residuary power-both executive and legislative-vests in the State. Learned Advocate General pointed out that under Article 248 of the Constitution of India the Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or the State List i.e. List III and List II, including the power to make any law imposing a tax not mentioned in either of those lists but in case of the State of Jammu and Kashmir, by virtue of the Constitution (Application to J&K;) Order, 1954 framed under Article 370(1) of the Constitution of India, a different Article 248 is applicable. Certain words etc. in Article 246 dealing with legislative powers of the Parliament and state legislatures have been omitted. Entries 1 to 96 of List I only are applicable in the State of Jammu and Kashmir, and not Entry 97 which is the residuary entry encompassing all matters not specified in List II or List III.
13. The above submissions of the learned Advocate General, in our opinion, are beside the point. Undisputedly, Entry 84 is applicable to the State of Jammu and Kashmir and, therefore, if the entry covers generation of electricity, it would follow that the state legislature would be incompetent to make any law in that regard and, thus, by the same logic the executive power of the state would not extend to that subject. There is no dispute about the exclusivity of competence with respect to subjects specified in Entries 1 to 96 of List I and, therefore, the moot question is whether the generation of electricity is covered under Entry 84 of List I.
14. As a matter of fact, the writ petition could be allowed on a short point without going into the larger question. Section 11 of the Electricity (Duty) Act empowers the government to make rules for the purpose of carrying into effect the provisions of the Act. In particular and without prejudice to generality of that power such rules may provide, inter alia, for the manner of calculating the duty. If rules have not been framed laying down the manner of calculating the duty, we wonder, how duty can be levied and the Act itself can be implemented. In order to bring home the point we may quote Section 3, which is the charging section, so far as relevant, as under:
'3. Levy of duty. (1) There shall be levied and paid to the Government a duty on the energy to be called the 'Electricity Duty' at such rate or rates as may be notified by the Government in the Government Gazette and such rate or rates shall be calculated in the prescribed manner.
(2) There shall be levied for and paid to the Government the electricity duty at the rate of four paise per unit also by a person generating energy for his own use or consumption on the energy used or consumed by him in a month.
15. We shall make our comments on interpretation of the section later. For the present, we may only state that on a plain reading, it is manifest that under Sub-section (1) the government is empowered to levy duty on energy at the rate or rates to be calculated in the prescribed manner. 'Prescribed' means 'prescribed by rules made under the Act' vide Clause (c) of Section 2 of the Act. This is what Section 11(2)(a) also provides in other words, under Section 11(2)(a) the state government is empowered to frame rules regarding the 'manner of calculating the duty.' Without fixing the norms etc., among other things, rate(s) can not be fixed, duty cannot be calculated and demand cannot be raised. Fixing electricity tariff is a complex mechanism involving a host of factors. The rate of duty within the meaning of Section 3(1) has to be fixed taking into account those factors and rules are required to be framed. Without framing rules and fixing the manner of calculating the duty i.e. the rate thereof, it is not possible to fix any rate as the rate of duty under Section 3(1). That would be something like picking (the rate) from out of the hat. The state government has fixed 50 paise per unit as the rate of duty. In our opinion, without framing rules laying down the manner for calculating the duty, the state government could not fix the rate of duty at 50 paise per unit. It is admitted position that rules have not been framed under Section 11 of the Act which makes the entire Act unworkable and the rate fixed by the notification vulnerable.
16. However, we do not wish to take a short cut and dispose of the writ petition on the short ground that without framing rules and fixing the norms and manner for calculating the duty and the rate thereof, the duty could not be levied by the impugned notification, i. e. SRO 141. Taking that course would mean a remand to the state government and side-tracking the main issue i.e. competence of the State to levy duty on generation of electricity which is the moot question.
17. The basic provisions of the Constitution of India and the Constitution of Jammu and Kashmir may be noticed at this stage. The provisions relating to legislative competence of the Parliament and the legislatures of the States are contained in Article 246 of the Constitution of India which reads as under:
'246. Subject-matter of laws made by Parliament and by the Legislatures of States. -- (1) Notwithstanding anything in Clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule ( in this Constitution referred to as the 'Union List').
(2) Notwithstanding anything in Clause (3), Parliament and, subject to Clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in list III in the Seventh Schedule ( in this Constitution referred to as the 'Concurrent List').
(3) Subject to Clause (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the 'State List').
(4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List.'
18. Article 248 of the Constitution of India relating to residuary power of legislation may also be quoted as under:
'248. Residuary powers of legislation. -- (1) Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List.
(2) Such power shall include the power of making any law a tax not mentioned in either of those Lists.'
19. The applicability of the aforementioned provisions, amongst other provisions of the Constitution of India, is hedged in by the special provisions contained in Article 370 so far as the State of Jammu and Kashmir is concerned. The Article so far relevant runs as under:
'370. Temporary provisions with respect to the State of Jammu and Kashmir. -- (1) Notwithstanding anything in this Constitution, --
(a) ...
(b) the power of Parliament to make laws for the said State shall be limited to --
(i) those matters in the Union List and the Concurrent List which, in consultation with the Government of the State, are declared bys the President to correspond to matters specified in the Instrument of Accession governing the accession of the State to the Dominion of India as the matters with respect to which the Dominion Legislature may make laws for that State; and
(ii) Such other matters in the said Lists as, with the concurrence of the Government of the State, the President may by order specify.
(c) ...
(d) such of the other provisions of this Constitution shall apply in relation to that State Subject to such exceptions and modifications as the President may by order specify;
20. By Presidential Order, made under Article 370(1), called the Constitution (Application to Jammu and Kashmir) Order 1954, the provisions of the Constitution of India were extended to and made applicable to the State of Jammu and Kashmir with several exceptions and modifications. The words 'notwithstanding anything contained in Clauses (2) and (3)' occurring in Clause (1), and Clauses (2), (3) and (4) as a whole of Article 246 were omitted. Article 248 was also omitted and substituted by another one. Further, Entry 97 of the Union List i.e. List I and the State Lists and the Concurrent List i.e. List II and List III of the Seventh Schedule were also omitted. Thus, so far as the State of Jammu and Kashmir is concerned, the Parliament's power to make laws is limited to matters specified in Entries 1 to 96 of List I of the Seventh Schedule. The residuary power is with the State Legislature of Jammu and Kashmir. The declaration of this power is contained in Section 5 of the Constitution of Jammu and Kashmir which provides that 'the executive and legislative power of the State extends to all matters except those with respect to which Parliament has power to make laws for the State under the provisions of Constitution of India. The legislature of the State of Jammu and Kashmir thus has legislative competence to enact laws on any subject other than those covered by Entries 1 to 96 of List I of the Seventh Schedule,
21. It was, accordingly, submitted by the learned Advocate General that the Electricity (Duty) Act is saved under the residuary power of the State Legislature under Section 5 of the State Constitution. On behalf of the petitioner, on the other hand, it was submitted that the generation of electricity is covered under Entry 84 of List I and the Parliament thus alone is competent to enact laws relating to imposition of any duty on generation of electricity.
Entry 84 of List I runs as under:
'84. Duties of excise on tobacco and other goods manufactured or produced in India except --
(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.'
22. The entry refers to excise on tobacco and other goods manufactured or produced in India other than the excepted items as specified therein. It may be mentioned here that the term 'exise' is not to be understood in the narrow sense as referring to an impost on tobacco and similar other goods. The Shorter Oxford Dictionary defines the term to mean 'a duty levied on goods produced or sold within the country and on licences granted for certain activities'. In the Black's Law Dictionary it is defined as 'a tax imposed on the manufacture, sale, or use of goods (such as cigarette tax), or on an occupation or activity (such as a licence tax or an attorney occupation fee'. Thus, any duty on goods manufactured or produced would fall within the ambit of Entry 84.
23. The question whether electricity is goods is not res integra. In Commissioner of Sales Tax, Madhya Pradesh, Indore v. Madhya Pradesh Electricity Board, Jabalpur, 1969 (1) SCC 200, electricity was held to be goods. The dispute in that case had arisen in the context of Sales Tax Act. The term was defined therein to mean ''all kinds of movable property other than the actionable claims ... and all material articles and commodities .........' While considering the question as to whether electricity is 'goods' or not, the Supreme Court observed that 'the goods as defined for the purpose of sales tax cannot be taken in a narrow sense and merely because electric energy is not tangible or cannot be moved or touched like, for instance, a piece of wood or a book, it cannot cease to be movable property when it has all the attributers of such property. It is capable of abstraction, consumption and use which, if done dishonestly, would attract punishment under Section 39 of the Indian Electricity Act, 1910. It can be transmitted, transferred, delivered, stored, possessed etc., in the same way as any other movable property'. The decision was noticed with approval by a Constitution Bench of the Supreme Court in State of Andhra Pradesh v. National Thermal Power Corporation Ltd., (2002)5 SCC 203, subject, to modification that electricity cannot be stored. The word 'stored' in the afore-quoted passage was held to be erroneous or an oversight. The Court observed that science and technology till this date has not been able to evolve any methodology by which electric energy can be stored or preserved.
24. The term 'goods' in Entry 84 vis-a-vis electricity cannot have a different meaning. It is to be mentioned here that the term has been defined in Article 366(12) of the Constitution of India to mean 'all materials, commodities and articles'.
25. Learned Advocate General submitted that electricity becomes goods only when it is put in transmission lines, used and consumed. Mere generation does not amount to production or manufacture within the meaning of Entry 84. The submission is totally misconceived and contrary to the decision in State of Andhra Pradesh v. National Thermal Power Corporation Ltd. (supra). The following observations in paragraph 21 of the Judgment squarely cover the submission-
'Another significant characteristic of electric energy is that its generation or production coincides almost instantaneously with its consumption. To quote from Aiyar's Law Lexicon (Second Edition 2000) -- 'Electricity in physics is 'the name given to the cause of a series of phenomena exhibited by various substances, and also to the phenomena themselves'. Its true nature is not understood (sic) Imperial Dict. (quoted in Spensley v. Lanchashire Ins. Co., 54 Wis. 433, 442, 11 NW 894, where the court quoting from the same authority, said, 'We are totally ignorant of the nature of this cause whether it be a material agent or merely a property of matter. But as some hypothesis is necessary for explaining the phenomena observed, it has been assumed to be a highly subtle, imponderable fluid, identical with lightning, which pervades the pores of all bodies, and is capable of motion from one body to another'. This characteristic quality of electric energy was judicially noticed in Indian Aluminum Co. etc. etc. v. State of Kerala and Ors. (1996)7 SCC 637. Vide Para 25 this Court has noted, 'Continuity of supply and consumption starts from the moment the electrical energy passes through the meters and sale simultaneously takes place as soon as meter reading is recorded. All the three steps or phases (i.e. sale, supply and consumption) take place without any hiatus. It is true that from the place of generating electricity, the electricity is supplied to the substation installed at the units of the consumers through electrical higher-tension transformers and from there electricity is supplied to the meter. But the moment electricity is supplied through the meter. consumption and sale simultaneously take place .... as soon as the electrical energy is supplied to the consumers and is transmitted through the meter, consumption takes place simultaneously with the supply. There is no hiatus in its operation. Simultaneously sale also takes place'. These properties of electricity as goods are of immense relevance as we would state hereafter.'
(emphasis by us)
26. As a matter of fact, while considering the question as to competence of the State Legislature to levy tax on sale of electricity generated by the National Thermal Power Corporation Ltd. -- within the ambit of Entries 53 and 54 of List II -- which was the subject matter of dispute in the aforesaid case, the Supreme Court went on to hold that as manufacture, supply, sale and consumption of electricity is simultaneous, when it is sold to a consumer outside the State, it would amount to inter-state sale and, therefore, beyond the legislative competence of the state. Following observations in paragraph 29 of the judgment may usefully be quoted:
'......However, we are dealing with the case of electricity as goods, the property whereof, as we have already noted, is that the production (generation), transmission, delivery and consumption are simultaneous, almost instantaneous. Electricity as goods comes into existence and is consumed simultaneously, the event of sale in the sense of transferring property in the goods merely intervenes as a step between generation and consumption. In such a case when the generation takes place in one State wherefrom it is supplied and it is received in another State where it is consumed, the entire transaction is one and can be nothing else excepting an inter-State sale on account of instantaneous movement of goods from one State to another occasioned by the sale or purchase of goods, squarely covered by Section 3 of C. S. T. Act.'
27. As indicated above, the controversy in the aforesaid case was whether the state legislature was competent to levy duty on sale of electrical energy generated by the National Thermal Power Corporation Ltd. at its thermal power stations situated in the State of Andhra Pradesh and sold to the Electricity Boards of Karnataka, Kerala, Tamil Nadu and State of Goa in pursuance of contracts of sale. In that context, the scope of Entries 53 and 54 of List II came to be considered. The competence of the State to levy tax on sales of electricity for consumption was upheld observing:
'With these two things in mind, namely, that electricity is goods, and that sale of electricity has to be construed and read as sale for consumption within the meaning of Entry 53, the conflict, if any, between Entry 53 and Entry 54 ceases to exist and the two can be harmonized and read together Because electricity is goods it is covered in Entry 54 also. It is not disputed that duty on electricity is tax. Tax on the sale or purchase of goods including electricity but excluding newspapers shall call within Entry 54 and shall be subject to provisions of Entry 92A of List I. Taxes on the consumption or sale for consumption of electricity within the meaning, of Entry 53 must be consumption within the State and not beyond the territory of the State. Any other sale of electricity shall continue to be subject to the limits provided by Entry 54......'
(emphasis by us)
28. Reference to above observations/finding would be incomplete without noticing Entries 53 and 54 of List II and Entry 92A of List I as under:
'53. Taxes on the consumption or sale of electricity.
54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I.
92A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-state trade or commerce.'
29. From the conjoint reading of above entries and the observations of the Supreme Court, it is clear that tax on sale of electricity can be levied by the state legislature if it is for consumption within the state. Tax on sale outside the state would attract Entry 92A and, therefore, would be beyond the legislative competence of the state.
30. In coming to the conclusion that the transaction of generation, supply and sale constitutes inter-state sale on account of instantaneous movement of goods from one state to another under Section 3 of the Central Sales Tax Act, 1956, the Supreme Court noticed the attributes of inter-state sale in these words:
'It is well settled by a catena of decisions of this Court that a sale in the course of inter-state trade has three essential ingredients: (i) there must be a contract of sale, incorporating a stipulation, express or implied, regarding inter-state movement of goods; (ii) the goods must actually move from one State to another, pursuant to such contract of sale; the sale being the proximate cause of movement; and (iii) such movement of goods must be from one State to another State where the sale concludes. It follows as a necessary corollary of these principles that a movement of goods which takes place independently of a contract of sale would not fall within the meaning of inter-State sale. In other words, if there is no contract of sale preceding the movement of goods, obviously the movement cannot be attributed to the contract of sale. Similarly, if the transaction of sale stands completed within the State and the movement of goods takes place thereafter, it would obviously be independently of the contract of sale and necessarily by or on behalf of the purchaser alone and, therefore, the transaction would not be having an inter-State element. Precedents are legion; we may briefly refer to some of them. In Electric Company of India Ltd. v. Deputy Commercial Tax Officer, 1977 (1) SCR 631, this Court held that when the movement of the goods from one State to another is an incident of the contract it is a sale in the course of inter-state sale and it does not matter which is the State in which the property passes. What is decisive is whether the sale is one which occasions the movement of goods from one State to another........'
31. The above discussion poses the question in the instant case as to whether duty can be levied by the state legislature on production of electricity at all in as much as sale is inextricable part of production i.e. generation of electricity. As held in State of Andhra Pradesh v. National Thermal Power Corporation (supra), there is no hiatus between generation, sale, supply, transmission, delivery and consumption. The entire transaction is pursuant to contracts of sale. As seen above, electricity is not something which can be stored after its production. As a matter of fact, the production is pursuant to contract of sale. Having regard to the process involved, it would be legitimate to assume pre-existence of contract of sale. No sooner than the production takes place, it is transmitted into transmission lines and delivered for consumption sale thus is a necessary concomitant of generation. Thus, quantity of electricity generated and supplied pursuant to contract of sale outside the state would constitute interstate sale and, therefore, lie outside the competence of the state by virtue of Entry 92A of List I, as interpreted in State of Andhra Pradesh v. National Thermal Power Corporation (supra).
32. The writ petition contains averments supported by documents not controverted by the state, from which it appears that as per the allocation order of the Government of India in force at the time of filing of the petition (only ratio of allocation kept changing-pattern remained more or less the same) -- 66.8% electricity produced at Salal Hydro-electric Project (Stage 11) and 66.04% electricity produced at Uri Hydro-electric Project -- was supplied/sold to the States of Haryana, Himachal Pradesh, Punjab, Rajasthan, Uttar Pradesh, Chandigarh and Delhi. The petitioner-corporation has entered into 'Bulk Power Supply Agreement' with Electricity Boards of these states, besides the Power Development Department, Government of Jammu and Kashmir. The share of the State of Jammu and Kashmir included 12% free electricity as per the agreement. Indeed, not only the supply or movement of goods i.e. electricity, the generation itself was pursuant to Power Supply Agreement. Having regard to the nature of goods, unless there is buyer, there cannot be production-because once produced, it cannot be stored. Thus so much of electricity as generated for sale outside the State of Jammu and Kashmir being inter-state sale can not be subjected to any duty by virtue of Entry 92A of List I.
33. As a matter of fact, the petition is fit to succeed on a short point that the power to impose levy on production/generation of electricity is the preserve of Parliament in terms of Entry 84 of List I and, therefore, legislature of the state of Jammu and Kashmir has no jurisdiction to make law with respect to such an imposition. The point is squarely covered by a recent decision in M.P. Cement Manufactures Association v. State of Madhya Pradesh, (2004) 2 SCC 249, wherein the Supreme Court categorically held that electricity being goods, the Parliament has exclusive legislative competence to legislate in respect of levy of duty on production of electricity. The Madhya Pradesh Electricity Duty Act, 1949 provided for levy of duty on the consumption or sale or electrical energy. Under Section 3 of the Act, subject to certain Statutory exceptions, every distributor and producer or electric energy was 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'. By Upkar Adhiniyam 1981, an energy development cess at the rate of one paisa 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 was levied. As the Supreme Court observed, the similarity in the phraseology used in both these statutes in describing the incidence of tax, namely, sale or supply of electricity, was significant. By the impugned amendment in 2001, Section 3 of the Upkar Adhiniyam was substituted to provide for payment of energy development cess @ 20 paise by producers of electricity as well. The relevant clause was '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'. Responding to the challenge to the constitutional validity of the amended provision, an attempt was made to justify the levy on production. It was submitted that the term 'produced' in the impugned amendment had been used in conjunction with the phrase 'whether for sale or supply to.......' and was therefore intended to relate only to sale and consumption of electricity and hence saved by Entry 53 of List II. Rejecting the submission, the Supreme Court observed-
'A plain reading of the amended provision makes it clear that the levy of cess was 'on 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.......'
34. The Court also noticed the statement of objects and reasons holding that the levy was on generation of electricity and concluded the matter in these words:
'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 impose.'
35. The above decision in M.P. Cement Manufacturers Association v. State of Madhya Pradesh leaves no room for doubt that the state legislature is incompetent to enact any law with respect to duty on generation or production of electricity. Any such enactment would be ultra vires Entry 84 of the Constitution of India. It would thus follow that duty cannot be levied on generation of electricity by a notification in purported exercise of power under any such enactment.
36. Learned Advocate General submitted that the vires of the Electricity (Duty) Act is not under challenge. The submission is totally misconceived. The Electricity (Duty) Act in the state of Jammu and Kashmir has been enacted 'to levy duty on the sale or consumption of electricity'. Section 3, which is the charging section, in fact, does not refer to levy of duty on generation for sale. Sub-section (1) refers to 'a duty on the energy to be called the electricity duty'. Sub-section (2) refers to electricity, duty on the person generating energy for 'his own use or consumption'. The impugned levy, though made in purported exercise of power under Section 3(1), is by a notification. It is the validity of that notification which has been challenged. If the notification is beyond the scope of the charging section, the petitioner was required to challenge the validity of only the notification without challenging the vires of the Act and/or Section 3 thereof. Section 3 authorizes imposition of levy of electricity duty only on sale or consumption or production for own use and consumption, and not on production for sale. That being so, it must be held that SRO 141 dated 21st April, 1999 lacks in legal sanction and no demand as such could be raised on its basis, muchless executed against the producer such as the petitioner-corporation.
37. While referring to the execution of the impugned demand, we may notice Section 8 of the Electricity (Duty) Act which has some bearing on the question of levy of duty on generation/production of electricity. Section 8 of the Act is the recovery provision. It says:
'8. Recovery of duty. -- Any duty due under this Act or penalty imposed under Section 7 which remains unpaid, whether by a consumer or a person generating energy for his own use or consumption, to the Government, shall be recoverable as arrears of land revenue.'
38. On perusal of the above provision, it is manifest that recovery of 'duty' under the Act can be made only from a consumer or a person generating energy for his own use or consumption. In other words, a person can be liable to duty under the Act only if he is a consumer or a person generating energy for his own use or consumption. If he generates energy for sale, he would not fall within the mischief of Section 8 of the Act. The section, if we may say so, is in accord with the charging provision in Section 3 of the Act. If the statute provides for a levy, there must be a corresponding provision for its recovery. Section 8, by necessary implication, not only excludes the person generating electricity for sale out of its purview, but is also indicative of the scheme and object of the Act which is, as seen above, levy of duty on sale or consumption of electricity, and not generation or production thereof. Thus, even if our conclusions on the point of legislative competence of the state or the validity of the impugned notification were to the contrary, the impugned demands raised upon the petitioner-corporation pursuant to the notification cannot be executed within the ambit of Section 8 of the Act.
39. In the result, the writ petition is allowed. The impugned notification, SRO 141 dated 21st April, 1999 is quashed. The impugned demands raised on its basis are also quashed.
There will be no order as to costs.