Tripura HC rules in favour of ONGC subsidiary in a case related to levy on inter-state electricity sale

The Tripura High Court has ruled in favour of ONGC Tripura Power Company Ltd (OTPC) in a matter related to levy on inter-state sale of electricity.

The court said the state government can’t levy duty on the power producer’s inter-state sale of electricity. It also termed as “illegal and unconstitutional” a clause in Tripura’s Electricity Duty Act, 2019 that allows the state government to levy a duty on inter-state sale of electricity.

OTPC had challenged in court a section of the Tripura Electricity Duty Ordinance, 2019 which said, “electricity sold outside the state and licensees shall have to pay electricity duty on sold energy charges”. Subsequently, the Ordinance was repealed once the Electricity Duty Act, 2019 was passed by the state government.

The ONGC subsidiary generates electricity with gas and steam turbine units. The company sells the bulk of the electricity generated from the power project to seven states in northeastern India, including Tripura.

The company claimed that about 13.5% of its total energy production goes to Tripura.

The genesis of the dispute lies in Section 4 (4) (d) of the Tripura Electricity Duty Ordinance, 2019, which says the state can levy duty on electricity sold outside the state.

OTPC had challenged the clause in the high court, terming it “unconstitutional” and “beyond the legislative competence of the state legislature”.

Parinay Deep Shah and Surabhi Pandey, lawyers for OTPC, argued that “since the petitioner’s project is located in the state of Tripura, therefore, the sale of power within the state of Tripura shall fall within Entry 53, and it is within the legislative competence of the state to tax such sale of power. Sale of power to the other six North-Eastern states shall fall within Entry 54 and will be subject to Entry 92A of List I (of GST) and cannot be taxed by the government of Tripura.”

The company also argued that part of such electricity duty is passed on to consumers, and in some cases, the petitioner (OTPC) has absorbed the duty component without passing it on to its consumers.

The division bench of Chief Justice Akil Kureshi and Justice SC Chattopadhyay termed Section 4 (4)(d) of the Electricity Duty Act, 2019 as “unconstitutional and ultra vires” and ruled that no duty on OTPC’s inter-state sale of electricity shall “henceforth be levied and collected”.

In its order dated March 31, the court also declared the duty collected by the Tripura government as illegal and directed it to return it to the ONGC’s subsidiary within four months.

OTPC operates a 726.6 MW combined cycle gas turbine (CCGT) thermal power plant at Palatana in Tripura. The company supplies power to Assam, Meghalaya, Manipur, Nagaland, Arunachal Pradesh, Mizoram and Tripura. Additionally, the company also sells power at the power exchange or through bilateral contracts, etc.

“It's interesting to see how the Tripura High Court has held the section of the Electricity Duty Act,2019 as unconstitutional and ultra vires and as beyond the competence of the State Legislature,” said Suruchi Suri, partner at law firm Suri & Company. “The court has not only considered the NTPC constitution bench decision of 2002 but on studying the GST Acts and its amendments not found the decision inapplicable in regard to the State legislature's power to frame a law.”

An email query to ONGC did not elicit any response.