State of U.P. & Ors Vs. Renusagar Power Co. & Ors [1988] INSC 194 (28 July 1988)

Mukharji, Sabyasachi (J) Mukharji, Sabyasachi (J) Rangnathan, S.

CITATION: 1988 AIR 1737 1988 SCR Supl. (1) 627 1988 SCC (4) 59 JT 1988 (3) 141 1988 SCALE (2)238

CITATOR INFO : R 1990 SC 334 (112) F 1990 SC 820 (31) R 1990 SC1277 (29,39,44,45)

ACT:

U.P. Electricity (Duty) Act, 1952-Whether Renusagar Power Co., respondent No. 1, is 'own' source of generation of electricity of Hindalco, respondent No. 2 under section 3(1)(c) of-Whether Hindalco is liable to pay electricity duty on that. footing-Whether corporate veil should be lifted in the facts of the case-Whether Hindalco is entitled to exemption from levy of electricity duty under sub-section (4) of section 3-Of.

HEAD NOTE:

Disallowing request for exemption from levy of electricity duty under sub-section (4) of section 3 of the U.P. Electricity Duty Act, 1952 ('the Act'), as amended, the appellants issued notice of demand asking respondent No. 1, Renusagar Power Co., to pay electricity duty on the energy supplied by it to respondent No. 2, Hindalco, for industrial purposes. Being aggrieved by the decision of the State Government, the respondents filed a writ petition in the High Court. The High Court allowed the writ petition, holding that the impugned order of the State Government was not maintainable in law, and quashing the order as well as the notice of demand abovesaid. The State Government was also directed to consider the request of the respondents for exemption in accordance with the directions issued by the High Court in the earlier Writ Petition No. 4521 of 1972 filed by the respondents. Being aggrieved by the decision of the High Court the appellants moved this Court for relief.

Disposing of the appeal, the Court, ^ HELD: Per Sabyasachi Mukharji, J.

There were two different aspects of the case to be considered. One was whether the respondent No. 1, the Renusagar Power Co. Ltd., was 'own' source of generation of electricity for respondent No. 2, the Hindalco, under section 3(1)(c) of the Act. The second aspect was whether the order passed by the State Government was in accordance with the principles of natural justice in so far as the same were applicable to the case. [646C] 628 From 1952 to 1970, no duty was payable if electricity was generated from own source of energy. From 1970 to 1973, duty of one paisa was payable in respect of electricity supplied from own source of generation. After 1973, no duty was payable in respect of electricity supplied from own source of generation. [646D] Renusagar, a 100% subsidiary of Hindalco, wholly owned and controlled by Hindalco, was incorporated in March, 1964.

Hindalco had established the power plant through the agency of Renusagar to avoid complications in the case of a possible take-over of the power plant by the State Electricity Board as power generation is generally not permitted in normal conditions in the private sector. The respondents highlighted that the sanction under section 28 of the Indian Electricity Act, 1910, given to Renusagar and its amendment established that Renusagar was not a normal type of sanction under Section 23 of the 1910 Act as the holder could supply power only to Hindalco. All these steps for the expansion of the power in Renusagar so as to match the power requirement of Hindalco's expansion were taken by Hindalco even though Renusagar had been incorporated.

Applications for all the necessary sanctions and permissions were made by Hindalco. Permissions and sanctions were first intimated to Hindalco even though Renusagar was in existence. Changes in the sanctions and/or permissions were obtained by Hindalco and not Renusagar. The expansion of the power plant in Renusagar was to exactly match the requirements of Hindalco for the production of Aluminium.

The expansion of the power plant in Renusagar was part and parcel of the expansion of the aluminium plant of Hindalco.

All the steps to set up the power plant in Renusagar and its expansion were taken by Hindalco. Hindalco consumed about 255 MW power out of which 250 M W came from Renusagar. There was only one transmission line going out of Renusagar and that went to Hindalco, which had complete control over Renusagar. The agreement between Renusagar and Hindalco indicated this was not a normal sale-purchase agreement between two independent persons at arms length. The price of electricity was determined according to the cash needs of Renusagar. This covenant also showed complete control of Hindalco over Renusagar. All persons and authorities dealing and conversant with this matter had consistently treated Renusagar as own source of generation of Hindalco. In the power-cuts matter under section 22B of 1910 Act, 100% cut was imposed on Hindalco on the footing that it had its own source of generation. All the authorities including the State and Board had all along treated Renusagar as own source of generation of Hindalco. It was thus contended that Renusagar must he treated as alter ego of Hindalco, i.e., 629 Own source of generation of Hindalco within the meaning of section 3(1)(c) of the Duty Act, and that consumption clearly fell within that section. [653C-H; 655C-F] 'Own source of generation' is an expression connected with the question of lifting or piercing the corporate veil.

The appellants contended that in this case there was no ground for lifting the corporate veil, urging that there was no warrant either in law or in fact to lift the corporate veil and treat Renusagar's plant as Hindalco's own source of generation. [657B-C] In the expanding horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The aim of legislation is to do justice to all the parties. The horizon of the doctrine of lifting corporate veil is expanding. In this case, indubitably, it is correct that Renusagar was brought into existence by Hindalco in order to fulfil the condition of industrial licence of Hindalco through production of aluminium. It was also manifest from the facts that the model of the setting up of power station through the agency of Renusagar was adopted by Hindalco to avoid complications in case of takeover of the power station by the State or the Electricity Board. All the steps for establishing and expanding the power station were taken by Hindalco and Renusagar was wholly owned subsidiary of and completely controlled by Hindalco. Even the-today affairs were controlled by Hindalco. Renusagar had never indicated independent volition. Whenever felt necessary, the State or the Board themselves had lifted the corporate veil and treated Renusagar and Hindalco as one concern and the generation in Renusagar as the own source of generation of Hindalco. Indubitably, the manner of treatment of the power- plant of Renusagar as the power-plant of Hindalco and the Government taking full advantage of the same in the case of power cuts and denial of supply of 100% power to Hindalco underlined the facts and implied acceptance and waiver of the position that Renusagar was a power plant owned by Hindalco. In this view of the matter, the corporate veil should be lifted and Hindalco and Renusagar be treated as one concern and Renusagar's power plant must be treated as the own source of generation of Hindalco and should be liable to duty on that basis. In the premises the consumption of such energy by Hindalco will fall under section 3(1)(c) of the Act. [667E-H; 688A-B] The veil of corporate personality even though not lifted sometimes is becoming more and more transparent in modern company juris- 630 prudence.

The ghost of the case of Aron Salomon v. A. Salomon & Co. Ltd., [1897] AC 22 at 27, 30, 31, still visits frequently the hounds of Company Law but the veil has been pierced in many cases. However, the concept of lifting the corporate veil is a changing concept and is of expanding horizon. [668C-D] The appellant was in error in not treating Renusagar's power plant as the power plant of Hindalco and not treating it as the own source of energy. The respondent was liable to duty on the same and on that footing alone; this was evident in view of the principles enunciated and the doctrine now established by way of decision of this Court in Life Insurance Corpn. Of India v. Escorts Ltd. & ors., [1985] Suppl. 3 S.C.R. 909, that in the facts of this case sections 3(1)(c) and 4(1)(c) of the Act are to be interpreted accordingly. The person generating and consuming energy were the same and the corporate veil should be lifted. Hindalco and Renusagar were in-extricably linked up together.

Renusagar had in reality no separate and independent existence apart from and independent of Hindalco.

Consumption of energy of Hindalco is consumption of Hindalco from its own source of generation. Rates of duty applicable to own source of generation had to be applied to such consumption-1 paisa per unit for the first two generating sets and nil rate in respect of 3rd and 4th generating sets.

In the facts of this case, the corporate veil must be lifted and Hindalco and Renusagar should be treated as one concern and the consumption of energy by Hindalco must be regarded as consumption by Hindalco from own source of generation.

The appeal directed against this finding of the High Court was rejected. [668D-H;669A-B] Coming to the challenge to the order quashed by the High Court, the dominance of public interest is significant according to the provisions of sub-section (4) of Section 3.

In view of the ceilings prescribed, the power conferred upon the State under Section 3(1) of the Act by itself is valid and does not amount to excessive delegation. The primary purpose of the Act was to raise the revenue for development projects. Whether, in a particular situation, rural electrification and development of agriculture should be given priority or electricity or development of aluminium industry should be given priority or which is in public interest, are value judgments and the legislature is the best judge. What was paramount before introduction of the development programme and how the funds should be allocated and how far the government considers a negligible increase and rise in the cost of aluminium for the purpose of raising monies for other development activities are matters of policy to be decided by the Government. It is 631 true that the question regarding public interest and need to promote indigenous industrial production was related with the question of exemption of duty, but a matter of policy should be left to the Government. In its order, the Government had adverted itself to all the aspects of sub- section (4) of section 3 of the Act. Certain amount of encouragement was given to Hindalco to start the industry in a backward area. After considerable period, a very low rate of duty was charged. If other sectors of growth and development are needed, for example, food, shelter, water, rural electrification, the need for encouragement to aluminium industry had to be subordinated by a little high cost because it is a matter on which the Government as representing the will of the people is the deciding factor.

Price fixation, which is ultimately the basis of rise in cost because of the rise of the electricity duty is not a matter for investigation of Court, Sub-section (4) of section 3 of the Act in the set up is quasi-legislative and quasi-administrative in so far as it has power to fix different rates having regard to certain factors and in so far as it has power to grant exemption in some cases, is quasi-legislative in character. Such a decision must be arrived at objectively and in consonance with the principles of natural justice. With regard to the nature of the power under section 3(4) of the Act when power is exercised with reference to any class it would be in the nature of subordinate legislation but when the power is exercised with reference to individual it would be administrative. If the exercise of power is in the nature of subordinate legislation the exercise must conform to the provisions of the statute. The High Court was right only to the limited extent that all the relevant considerations must be taken into account and the power should not be exercised on irrelevant considerations, but singular consideration which the High Court had missed in this case is the factors, namely, the prevailing charges for the supply of energy in any area, the generating capacity of any plant, the need to promote industrial production generally or any specified class thereof and other relevant factors cannot be judged disjointly. These must be judged in adjunct to the public interest and that public interest is as mentioned in the preamble to raise revenue. All that the section requires is that these factors should be borne in mind but these must be subordinate to the executive decision of the need for public interest. The power conferred on the State Government of administrative nature must be in accordance with the principles of natural justice to a limited extent. [671F-G; 672D-E; 673D-H]

The exercise of power whether legislative or administrative will be set aside if there is manifest error in the exercise of such power or the exercise of the power is manifestly arbitrary. Similarly,if the power has 632 been exercised on a non-consideration or non-application of mind to relevant factors, the exercise will be regarded as manifestly erroneous. If a power, legislative or administrative, is exercised on the basis of facts which do not exist and which are patently erroneous, such exercise of power will stand vitiated. This case related to the particular facts and circumstances of an individual- Hindalco. The facts and circumstances of the case had been examined in consonance with the principles of natural justice and considered subject to public interest. Hindalco had made profits much more than it had before the imposition of the duty. The adequacy of the profits or whether it made much more profits is not a consideration which must prevail over public interest and the Government having taken into consideration this factor, did not commit any error and the High Court was in error in setting aside the order of the Government.

The cost of power to a similar industry in other States was a relevant factor and the State was under a mandatory duty to consider the same. The State had taken note of all these factors, and considering the prevailing practice of levy of electricity duty in other States as well as the provisions of section 3(4), the Government came to the conclusion that there was no justification for allowing exemption from electricity duty to Hindalco, and did not commit any error. The factor of assurance of cheap power by the Government did not fore-close the public interest of raising public revenue. The impugned order did not suffer from the vice of non-application of mind or non- consideration of the relevant factors. The High Court was in error in interfering with the order of the Government in the manner it did. [676G-H; 677A-H; 678A] Natural justice in the sense that a party must be heard before hand need not be directly followed in fixing the price. l here is scope for trial and error in the sphere of price fixation which is more in the nature of a legislative measure. Judged by that standard, the impugned order in this case was not bad. The Government did not act in violation either of the principles of natural justice or arbitrarily or in violation of the previous directions of the High Court. [678F; 679D; 680C] The High Court should have, allowed the claim of Hindalco for the reduced rate of bill on the basis that Renusagar Power plant was its own source of generation under section 3(1)(c) and the bills should have been made by the Board on that basis. The High Court was in error in upholding the respondents' contention that the State Government acted improperly and not in terms of section 3(4) of the Act and in violation of the principles of natural justice. The Judgment of the High Court was set aside to the extent indicated above and State Government's impugned order was restored subject to the modification of the bills on 633 the basis of own source of generation; Hindalco must be given the benefit of the rate applicable to its own source of generation from Renusagar plant. [680D-F] Per S. Ranganathan, J (Concurring): Agreeing, his Lordship held that on the second issue it was difficult to define the precise nature of the power conferred on the State under Section 3(4) of the Electricity Duty Act, and expressed doubts whether the sub-section could at all be interpreted as conferring a right on individual consumers to require that, in the light of the material adduced by them, the rates applicable to them should have been fixed differently or that they should have been exempted from duty altogether. However, his Lordship observed that it was unnecessary to pursue this aspect further as his Lordship agreed with the conclusion of Sabyasachi Mukharji, J. that in this case the respondent's representations had been fully considered and the requirements of natural justice had been fulfilled and that there was no warrant to interfere with the order of the State Government. [680H; 681A-B] Chiranjit Lal Anand v. State of Assam & Anr., [1985] Suppl. 2 S.C.R. 385; State of U.P. v. Hindustan Aluminium Corpn. Ltd., [1979] 3 SCR 709; J. K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of V.P. & Ors., [1961] 3 SCR 185;M/s. Girdharilal & Sons v.BalbirNath Mathur & Ors., [1986] 2 SCC 237 at 241, 246; State of Tamil Nadu v. Kodaikanal Motor Union (P) Ltd., [1986] 3 SCC 91 at 100; D. Sanjeevayya v. Election Tribunal, A.P. & Ors., [1967] 2 SCR 489, 492; Western Coalfields Ltd. v. Special Area Development Authority, Korba & Anr., [1982] 2 SCR 1 at 17;

Andhra Pradesh State Road Transport Corpn. v. The l.T.O. & Anr., [1964] 7 SCR 17; Tamlin v. Hannaford, [1950] KB 18; Aron Salomon v. A. Salomon & Co. Ltd., [1897] AC 22 at 27, 30, 31; Western Coalfields Ltd. in Rustom Cavasjee Cooper v. Union of India, [1970] 3 SCR 530 at 555; Bank Voordel En Scheepvaart N. V. v. Stalford, [1953] 1 Q.B. 248; Kodak Ltd. v. Clark, [1903] 1 K.B. 505; DHN Food Distributors Ltd. & Ors. v. London Borough of Tomer Hamlets, [1976] 3 AER 462; Harold Holdsworth & Co. (Wakefield) v. Caddies, [1955] 1 All E.R. 725; Scottish Co-operative Wholesale Society Ltd. v. Meyer and Anr., [1958] 2 All E.R. 66; Charterbridge Corpn. Ltd. v. Lloyds Bank Ltd. & Anr., [1969] 2 All E.R. 1185; Mrs. hall Richards Machine Co. Ltd., v. Jewitt (H.M.) Inspector of Taxes, 36 TC 511, 52, 525, M/s. Spencer & Co. Ltd., Madras v. The Commissioner of Wealth Tax, AIR 1969 Madras 359; Turner Morrisson & Co. Ltd. v. Hungerford Investment Trust Ltd., AIR 1969 Cal. 238; Life Insurance Corpn. Of India v. Escorts Ltd. & Ors., [1985] 634 Suppl. 3 SCR 909; Devi Das Gopal Krishnan & Ors. v. State of Punjab & Ors., [1967] 3 SCR 557; Ram Bachan Lal v. The State of Bihar, [1967] 3 SCR 1; Panama Canal Company v. Grace Line, 356 U.S. 309 2 Lawyers' Edn. 788; Vincent Panikurlangara v. Union of India & others, [1987] 2 S.C.C. 165; Union of India & Anr. v. Cynamide India Ltd. & Anr., [1987] 2 SCR 720; P.J. Irani v. State of Madras, [1962] 2 SCR 169 at 179-180, 181, 182; Ryote of Garabandho and Ors. v. Zamindar of Parlakimedi & Anr., AIR 1943 P.C. 164; Saraswati Industrial Syndicate Ltd. etc. v. Union of India, [1975] 1 SCR 956; A. K. Kraipok v. Union of India, AIR 1970 S.C. 150; M/s. Travancore Rayons Ltd. v. Union of India, AIR 1971 S.C. 862; Amal Kumar Ghatak v. State of Assam & Ors., AIR 1971 Assam 32; Commissioner of Income Tax v. Mahindra & Mahindra Ltd. & Ors., [1983] 3 SCR 773 at 786, 787; Prag Ice 293; Shree Meenakshi Mills Ltd. v. Union of India, [1974] 2 SCR 398; Laxmi Khandsari, etc. v. State of U.P. & Ors., [1981] 3 SCR 92; State of Orissa v. (Miss) Binapani Devi, [1967] 2 SCR 625; Mohd. Rashid v. State of U.P., AIR 1979 S.C. 592; S. L. Kapoor v. Jagmohan & Ors., AIR 1979 S.C. 592; Maneka Gandhi v. Union of India, AIR 1978 S.C. 597;

India Sugars & Refineries Ltd. v. Amrawathi Service Co-operative Society Limited & Ors., [1976] 2 SCR 740, referred to.

& CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2966 of 1986.

From the Judgment and Order dated 26.9.1984 of the Allahabad High Court in Writ Petition No. 3921 of 1982.

R.N. Trivedi, Additional Advocate General, Gopal Subramaniam and Mrs. Shobha Dikshit for the Appellants.

B. Sen, D.P. Gupta, N.A. Raja Ram Aggarwal, N.R. Khaitan, E.D. Desai, Y.K. Khaitan, Jijina, Sandeep Aggarwal and T.N. Sen for the Respondents.

The following Judgments of the Court were delivered:

SABYASACHI MUKHARJI, J. This appeal by special leave is directed against the judgment and order of the High Court of Allahabad dated 26th September, 1984. The first appellant is the State of Uttar Pradesh impleaded through the Chief Secretary to the Government of Uttar Pradesh, Lucknow. The second appellant is the Secretary to the Government of Uttar Pradesh, Department of 635 Energy, Lucknow. The third appellant is one Shri Yogendra Narain, presently acting as Secretary to the Chief Minister, State of Uttar Pradesh, Lucknow. At a particular point of time Shri Yogendra Narain was the Secretary to the Department of Energy. The fourth appellant is the Assistant Electrical Inspector, a functionary under the U.P. Electricity (Duty) Act, 1952, Mirzapur Zone, Rani Patti, Mirzapur. The fifth appellant is the Collector of Mirzapur.

There are four respondents in this appeal. The first respondent is Renusagar Power Company Ltd. The second respondent is M/s Hindustan Aluminium Corporation Ltd.

Respondent No. 3 is Shri D.M. Mimatramka who resides at Hindalco Administrative Colony, Renukut, Mirzapur. The fourth respondent is Shri Rajendra Kumar Kasliwal who resides at Hindustan Aluminium Corporation Ltd., Renukut, District Mirzapur. Respondents 3 and 4 mentioned above are the shareholders of the first respondent and the second respondent, that is, Renusagar Power Company and M/s. Hindustan Aluminium Corporation Ltd. respectively. It is stated that M/s Hindustan Aluminium Corporation Ltd., established and aluminium factory at Renukut in Mirzapur District, U.P. in 1959. It is the case of the respondents that it was induced to do so on the assurance that cheap electricity and power would be made available at the relevant time. In 1962, a plant of Hindustan Aluminium Corporation Ltd. for manufacture of aluminium, was commissioned. M/s Renusagar Power Co. Ltd. a wholly owned subsidiary of M/s Hindustan Aluminium Corporation Ltd, was incorporated in 1964. M/s Renusagar Power Company Ltd. was incorporated separately and had its own separate Memorandum and Articles of Association. On 9th September, 1967, the first generating unit of 67.5 MW in Renusagar was commissioned by M/s Renusagar Power Company Ltd. The second generating unit of the company was commissioned on 5th October, 1968. The U.P Electricity (Duty) Act, 1952 (hereinafter called 'the Act') came into force from 15th January, 1953 and it sought to levy a duty on the consumption of electrical energy in the State of Uttar Pradesh.

In the Statement of Objects and Reasons, which was published in U.P. Gazette, it was stated that the programmes of development of the State involved enormous expenditure and. thus additional resources had to be raised, the bulk of which could only be raised by means of fresh taxation. It was stated that the object of the Bill, inter alia, provided as follows:

"A tax on the consumption of electrical energy will impose 636 a negligible burden on the consumer and is a fruitful source of additional revenue. The Bill has been so prepared as to ensure that the tax payable by a person will be related to the quantity of electricity consumed by him. The Bill is being introduced with the above object. " By virtue of the provisions of the U.P. Electricity (Duty) (Amendment) ordinance, 1959 various amendments were carried out in the said Act. In section 2 of the principal Act, a new clause, clause (hh) describing a scheduled industry was inserted. By virtue of the aforesaid newly inserted clause, the expression 'scheduled industry' meant any of the industries specified in the schedule. In the proviso to section 3 of the principal Act, after clause (d), a new clause (e) was inserted which provided for non-levy or exemption from the payment of electricity duty on the energy consumed by a consumer in a scheduled industry. The. expression which was added was "by a consumer in a scheduled industry". By virtue of section 8 of the Amending Act, a schedule was added to the principal Act. In the schedule, non-ferrous metals and alloys were placed at serial No. 1 in Part of the schedule under a broad heading 'Metallurgical Industries'. It appears, therefore, that by virtue of the aforesaid provisions electricity duty on the energy consumed by M/s Hindustan Aluminium Corporation Ltd. was exempted from 1st April, 1959, the date on which the ordinance came into force. It was further stated that the U.P. Electricity (Duty) (Amendment) ordinance, 1959 was repealed and the provisions were incorporated into an amending Act, viz., U.P. Act No. 12 of 1959 and termed as the U.P. Electricity (Duty) (Amendment) Act, 1959. By virtue of sub-section (2) of section 1, the Amendment Act provided that the Act would be deemed to have come into force with effect from 1st April, 1959. The amendment Act repealed the provisions of the U.P. Electricity (Duty) (Amendment) ordinance, 1959. In section 2, after clause (d), the clause which was inserted as a new clause (e) provided that electricity duty would not be leviable on the consumption of energy by a consumer in any industry engaged in the manufacture, production, processing, or repair of goods. Ordinance No. 14 of 1970 was promulgated on 5th August, 1970. The provisions contained in the ordinance were subsequently incorporated in U.P. Act No. 2 of 1971. The amended provisions of U.P. Act No. 2 of 1971 came into force from 1st April, 1970. The Amendment Act was preceded by U.P. Ordinance No. 14 of 1970. The ordinance was described as "the Uttar Pradesh Taxes and Fees Laws (Amendment) ordinance 1970. "By virtue of Chapter III of the said ordinance, amendments were sought to be made to the Act. Section 3 of the principal Act was 637 substituted by a new section which provided that there would be levied and paid to the State Government a duty called electricity duty on the energy sold to a consumer by a licensee/Board/the State Government the Central Government;

there would be a duty on the consumption of energy by a licensee or the Board in or upon the premises used for commercial or residential purposes, or in or upon any other premises except "in the construction, maintenance or operation of his or its works", and there would be a duty upon the consumption of electricity by any other person from "his own source of generation." It was provided that a duty was to be determined at such rate or rates as may, from time to time, be fixed by the State Government by notification in the official gazette. Sub-section (2) of section 3 provided that in respect of certain classes of consumption the electricity duty would not exceed 25% of the rate charged.

It may be expedient to refer to the Prefatory Note of the Act which, inter alia, is as follows:

"Prefatory Note: The minimum programme of development which this State must carry out within the next three or four years for the attainment of the objective of a welfare State is set out in the Five Year Plan drawn up by the Planning Commission. This plan provides for an expenditure of 13.58 crores of rupees on power development projects. Such a huge expenditure cannot be met from our present resources. It is, however, essential for the welfare of the people that the expenditure should be incurred and that nothing should be allowed to stand in the way of the progress of the plan. Additional resources have therefore to be found, the bulk, of which can be raised only by means of fresh taxation." Section 3 of the Act provides as follows:

"3. Levy of electricity duty.-(1) Subject to the provisions hereinafter contained, there shall be levied for and paid to the State Government on the energy:

(a) sold to a consumer by a licensee, the Board, the State Government or the Central Government; or (b) consumed by a licensee or the Board in or upon premises used for commercial or residential purposes, or in or 638 upon any other premises except in the construction, maintenance or operation of his or its works; or (c) consumed by any other person from his own source of generation; a duty (hereinafter referred to as 'electricity duty') determined at such rate or rates as may from time to time be fixed by the State Government by notification in the Gazette, and such rate may be fixed either as a specified percentage of the rate charged or as a specified sum per unit.

Provided that such notification issued after October 1, 1984 but not later than March 31, 1985 may be made effective on or from a prior date not earlier than October 1, 1984.

(2) In respect of clauses (a) and (b) of sub- section ( 1), the electricity duty shall not exceed thirty-five per cent of the rate charged.

Provided that in the case of one-part tariff where the rate charged is based on units of consumption, the electricity duty shall not be less than one paisa per unit or more than eight Paisa per unit.

Explanation-For the purposes of the calculation of electricity duty as aforesaid, energy consumed by a licensee or the Board or supplied free of charge or at the concessional rates to his or its partners, directors, members, officers or servants shall be deemed to be energy sold to consumers by the licensee or the Board, as the case may be, at the rates applicable to other consumers of the same category.

(3) In respect of clause (c) of sub-section (1), the electricity duty shall not be less than one paisa or more than six paisa per unit.

(4) The State Government may, in the public interest, having regard to the prevailing charges for supply of energy in any area, the generating capacity of any plant, the need to promote industrial production generally or any specified class thereof and other relevant factors, either fix 639 different rates of electricity duty in relation to different classes of consumption of energy or allow any exemption from payment thereof.

(5) No electricity duty shall be levied on- (a) energy consumed by the Central Government or sold to the Central Government for consumption by that Government; or (b) x x x (c) energy consumed in the construction, maintenance or operation of any railway by the Central Government or sold to that Government for consumption in the construction, maintenance or operation of any railway;

(d) by a cultivator in agricultural operations carried on in or near his fields such as the pumping of water for irrigation, crushing, milling or treating of the produce of those fields or chaffcutting.

(e) Energy consumed in light upon supplies made under the Janta Service Connection Scheme.

Explanation.-For the purposes of clause (e) "Janta Service Connection Scheme" means a scheme approved by the State Electricity Board for supplying Energy to Harijans, landless labourers, farmers (holding land not exeeeding one acre), members of armed forces (whether serving or retired), war widows and other weaker sections in district notified by the State Government." Section 4 of the Act read as follows:

"4. Payment of electricity duty and interest thereon.-(1) The electricity duty shall be paid, in such manner and within such period as may be prescribed, to the State Government.

(a) where the energy is supplied or consumed by a licensee,-by the licensee;

640 (b) where the energy is supplied by the State Government or the Central Government or is supplied or consumed by the Board,-by the appointed authority; and (c) where the energy is consumed by any other person from his own source of generation,-by the person generating such energy.

(2) Where the amount of electricity duty is not paid by the State Government within the prescribed period as aforesaid, the licensee, the Board or other person mentioned in clause (c) of sub-section (1), as the case may be, shall be liable. to pay within such period as may be prescribed, interest at the rate of eighteen per cent per annum on the amount of electricity duty remaining unpaid until payment thereof is made. " Section 9 of the Act provides as follows:

"Exemptions. Nothing in this Act shall apply to any energy generated by a person for his own use or consumption or to energy generated by a plant having a capacity not exceeding two and a half killowatts." M/s. Renusagar Power Company Ltd. had in the meantime obtained a sanction under section 28 of the Indian Electricity Act, 1910 to engage in the business of supply of electricity to the second respondent, M/s. Hindustan Aluminium Corporation Ltd. By virtue of section 2(f) which defines a licensee for the purposes of the Duty Act to mean any person licensed under Part II of the Indian Electricity Act, 1910 and includes any person who has obtained sanction from the State Government under section 28. Renusagar Power Company Ltd., the first respondent herein, was deemed to be a-licensee for the purposes of the U.P. Electricity (Duty) Act. By virtue of section 2(d) of the Act, M/s. Hindustan Aluminium Corporation Ltd. was a consumer since it was supplied energy by the licensee, M/s. Renusagar Power Company Ltd., the first respondent. Thus, the consumption of electricity by M/s. Hindustan Aluminium Corporation Ltd.

under a contract of sale by the licensee was exigible to duty. In other words, clause (a) of sub-section (1) of section 3 of the Act, as amended, came into operation and a levy of duty would take place on the energy sold, to a consumer by a licensee. Clause (a) of sub-section (1) of section 4 as newly added provided that where the energy was supplied by a 641 licensee, the licensee would be liable to pay electricity duty. Thus, by virtue of the amended provisions of the Electricity (Duty) Act, M/s. Renusagar Power Co. Ltd. the first respondent herein was liable to pay electricity duty in respect. Of its supplies to M/s. Hindustan Aluminium Corporation Ltd.

In exercise of the powers conferred by the Amendment Ordinance (U.P. Ordinance No. 14 of 1970, the provisions of which were re-enacted in U.P. Act No. 2 of 1971), the Governor on or about 25th August, 1970 passed an order that with effect from 1st September, 1970 the electricity duty on industrial consumption would be levied at one paisa per unit. On 28th August, 1970, the Governor ordered in supersession of all the previous orders that with effect from 1st September, 1970 electricity duty on the energy consumed by the consumers would be levied at the rates specified therein. There was further notification dated 30th September, 1970, issued in the name of the Governor modifying the terms of the notifications dated 25th August, 1970 and 28th August, 1970.

On or about 4th December, 1952 after the inauguration of the First Five Year Plan, electricity duty was imposed to gather additional revenue for attaining the objectives set out in the plan. The U.P. Electricity (Duty) Act, 1952 was enacted on 4th December, 1952. On 1st April, 1959 in order to mitigate the hardship which might be caused to certain industries in the State, the U.P. Electricity (Duty) (Amendment) Ordinance, 1959 (U.P. Ordinance No. 3 of 1959) was promulgated by the Governor of U.P. By the aforesaid ordinance it was provided in the first proviso to section 3 of the principal Act that no duty shall be leviable on the energy consumed by a consumer in a Scheduled Industry, including Non-ferrous Industries manufacturing Aluminium like that of respondent No. 2, Hindalco. The aforesaid ordinance was substituted by the U.P. Electricity (Duty) (Amendment) Act, 1959 (U.P. Act No. 12 of 1959). It substituted sub-clause (e) in the first proviso of section 3 which reads as follows:

"(e) by a consumer in any Industry engaged in the manufacture, production, processing or repairs of goods".

In the year 1959 respondent No. 2 looking to the profitability of establishing a factory for manufacture of aluminium, set up a plant at Renukut, District Mirzapur in the State of U.P. On or about 29th October, 1959 an agreement was arrived at with the State Government and the Hindustan Aluminium Corporation Ltd. (Hindalco) for supply 642 of 55 M.W. electrical power at the rate of 1.997717 paise per unit inclusive of all charges. duties and taxes of whatever nature on electricity for 25 years.

In the year 1962 Hindalco, respondent No. 2, started production of aluminium. On 14th October, 1964 respondent No. 2 requested the State Government to grant sanction to the Renusagar Power Company Ltd., to supply electricity to respondent No. 2. On 12th November, 1964 respondent No. 1 Renusagar Power Company Ltd. was granted sanction under section 28 of the Indian Electricity Act, 1910, to engage in the business of supply of electricity to respondent No. 2 Hindalco. There was an agreement on 29th December, 1967 with Hindalco and U.P. State Electricity Board to supply 5.5 M.W. and 7.5 M.W. Of power. The rate of charges along with levy of sales tax, etc. were to be paid by the consumer. On 1st July, 1970, there was an agreement between Hindalco and State Electricity Board to supply 7.5 M.W. Of power. The rate of charges including levy such as Sales Tax etc. were to be paid by the consumer. On 5th August, 1970, the U.P. Ordinance No. 14 of 1970 was promulgated further to amend the U.P. Electricity (Duty) Act, 1952 which came into force from 1st September, 1970. By the aforesaid amendment provisions of sections 3, 4 and 7 were substituted by new sections, sections 3A and 9 were omitted and there were several amendments in various sections of the original Act.

As a result of the promulgation of the ordinance, electricity duty became leviable on the industrial consumption as well as on the energy consumed by any person from his own source of generation. The provisions of section 3 have been set out before. Thereafter notification was issued on 25th August, 1970 under which rate of electricity duty on the energy consumed for industrial purposes was prescribed at one paisa per unit on consumption of electricity with effect from 1st September, 1970. On 1st September, 1970, the provisions of the ordinance amending U.P. Electricity (Duty) Act, 1952 came into force.

Electricity duty became leviable on the respondent No. 1 on the energy supplied to Hindalco, respondent No. 2 for the industrial purposes. On 28th September, 1970 respondent No. 2, Hindalco, made an application under sub-section (4) of section 3 of the Act to the State Government to grant exemption on the energy supplied by respondent No. 1 to respondent No. 2 for industrial purposes. On 17th January, 1971 ordinance No. 14 of 1970 was substituted by the U.P.

Electricity (Duty) (Amendment) Act, 1970. On 26th February, 1971 report was made by the Three-Men Committee appointed to examine the request of Hindalco for grant of exemption from payment of electricity duty on the energy supplied by Renusagar Power Company Ltd. According to 643 the Committee the burden as a result of the imposition of electricity duty did not result in substantial or insufferable increase of the rate of duty for Hindalco. On 27th August, 1971 a demand for payment of electricity duty amounting to Rs.59,13,891.80 was raised on respondent No. 1.

On 29th March, 1972 application of respondent No. 2 for grant of exemption was rejected by the State Government on the following reasons:

"(a) That the intention of the legislation was clear to withdraw the exemption from payment of electricity duty on the industrial consumers with effect from 1.9.1970 the facility of which was being availed for a period of more than 11 years.

(b) That the applicant was never given any assurance that he will be exempted from electricity duty nor the applicant is entitled for any exemption as a matter of right under the provisions of the amended Act.

(d) That the electricity duty is also being levied on the Aluminium Industries in other States also.

(e) That the additional resources are taken into account to give the final shape of the State Development Plans and with a view to fulfil the requirement of these Development Plans the Electricity Duty Act was amended in 1970. The expected income from this duty is essential for the execution of State Government plans.

(f) It cannot be inferred that the imposition of electricity duty will be an unbearable burden on Hindalco." Aggrieved by the aforesaid rejection, the respondents filed Writ Petition No. 4521 of 1972 before the High Court of Allahabad. On 17th March, 1973 the State Government granted exemption from payment of electricity duty on the energy consumed by any person from his own source of generation. Exemption was also granted on the energy sold to a consumer establishing a factory having capital investment upto Rs.25 laks in the backward district for five years.

644 The High Court by its judgment on 17th May, 1974 in the Writ Petition No. 4521 of 1972 quashed the order of the State Government and directed the State Government to reconsider the application of the respondents for exemption in the light of the observations made in that judgment. On 6th September, 1975 Hindalco submitted an application again to the State Government for reconsideration of their previous application for exemption from payment of electricity duty. In the meanwhile, the State Government filed a special leave petition to this Court against the judgment and order of the High Court of Allahabad dated 17th May, 1974 in Writ Petition No. 4521 of 1972. In the meantime of 13th November, 1976 an agreement was entered into between the State Electricity Board and Hindalco for supply of 85 M.W. main supply. The rate fixed was 11 paise per unit inclusive of all taxes of whatever nature on electricity.

Special leave petition was, however, dismissed on 28th March, 1977. In compliance with the High Court's judgment dated 17th May, 1974, on 5th April, 1977 respondents were given an opportunity of hearing by the State Government. For the purpose of considering the representation and to verify the correctness of the data and the profit and loss accounts furnished by Hindalco in their printed Balance Sheets the matter was got examined by Shri B.B. Jindal, Controller of Banking operations, U.P. State Electricity Board who submitted his report in 1977. The State Government, however, was not satisfied with the report of Shri B.B. Jindal. On 6th September, 1978 the matter was got re-examined by the Chief Electrical Inspector to Government, Uttar Pradesh. He submitted his report. The Chief Electrical Inspector in his report compared the cost of power of Hindalco with similar industries in other States. On 5th December, 1978 Secretary of Power discussed the matter with Dr. R. Rajagopalan, Chief Advisor (Costs), Government of India. Then a note was prepared by the Secretary, Power, Government of U.P. in which reference was made to the above report of Chief Electrical Inspector to the Government of U.P. Thereafter the Chief Secretary to the Government of U.P. On 26th December, 1978 wrote a letter to the Secretary, Ministry of Finance, Government of India, requesting him that the matter may be got examined by the Chief Advisor (Costs), Government of India, expeditiously. After examination on 29th January, 1979 Dr. R. Rajagopalan, Chief Advisor (Costs), Government of India, submitted his report that the effect of imposition of electricity duty on the margin of profit available to Hindalco has been very insignificant. It did not have any adverse effect on the profitability of Hindalco since such a levy has been included in the cost in fixing the selling prices of Hindalco's products by the Government of India.

Imposition of electricity duty did not result in reducing the 645 normal profits of Hindalco to either an absolute loss or such a small margin of profit that Hindalco was turned into an uneconomic unit. According to him the claim of Hindalco for exemption from levy of electricity duty is not based on justifiable grounds of either low profitability or incapacity of resources with which to pay. Personal hearing was given to the respondents in view of the directions given by the High Court. Report of Dr. Rajagopalan was made available to the respondents. On 28th January, 1980 rate of electricity duty on the energy consumed for industrial purposes was revised from one paisa to two paise per unit applicable from the date of notification, that is, from 16th February, 1980. There was an agreement on 24th April, 1980 between the State Electricity Board and the Hindalco regarding 85 M.W. main supply and 60 M.W. stand by Emergency Supply. Rate of 28.42 paise per unit was fixed. A personal hearing was given to the respondents in compliance with the directions issued by the High Court. Respondents were allowed to inspect the report of the Chief Electrical Inspector and other reports available with the State Government were shown to them and they submitted their comments on the report of Dr. Rajagopalan which were duly considered by the State Government. A personal hearing was again given to the respondents to submit their submissions in support of their application for exemption. Respondents were represented by counsel during the course of hearing.

After giving full consideration to the submissions made in the original and additional representations and the comments dated 23rd August, 1980 on the report of Dr. Rajagopalan and to the entire material placed before the State Government, the State Government came to the conclusion that the claim for exemption from levy of electricity duty was not at all justified on any ground whatsoever. Accordingly the request for exemption was disallowed. On 3rd March, 1982 respondent No. 1 was asked to pay Rs.11,96,83,153.80 as the amount of electricity duty on the energy supplied by it to respondent No.. 2 for industrial purposes. Respondent No. 1. however, failed to pay the aforesaid amount within the stipulated time. On 22nd March, 1982, the District Magistrate, Mirzapur, was requested to recover the said amount as arrears of land revenue. Being aggrieved by the decision of the State Government, the respondent filed a Writ Petition No. 3921 of 1982 in the High Court of Allahabad and the High Court issued stay order directing the petitioners not to take any proceedings for the recovery of the impugned electricity duty. On 26th September, 1984 the High Court allowed the Writ Petition No. 3921 of 1982 and held that the impugned order of the State Government was not maintainable in law and hence quashed the order of the State Government as well as the notice of demand dated 3rd March, 1982. The State 646 Government was also directed to consider the request of the respondents for exemption in accordance with the directions issued by the Division Bench in Writ Petition No. 4521 of 1972 and also in the light of the observations made in the judgment after affording an opportunity of personal hearing to the respondents. Being aggrieved thereby the appellants have come up in appeal to this Court.

In the background of the facts and the circumstances set-out. hereinbefore, we have now to examine the correctness of the judgment and order of the High Court which is under appeal. There are two different aspects. One is whether the Renusagar Power Co. Ltd., was 'own' source of generation of electricity for the Hindalco, in the facts and circumstances of the case. The second aspect is whether the order passed by the State Government, having regard to the nature of the order passed, was in accordance with the principles of natural justice in so far as the same were applicable to the facts of this case. As it is apparent on the state of law mentioned hereinbefore from 1952 to 1970 no duty was payable if electricity was generated from own source of energy. From 1970 to 1973 duty of one paisa was payable in respect of electricity supplied from own source of generation. However, after 1973 no duty was payable in respect of electricity supplied from own source of generation.

'Own source of generation is an expression connected with the question of lifting or piercing the corporate veil.

It is well-settled that in interpreting items in statutes whose primary object is to raise revenue and for which purpose they classify diverse products, articles and substances, resort should be had not to the scientific and technical meaning of the terms or expressions used but to the meaning attached to them by those dealing in them. See the observations of this Court in Chiranjit Lal Anand v. State of Assam & Anr., [1985] Suppl 2 SCR 385.

As mentioned hereinbefore, the application for exemption was made after disposal of the first writ petition No. 4521/72 by the High Court on 17th May, 1974. Thereafter, the respondent made another application for exemption under section 3(4) of the Act. The said application was ultimately rejected, which rejection was subsequently challenged. The High Court in the judgment under appeal on 26th September, 1984 has set aside me order of rejection passed by the State Government.

Was the High Court right, is the question involved in this appeal.

647 Examination of this question involves two aspects, namely, what is the rate of duty under which various notifications were applicable to the energy consumed by Hindalco from Renusagar. Is Renusagar "own source of generation" of Hindalco within the meaning of section 3(1)(c) of the Electricity Duty Act, 1952 and the various notifications issued thereunder. The question whether Renusagar was "own source of generation" of Hindalco, is a mixed question of law and facts as correctly contended by Shri Palkhiwala as well as by Shri Sen appearing on behalf of the respondents.

Shri Palkhiwala appearing for the respondents submitted before us the historical background of the setting up of Renusagar Power Plant. It was urged that for producing aluminium by Hindalco, electricity is a raw-material.. The Hindalco was set up with a capacity of 20,000 tons per annum on the basis of sole assurance according to the respondent, given by the State of U.P. that adequate power would be given at a very cheap and economical rate. The Government of U.P. in 1959 agreed to give 55 m.w. Of power @1.99 paise per unit. This, according to the respondents, was in accordance with the policy of Central (Government and on the basis of the report of the various Committees set up by the Government. Our attention was drawn to certain facts appearing in Vol. A pages 8-9 which set out the averments made in the writ petition filed in the instant case. It was stated therein that aluminium is an essential raw material in a large number of industries of strategic national importance and its production is of vital public interest.

60% of the production of Renusagar goes to the electric industries and an extra 16% of the production goes to the utensils manufacturing unit and all the remaining production goes to defence, ordnance, mint, transportation and packaging industry. Aluminium is, therefore, a commodity of national importance and, as such, is mentioned in Schedule 1 of the Industries (Development and Regulation) Act, 1951 which contains only such industries which have been declared by the Parliament to be of public interest. The Union Government was anxious to set up new units in private sector as for want of sufficient foreign exchange such units could not be set up in the public sector. In this connection reliance was placed on the report of the Industrial Licensing Enquiry Committee known as 'Data Committee'. In this background Shri G.D. Birla who eventually floated the Corporation was prevailed upon to explore the possibility of setting up of aluminium plant. The Government of India appointed a Committee of Experts headed by Shri Nagarajarao in the year 1956 for recommending the location of a new Aluminium Plant.

In that report Shri Nagarajarao recommended Rihand as one of 648 the places for setting up the Aluminium Plant. The U.P. Government was also keen to have the industry located in the State and persuaded Shri G.D. Birla to set up the plant with the assurance that sufficient electricity at constant and concessional rate would be available. Here, it was reiterated that the agreement dated 29th October, 1959 was entered into called the parallel agreement so that at any time any one of the Thermal Power Stations could be maintained independently.

Hindalco was allowed to expand its aluminium production capacity from time to time on the condition that it would instal its own power plant subject to the further condition that this power plant could be taken over by the State at a later date. To avoid take-over complications Hindalco decided to set up captive power house through the instrumentality of Renusagar Power Co., a 100% subsidiary of Hindalco fully controlled by Hindalco in all respects to supply power to Hindalco only. Reference may be made to page 28 of Vol. XVI which is a letter dated 13th February, 1963 written by the Deputy Secretary, Govt. Of India, Ministry of Commerce & Industry, to Shri D.P. Mandelia of Hindustan Aluminium Corporation, New Delhi, where on the question of power plant it was suggested that as stated by Shri Mandelia a separate Company may be formed with the power plant project and the major portion of the capital subscribed by Hindalco. It was highlighted that setting up of a power plant project was part of the scheme for meeting the needs of Hindalco for electricity.

All planning, designing, engineering, purchase of equipments financing was done by Hindalco exclusively for Renusagar. See Vol. XVI Pages 20, 33, 49, 58 & 62 of the paper-book.

The only object and purpose of power plant was to supply power and suit the requirements of Hindalco.

Reference may be made to pages 36 & 37 of Vol. XVI of the Paper Book. According to Shri Palkhiwala and Shri B. Sen from the aforesaid background the following facts emerge:

(a) 1967/1968 Unit 1 & 2 of Renusagar went into operation.

(b) Renuagar was set up as part and parcel of Aluminium Expansion Scheme.

649 (d) Agency of Renusagar was set up by Hindalco because of Take over option by the State.

(e) Renusagar is 100% subsidiary of Hindalco.

(f) Borrowings of Renusagar arranged and guaranteed by Hindalco.

(g) Renusagar supplies power to Hindalco only.

(h) There is only one transmission line from Renusagar to Hindalco.

(i) Renusagar generates power only to the extent required by Hindalco.

(j) Hindalco has complete control over Renusagar.

Hindalco has undertaken various obligations for the running of Renusagar.

(k) The agreement between Renusagar and Hindalco is not a normal sale purchase agreement. This agreement shows complete control of Hindalco over Renusagar.

THE CONDITIONS UNDER THE INDIAN ELECTRICITY ACT, 1910

APPLICABLE To NORMAL SANCTION HOLDERS AND LICENSEES WERE NOT APPLIED To RENUSAGAR BECAUSE IT WAS HINDALCO'S CAPTIVE SOURCE OF GENERATION. For Instance:

(a) After the incorporation in 1964 Renusagar was granted sanction u/s 28 of the Electricity Supply Act, 1910 to supply power to Hindalco only. See Vol. XVI page 64 of the Paper Book.

(b) Since Renusagar was not public utility but a captive plant of Hindalco certain conditions applicable to normal sanction holders in the nature of public utilities but inapplicable to Renusagar were deleted from the sanction. See Vol. XVI page 74 of the Paper Book.

FOR THE PURPOSE OF EXPANSION OF HINDALCO AS WELL AS RENUSAGAR THE GOVT. OF INDIA AND THE 650 STATE OF U.P. SPECIFICALLY PROCEEDED ON THE FOOTING THAT HlNDALCO HAD ITS "OWN SOURCE OF GENERATION" IN RENUSAGAR, SINCE RENUSAGAR WAS THE CAPTIVE POWER PLANT OF HINDALCO.

(a) Hence, for all practical purposes Renusagar was treated as part and parcel of the Hindalco's expansion programme. In 1962 Hindalco decided to expand capacity to 60,000 tons per annum. This meant need of extra power. The U.P. Government and the UPSEB expressed inability to give the extra power. The U.P. Govt. had no objection if Hindalco set up its own power-house with an option to the U.P. Govt.

to take over the power plant later. On this important basis Hindalco was granted permission to set up captive power plant. Reliance was placed in this connection on Vol. XVI, pages 4, 6, 7, 15 and 16 of the Paper Book. Also see sections 34, 36, 37, & 44 of the Electricity Supply Act, 1910.

(b) Thus Hindalco was allowed to expand its aluminium production on the condition of its setting up its own power plant which was part and parcel of the expansion scheme. See in this connection Vol. XVI, pages 22 & 25 of the Paper Book.

(c) When Hindalco decided to expand its aluminium plant again from 60,000 to 1,20,000 tons per annum, the expansion of the powerhouse was a condition precedent to aluminium expansion. All negotiations, requests for permission, correspondence with authorities, intimation from Government were done and received by Hindalco. In this connection reference may be made to Vol. XVI, pages 129 to 134, 15 1, 157 & 180 of the Paper Book.

(d) Renusagar was allowed expansion limited to power requirement of Hindalco for captive use of Hindalco. See Vol. XVI, pages 145, 159, 161, 185, 187 and 189 of the Paper Book.

(e) All Government authorities including Central Govt., State of U.P. and U.P. State Electricity Board have always treated Renusagar to be "Captive Plant" as either "Self Generation" or "own generation" or "own Plant" or "own Source of generation" or "Generation for self-use" or "own use" etc. Of Hindalco. In this connection reference may be made to Vol. XVI, pages 81, 90-91, 112, 135A, 139-140, 146, 150, 152, 160, 163, 167, 169, 172, 183A & 184 of the Paper Book. It further appears that 100% power-cuts-stoppage of electricity from the State grid-were imposed on those who had 651 50% or more of their "own source of generation". Hindalco suffered 100% power cuts precisely on this account. It was submitted on behalf of the respondents and in our opinion rightly that the words "own source of generation" could not have one meaning for power cuts and another meaning for concession/exemptions under the same law.

It further appears that the Secretary, Power, U.P. Govt. submitted a note to the Advisory Council for recommending 100% powercuts on Hindalco as Hindalco had more than 50% power supply from its own source of generation i.e. Renusagar. See Vol. XVI, page 163 of the Paper Book.

Notification under section 22B of the Act as appearing in Vol. XIII of the Paper Book was accordingly issued.

The U.P.S.E.B. served notice on Hindalco to reduce drawal to zero. See Vol. XVI, page 167 of the Paper Book.

The U.P. Government refused exemption from power-cut to Hindalco on the ground that it had its own source of generation. See Vol. XVI, page 172.

In Court proceedings Hindalco challenged power-cut. The Government filed affidavits, always asserting Renusagar to be "own source of generation" of Hindalco. See Vol. XXIV, pages 68 to 75 of the Paper Book.

Indeed, it appears from the observations of this Court in State of U.P. v. Hindustan Aluminium Corpn. Ltd., [1979] 3 SCR 709 that this Court proceeded on the basis that Renusagar had its own source of generation.

It is further said that the appellants have also admitted in the present proceedings the position that Hindalco had in Renusagar its own source of generation.

Reliance has been placed on:

(a) Section 9 of the Duty Act as it existed upto 1970.

See Vol. XVIII, page 5 of the Paper Book.

(b) Three men Committee Report on exemption treated Renusagar as own generation. See Vol. A page 158 at 163 of the Paper Book.

652 (c) The Government of U.P. rejected exemption application. Vol. A page 3 of the Paper Book.

(d) Counter-affidavit in the first petition. Vol. X, pages 26, 27 & 32 of the Paper Book.

(e) Counter-affidavit in second petition. Vol. XI, pages 93 & 130 of the Paper Book.

(f) See the Judgment of the Allahabad High Court. Vol. A, pages 7, 10-11, 13 & 19.

(g) Petition of the U.P. Government under Article 138.

Vol. XI page 134.

(h) It is also significant to note the special leave petition filed by the U.P. Government. Reference may be made to Vol. XI, pages 139 to 141.

(i) Reference may be made to Rajagopalan Report, Vol. A pages 237 & 265 of the Paper Book.

(j) See the affidavit of State of U.P. in Allahabad High Court in present proceedings. Vol. A, pages 71-72, 76 & 84.

(k) The High Court's Judgment dated 26.9.84 in the present proceedings. Vol. B, pages 391-397.

All these factors have to be borne in mind in considering whether Renusagar was Hindalco's own source of generation. Counsel for the respondents drew our attention to the fact that in the manufacture of aluminium, electrical energy is raw-material and between 16,000 to 20,000 units of energy are required for the production of 1 ton of aluminium. The impact of the imposition of duty on energy @1 paise per unit would be an increase in the cost of production of aluminium by Rs.160 to Rs.200 per ton. The impact of the imposition of duty on energy @ 6 paise per unit will be an increase in the cost of aluminium by Rs.960 to Rs.1,200 per tan.

Hindalco was incorporated in 1959 and its aluminium plant commenced production in 1962 with a capacity of 20,000 tons of aluminium ingots p.a. Hindalco obtained electrical energy required for the manufacture of aluminium to the extent of 55 MW from the State/ 653 Board Hydle power under an agreement dated 29.10.59 @1.997717 paise per unit inclusive of all charges, duties and taxes of whatever nature on electricity. Hindalco's plant was located at Renukut because of their assurances for power supply at economical rates.

The first expansion of Hindalco from 20,000 to 60,000 tons p.a. required further electricity.