Jharkhand HC: State Cannot Delegate Taxing Power Without Policy Guidance [Read Order]

Jharkhand: The Jharkhand High Court has struck down a proviso introduced by the State’s amendment to the Bihar Electricity Duty Act, 1948, which empowered the executive to levy electricity duty as a percentage of consumers’ “net charges” and to alter rates or categories in the Schedule by mere notification.

The Division Bench was deciding a batch of writ petitions led by W.P.(T) No. 3228 of 2021 (M/s Pali Hill Breweries Pvt. Ltd. v. State of Jharkhand), filed by industrial consumers challenging demands raised by distribution licensees such as Jharkhand Bijli Vitran Nigam Ltd. and Tata Steel Utilities.

The 1st Amendment Act, 2021 inserted a proviso after Section 3(1) of the 1948 Act, authorising the State Government to issue notifications adding, amending, or altering categories or rates in the Schedule, including by prescribing duty as a percentage of undefined “net charges”, such as after rebates like load factor, voltage, and timely payment.

The petitioners argued that this constituted excessive delegation of the essential legislative function of taxation, violating Articles 14 and 265 of the Constitution and the doctrine of separation of powers, as no policy guidelines were laid down and the expression “net charges” was vague and open to multiple interpretations. They also contended that it amounted to sub-delegation to the Jharkhand State Electricity Regulatory Commission, since tariff hikes by the Commission would automatically escalate electricity duty.

The Court held that the fixation of tax rates and categories is an essential legislative function that cannot be delegated to the executive without clear policy standards and safeguards. The proviso conferred unbridled power on the Government to rewrite the Schedule, enabling arbitrary rates and assessments, thereby rendering it unconstitutional on account of excessive delegation.

It further noted that the undefined concept of “net charges” created scope for arbitrariness under Article 14, and that levying duty on a basis dehors the units of electricity consumed or sold under Section 3(1) violated Article 265’s requirement that a tax must be levied by authority of law.

Finding that the amendment amounted to an abdication of legislative power without guidance, the High Court declared the proviso after Section 3(1), as well as the levy on “net charges”, ultra vires the Act. Electricity duty consequently reverts to the original scheme under Section 3(1), based on units of electricity consumed or sold.

Case Title: M/s Pali Hill Breweries Pvt. Ltd. v. State of Jharkhand & Ors.
(W.P.(T) No. 3228 of 2021 with connected matters)

[Read Order]