Supreme Court Upholds Electricity Duty on Charitable Educational Institutions: State of Maharashtra vs. Shri Vile Parle Kelvani Mandal (2022)

Date of the Judgment: 07 January 2022

Citation: (2022) INSC 18

Judges: M. R. Shah, J., Sanjiv Khanna, J.

Can a charitable educational institution be exempted from paying electricity duty? The Supreme Court of India recently addressed this question, focusing on the interpretation of the Maharashtra Electricity Duty Act, 2016. This case examines whether the new Act continues the exemption previously granted to such institutions under the 1958 Act. The core issue revolves around the interpretation of the exemption clause under the new Act and whether it extends to charitable educational institutions. The judgment was delivered by a two-judge bench comprising Justice M. R. Shah and Justice Sanjiv Khanna, with Justice M.R. Shah authoring the opinion.

Case Background

Shri Vile Parle Kelvani Mandal, along with other educational institutions (respondents), are run by a society registered under the Societies Registration Act, 1860, and also as a public charitable trust under the Maharashtra Public Trusts Act, 1950. These institutions have electricity connections for their operations. Before September 1, 2016, these charitable educational institutions were exempt from electricity duty under Section 3(2)(iii) of the Maharashtra Electricity Duty Act, 1958. However, in 2018, electricity supply companies started levying electricity duty, citing a letter from the Industries, Energy and Labour Department, Government of Maharashtra. This letter stated that the Maharashtra Electricity Act, 2016, did not provide an exemption for charitable institutions registered under the Maharashtra Public Trusts Act, 1950, for schools or colleges imparting education or training in academic or technical subjects. Consequently, the power supply companies levied a 21% electricity duty on these institutions. Aggrieved, the institutions filed a writ petition before the High Court of Judicature at Bombay, which ruled in their favor, setting aside the levy of electricity duty. The State of Maharashtra then appealed to the Supreme Court.

Timeline:

Arguments

Arguments by the State of Maharashtra:

• The High Court erred in holding that charitable education institutions are not liable to pay electricity duty.
• The High Court should not have set aside the levy of electricity duty without a challenge to the Maharashtra Electricity Act, 2016.
• The High Court did not properly consider the relevant provisions of the Maharashtra Electricity Act, 2016.
• Under the Maharashtra Electricity Duty Act, 1958, charitable institutions were exempt, but the 2016 Act does not provide such an exemption.
• The language of the 2016 Act is clear and unambiguous regarding the levy of electricity duty, and it should be interpreted in favor of the revenue.
• The State argued that as per Section 3(2)(a)(iiia) of the Maharashtra Electricity Duty Act, 1958, charitable institutions registered under the Bombay Public Trusts Act, for the purpose of schools or colleges imparting education or training in academic or technical subjects were exempted from electricity duty. However, the new Act of 2016 does not provide such an exemption.
• The State contended that the High Court failed to consider that there is no provision similar to the repealed Act of 1958 in the new Act of 2016. Therefore, charitable education institutions are not entitled to an exemption.
• The State submitted that the High Court did not appreciate that the charitable education institutions were enjoying a concession under the repealed Act of 1958 and that any order issued in their favor is not saved under Section 4 of the Maharashtra Electricity Duty Act, 2016.
• The State relied on several decisions of the Supreme Court, including Commr. of Customs Vs. Dilip Kumar & Co., Central Public Information Officer, Supreme Court of India Vs. Subhash Chandra Agarwal, Essar Steel India Ltd. & Anr. Vs. State of Gujarat & Anr., Star Industries Vs. Commr. of Customs (Imports), Giridhar G. Yadalam Vs. Commissioner of Wealth Tax & Another, and Godrej & Boyce Mfg. Co. Ltd. Vs. Deputy Commissioner of Income Tax & Anr., to support their arguments that exemption provisions should be strictly construed.

Arguments by the Educational Institutions:

• The High Court correctly held that charitable education institutions are exempt from payment of electricity duty.
• A literal interpretation of the 2016 Act would lead to absurd results, as schools/colleges run by local authorities would be exempt, while those run by statutory universities or charitable institutions would not.
• There is no essential difference between schools/colleges run by local authorities and those run by statutory universities or charitable institutions.
• The legislature does not intend to violate Article 14 of the Constitution, and the interpretation of the 2016 Act should align with the mandate of Article 14.
• The institutions argued that if the interpretation of the State is accepted, Section 3(2)(iii) of the 2016 Act would cover only schools/colleges of the local authority and would exclude those run by statutory universities or private institutions. This would lead to discrimination and arbitrariness.
• There is a presumption that the legislature does not make radical changes in existing law, and there is nothing in the 2016 Act to suggest a radical change in law.
• The institutions contended that under Section 3(2) of the 1958 Act, no duty could be imposed on various entities, and these entities remain the same under the 2016 Act. The only question is whether educational activities carried on by local authorities, statutory universities, or charitable institutions are within the purview of Section 3(2) of the 2016 Act.
• The institutions submitted that the policy of the legislature was to exclude educational activities from the imposition of duty, and there is nothing in the 2016 Act to indicate a departure from this policy.
• The doctrine of last antecedent may be applied, where the expression “run by any local bodies” does not qualify educational activities but qualifies other activities.
• The Electricity Duty Act is a taxing statute and must be strictly construed, and any ambiguity must be resolved in favor of the assessee.
• The institutions relied on the decisions of the Supreme Court in C.W.S. (India) Ltd. Vs. Commissioner of Income Tax, B.R. Enterprises Vs. State of U.P. & Ors., and Byram Pestonji Gariwala Vs. Union Bank of India & Ors., to support their arguments.

Submissions by Parties

Issues Framed by the Supreme Court

The core issue framed by the Supreme Court was:

1. Whether the original writ petitioners, being charitable education institutions registered under the provisions of the Public Trusts Act (the Maharashtra Public Trusts Act, 1950), are entitled to the exemption from payment of electricity duty post 01.09.2016, i.e., as per the provisions of the Maharashtra Electricity Duty Act, 2016?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Cases:

Statutes:

• Maharashtra Electricity Duty Act, 1958: The previous act which provided exemption to charitable institutions.
• Maharashtra Electricity Duty Act, 2016: The current act which does not provide specific exemption to charitable institutions.
• Societies Registration Act, 1860: Act under which the society was registered.
• Maharashtra Public Trusts Act, 1950: Act under which the trust was registered.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court relied on Commr. of Customs Vs. Dilip Kumar & Co. [(2018) 9 SCC 1]* to emphasize that exemption provisions should be interpreted strictly.
• The Court used Essar Steel India Ltd. & Anr. Vs. State of Gujarat & Anr. [(2017) 8 SCC 357]* to reinforce the principle that statutory conditions for granting exemptions cannot be diluted.
• The Court cited Star Industries Vs. Commr. of Customs (Imports) [(2016) 2 SCC 362]* to highlight that eligibility criteria for exemptions must be strictly construed.
• The Court referred to Giridhar G. Yadalam Vs. Commissioner of Wealth Tax & Another [(2015) 17 SCC 664]* to state that the plain language of a provision must be preferred.
• The Court applied Godrej & Boyce Mfg. Co. Ltd. Vs. Deputy Commissioner of Income Tax & Anr. [(2017) 7 SCC 421]* to reiterate that words cannot be read into a statute.
• The Court distinguished C.W.S. (India) Ltd. Vs. Commissioner of Income Tax [1994 Supp (2) SCC 296]*, stating that the literal interpretation of the 2016 Act does not lead to absurdity.
• The Court did not find B.R. Enterprises Vs. State of U.P. & Ors. [(1999) 9 SCC 700]* and Byram Pestonji Gariwala Vs. Union Bank of India & Ors. [(1992) 1 SCC 31]* applicable to the case, as the 2016 Act clearly intended to remove the exemption.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle of strict interpretation of tax exemption provisions. The Court emphasized that the language of the Maharashtra Electricity Duty Act, 2016, is clear and unambiguous in not providing an exemption for charitable educational institutions, unlike the previous 1958 Act. The absence of a specific exemption for these institutions in the new Act was a crucial factor in the Court’s reasoning. The Court also noted that the new Act specifically exempts institutions run by local bodies, which further implies that other institutions are not intended to be exempted. The Court rejected the arguments of absurdity and violation of Article 14, stating that the language of the statute must be followed when it is clear and unambiguous.

Fact:Law Ratio

The Supreme Court’s reasoning in this case was heavily weighted towards legal interpretation rather than factual considerations. The court focused on the statutory provisions and the principles of interpretation of tax laws.

Logical Reasoning:

The Court considered the arguments of the educational institutions but ultimately rejected them, holding that the plain language of the statute must prevail. The Court emphasized that the exemption provision needs to be interpreted literally, and when the language used in the exemption provision is simple, clear, and unambiguous, the same has to be applied rigorously, strictly, and literally. The Court noted that under the 2016 Act, charitable education institutions running schools or colleges are specifically excluded from the exemption clause. The Court also rejected the argument that the interpretation of the 2016 Act would lead to absurd results, stating that the intention of the legislature is clear and unambiguous.

The Court held that the High Court had erred in setting aside the levy of electricity duty on the educational institutions. The Supreme Court stated that the language of the 2016 Act is clear and unambiguous and that there is no room for any other interpretation. The Court also emphasized that in cases of exemption provisions, the interpretation must be strict and in favor of the revenue.

The majority opinion was delivered by Justice M.R. Shah, with Justice Sanjiv Khanna concurring. There were no dissenting opinions.

“Therefore, under Section 3(2) of the 2016 Act, the charitable institutions running the educational institutions are not exempted from payment of electricity duty, which as such was specifically exempted under Section 3(2)(iiia) of the 1958 Act.”

“The language and words used in Section 3(2) are plain and simple and are capable of only one definite meaning that there is no exemption provided under the 2016 Act from levy of electricity duty so far as the charitable education institutions are concerned.”

“Under the 2016 Act, charitable education institutions running the schools or colleges are specifically excluded from the exemption clause/exemption provision – Section 3(2).”

Key Takeaways

• Charitable educational institutions in Maharashtra are now liable to pay electricity duty as per the Maharashtra Electricity Duty Act, 2016.
• The Supreme Court has emphasized the strict interpretation of tax exemption provisions, particularly in favor of the revenue.
• The absence of a specific exemption in a new statute implies that the legislature did not intend to continue the exemption.
• Educational institutions should review their electricity bills and make necessary provisions for payment of electricity duty.
• The judgment may lead to increased operational costs for charitable educational institutions.
• The judgment highlights the importance of legislative clarity in tax laws and the need for institutions to stay updated on changes in legislation.

Directions

The Supreme Court did not issue any specific directions other than setting aside the High Court’s judgment and upholding the levy of electricity duty on charitable educational institutions.

Development of Law

Ratio Decidendi: The Supreme Court’s decision established that the absence of a specific exemption for charitable educational institutions in the Maharashtra Electricity Duty Act, 2016, means they are not exempt from paying electricity duty. This ruling emphasizes the principle of strict interpretation of tax exemption provisions, requiring explicit language for exemptions to be valid. The Court clarified that the omission of the exemption under the new Act indicates a clear legislative intent to not extend the benefit to charitable educational institutions.

Change in Law: This judgment marks a significant change in the legal position, as the Maharashtra Electricity Duty Act, 1958, had previously exempted charitable educational institutions from electricity duty. The 2016 Act, by not including this exemption, has effectively reversed the previous position, and the Supreme Court has upheld this change. This ruling clarifies that the new Act does not extend the previous exemption to charitable educational institutions.

Conclusion

The Supreme Court allowed the appeal by the State of Maharashtra, setting aside the High Court’s judgment. The Court held that charitable educational institutions registered under the Societies Registration Act and the Maharashtra Public Trusts Act are not exempt from paying electricity duty under the Maharashtra Electricity Duty Act, 2016. This decision clarifies the legal position and emphasizes the strict interpretation of tax exemption provisions.