Punjab and Haryana High Court directs Punjab to refund Rs 4.57 octroi duty levied on electricity supplied to Centre

Saurabh Malik

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Chandigarh, August 1
The Punjab and Haryana High Court has directed the State of Punjab to refund Rs 4.57 lakh to the Union of India, collected as octroi duty on electricity supplied to Military Engineering Services (MES) within the Patiala cantonment area. The Bench has ruled that the collection is in direct violation of Article 287 of the Constitution of India, which exempts the Government of India from paying taxes on the consumption or sale of electricity.

The ruling by the Division Bench of Justice Sanjeev Prakash Sharma and Justice Jagmohan Bansal came on a petition filed in 2007 by the Union of India through central government counsel Tajeshwar Singh Sullar for refund of the octroi duty collected by Punjab State Electricity Board (PSEB) between 2000 and 2007. MES, responsible for electricity supply within the cantonment, purchased electricity from PSEB, which then levied octroi on the electricity consumed, amounting to Rs 4, 57,342.

Sullar argued that the imposition of tax on electricity consumed by the Government of India or sold to it for consumption was in direct violation of Article 287 of the Constitution, unless specifically allowed by the Parliament. The petitioner pointed out PSEB had not levied octroi on other central government entities, such as Diesel Locomotive Works in Patiala, but had imposed the charge on MES — a part of the Ministry of Defence.

The Bench scrutinised the provisions of Article 287, which clearly exempted the Government of India from such taxes. The court noted that PSEB collected the octroi and deposited it with a local municipal body, despite being aware that such a levy was unconstitutional.

The Bench further observed that the municipal committee concerned, despite the clear mandate of Article 287, did not return the amount collected as octroi. The PSEB’s act of collecting and depositing the octroi was deemed a violation of the constitutional provisions. PSEB’s argument that the petitioner should approach a civil court for the refund was rejected by the court, which emphasised that the issue was a straightforward constitutional violation involving no disputed facts. As such, it did not warrant further litigation in a civil court.

The Bench concluded that PSEB, being a state government undertaking, should have refrained from charging octroi on the electricity supplied to MES. The court observed the respondents were shifting responsibility and attempting to delay the refund. The judges also directed the state to refund the octroi within eight weeks from the judgement date.