Delhi HC upholds Rs 197 crore municipal electricity tax on power NTPC used to run Badarpur plant

A Division Bench of Justice Anil Kshetarpal and Justice Bharat Parashar held that consumption, not generation, is the taxable event under Section 113(2)(d) of the DMC Act, that Bye-Law 3(3) only names the person liable, and that a demand raised in 2021 for the years 2006 to 2018 was not barred by delay.

NTPC Ltd has lost its challenge to a municipal electricity tax demand of Rs 197,15,84,639 on the electricity its Badarpur Thermal Power Station burned to run its own machinery between 1 June 2006 and 15 October 2018. A Division Bench of the Delhi High Court, Justice Anil Kshetarpal and Justice Bharat Parashar, dismissed the writ petition on 27 October 2026, rejecting the argument that electricity consumed in the course of generation is an incident of generation and so beyond a tax on consumption. The bench upheld Bye-Law 3(3) of the Delhi Municipal Corporation electricity tax bye-laws of 1962, found no double taxation, and held that a demand raised in November 2021 for a thirteen-year period was not vitiated by delay. NTPC remains free to dispute the computation before the forum under Section 169 of the Delhi Municipal Corporation Act, 1957.

A 1973 plant, a 1992 levy and a 2021 demand

The Badarpur Thermal Power Station was established in 1973 under the ownership of the Central Electric Authority to supply electricity to several states including Delhi. Its management passed to NTPC in 1978, and from then on Delhi was the sole beneficiary of the power it generated. Ownership followed by a notification dated 31 May 2006. The plant kept generating and supplying electricity to licensees until it was shut down permanently on 15 October 2018.

Three years after the closure, on 8 November 2021, the South Delhi Municipal Corporation raised a demand of Rs 197,15,84,639 towards electricity tax on auxiliary consumption at the station from 1 June 2006 to 15 October 2018. A demand-cum-show cause notice followed on 6 December 2021, and letters of 3 January and 24 January 2022 pressed for payment. NTPC moved the High Court in W.P.(C) 4144/2022 to have Bye-Law 3(3) declared ultra vires and the notice and letters quashed.

The statutory scheme is short. Section 113(2)(d) of the Act lets the Corporation levy a tax on the consumption, sale or supply of electricity. Section 150 prescribes how such an optional tax is imposed: a resolution defining the maximum rate and the class of persons liable, government sanction, and a second resolution fixing the actual rate. Section 152 leaves the time and manner of payment to bye-laws, and Section 169 provides an appeal against the levy or assessment of any tax. Bye-Law 3(3), the provision under attack, says that where electricity is generated by any person for his own consumption, the generator shall pay the electricity tax to the General Manager (Electricity). Bye-Law 2(2) defines a consumer to include a consumer of electricity generated by himself; Bye-Law 7(2) requires a generating person to pay the tax for each month by the 15th of the next; and Bye-Law 15 requires separate accounts and monthly returns.

Eight arguments from NTPC

Mr Gopal Jain, Senior Advocate, appearing with Ms Sakie Jakharia, Ms Aseem Aggarwal and Ms Kriti Sharma for NTPC, built the case on one foundation: consumption of electricity in a power station is an incident of generation itself. Section 113(2)(d) permits a tax on consumption; Bye-Law 3(3), by stretching that word to self-generated electricity, enlarges the parent statute and is ultra vires. He relied on St. Johns Teachers Training Institute v. Regional Director, National Council for Teacher Education, (2003) 3 SCC 321, NDMC v. Association of Concerned Citizens of New Delhi, (2019) 15 SCC 303, and Kerala State Electricity Board v. Thomas Joseph, (2023) 11 SCC 700, for the rule that subordinate legislation cannot supplant the parent Act.

The supporting arguments followed. Taxing auxiliary consumption is in substance a tax on generation, a field reserved to Parliament. The electricity was used to generate power for licensees and end consumers, not for NTPC's own end use, so it was not own consumption under Bye-Law 3(3). The tariff for the period already built in generation costs without this tax, so the demand offended Article 14. Compliance with Sections 150 and 152 had not been shown, nor had the bye-laws been shown to have been laid before Parliament under Section 481A. A demand raised in November 2021 for a period beginning in June 2006 was barred by delay and laches, citing Government of India v. Citadel Fine Pharmaceuticals, (1989) 3 SCC 483, and Union of India v. CITI Bank, 2022 SCC OnLine SC 1073. No interest could run on arrears never demanded. Collection was the licensee's job under Bye-Law 7(3), and since the Delhi Vidyut Board was unbundled in 2002 the distribution licensees had collected the tax at 5 per cent. And because the Central Electricity Regulatory Commission fixes tariff on net generation after deducting auxiliary consumption, and the discoms had already collected electricity tax on that tariff-inclusive price, a separate levy taxed the same economic component twice.

In rejoinder, NTPC added that Bye-Law 2(2) did not cover it, because the Badarpur station was neither supplied by a licensee nor connected to a licensee's works; that the Corporation's Supreme Court authorities concerned captive consumption under statutes that expressly covered self-generated electricity, which Section 113(2)(d) does not; and that the duty it pays on auxiliary consumption in Chhattisgarh, Orissa and Karnataka rests on statutes that provide for it in terms.

The Corporation and the proforma respondents

Mr Sanjay Poddar, Senior Advocate, with Dr Divya Swamy, Standing Counsel, led the Corporation's reply. Consumption is the taxable event whatever the source of the electricity, whatever its purpose and whoever the consumer; neither Entry 53 of List II nor Section 113(2)(d) narrows the word. He cited Jiyajeerao Cotton Mills Ltd. v. State of M.P., AIR 1963 SC 414, State of Mysore v. West Coast Paper Mills Ltd., (1975) 3 SCC 448, Swaroop Vegetable Products Industries v. State of U.P., (1983) 4 SCC 24, and State of A.P. v. National Thermal Power Corporation Ltd., (2002) 5 SCC 203. Bye-Law 3(3) creates no new tax; it identifies the person liable, which Sections 113(3), 150(1) and 152 allow, and Bye-Laws 2(2), 15 and 7(2) confirm the scheme. He relied on Delhi International Airport (P) Ltd. v. South Delhi Municipal Corporation, 2020:DHC:33102-DB.

On procedure, the Corporation said the bye-law had been in force since 1963 and a challenge filed in 2022, only on receipt of a demand, was grossly belated. Section 169 gave an efficacious alternative remedy, which it described as an appeal before the Municipal Taxation Tribunal, and under Titaghur Paper Mills Co. Ltd. v. State of Orissa, (1983) 2 SCC 433, and State of Madhya Pradesh v. Commercial Engineers and Body Building Co., 2022 SCC OnLine SC 1425, NTPC should be relegated to it, at least on quantum. Section 150 had been complied with: a resolution of 17 March 1992 defined the classes of persons liable, including consumers of self-generated electricity; the Lieutenant Governor sanctioned the levy on 30 June 1992; a resolution of the same date fixed the rates; and the tax came into force on 1 July 1992. The two levies fall on distinct units consumed by different persons, and Jain Bros. v. Union of India, 1969 (3) SCC 311, holds there is no constitutional bar on double taxation anyway. Limitation belonged before the statutory forum.

Respondent nos. 3 and 4, proforma parties represented by Mr Anupam Varma, Mr Aditya Gupta and Mr Yash Srivastava, took a single point: double taxation. If BTPS generated 100 units at a total cost of Rs 1,000, used 20 units itself and supplied the other 80 to the discoms at Rs 12.50 a unit to recover the whole cost, the tariff for the 80 units came to Rs 1,000, on which 5 per cent electricity tax of Rs 50 had already been collected from end consumers. A separate levy on the 20 units would add Rs 12.50, taking the total to Rs 62.50 on the same economic component.

Respondent no. 5, also a proforma party, through Mr Nitin Kala and three other counsel, argued that the demand was grossly belated, that recovering it through future tariffs would saddle existing consumers with past costs contrary to the Tariff Policy and U.P. Power Corporation Ltd. v. NTPC Ltd., (2009) 6 SCC 235, and that even without a statutory limitation period a demand must be raised within a reasonable time, citing State of Punjab v. Bhatinda District Co-operative Milk Producers Union Ltd., (2007) 11 SCC 363, and Ved Marwah v. NDMC, 2018:DHC:2055-DB. Mr Tushar Sannu appeared for the New Delhi Municipal Council.

Electricity used up in the turbine hall is still consumed

Justice Kshetarpal, writing for the bench, said the whole challenge rested on one proposition: that consumption of electricity in the course of generation is an incident of generation itself. If that failed, the attack on Bye-Law 3(3) lost its premise and the pleas of double taxation and arbitrariness lost their foundation. The court framed four issues around it: the taxable event, the vires of the bye-law, double taxation and delay.

The character of a levy, the bench began, is fixed by its taxable event, not by its name. A tax on the consumption of electricity is attracted by its use and falls within Entry 53 of List II; a duty of excise is attracted by production. NTPC's argument conflated the two by treating electricity burned in the course of generation as part of the act of generating.

The court found the point already settled. In Jiyajeerao Cotton Mills, the Supreme Court held that a levy on consumption, including consumption by the very person who generated the electricity, is distinct from an excise duty on generation. Consumption means the use or expenditure of electrical energy, so “the levy attaches when energy is used up” and not when it is brought into being. National Thermal Power Corporation recognised that a levy on sale or consumption does not become excise merely because the electricity was generated first. The Rajasthan High Court in Rajasthan Textile Mills Assn. v. State of Rajasthan, 2005 SCC OnLine Raj 563, held that a producer consuming its own electricity is a consumer under Entry 53 and the State can tax that consumption.

Nor did it matter that the plant's output was destined for third parties. West Coast Paper Mills held that electricity used to operate equipment that generates further electricity is consumption; the line that case drew was between electricity consumed and electricity lost in transmission before it reaches the point of use. Auxiliary electricity is not lost in transmission. It runs the station's equipment. Swaroop Vegetable Products held a self-generating consumer liable even though it also bought power from a licensee. The bench agreed with the Corporation that the source of the electricity, the purpose of its consumption and the identity of the consumer are all immaterial, and that supplying the rest of the output to third parties did not change the character of the electricity used inside the station.

NTPC's attempt to confine those decisions to captive consumption was equally misplaced. Captive electricity is a narrow statutory category, generated by a qualifying captive plant and consumed by captive users under the ownership and consumption conditions of the Electricity Rules, 2005. Self-generated electricity is the wider genus, produced by a person for its own use, and it may be self-generated without being captive. The decisions pre-date the 2005 Rules, interpreted the word consumption, and did not turn on captive status. The absence of an express reference to self-generated electricity in Section 113(2)(d) did not, by itself, take such consumption outside it. The bench held that the taxable event is consumption, that auxiliary consumption at BTPS is consumption, and that a levy on it is not an excise on generation merely because the electricity was used to generate more.

A bye-law that names the payer does not create a tax

On the vires question the court accepted the principle in St. Johns, Association of Concerned Citizens and Thomas Joseph without reservation: delegated legislation cannot supplant the parent statute. The question was whether Bye-Law 3(3) created a liability beyond the Act or merely prescribed the manner of imposing a tax the Act already authorised. The test was whether the bye-law created a new levy, altered the taxable event or the measure of the tax, or simply gave effect to the statutory charge.

Section 113(2)(d) authorises a tax on consumption, which on the court's first finding includes self-generated electricity. Bye-Law 3(3) creates no new taxable event; it identifies the person liable, which is precisely what Sections 113(3), 150(1) and 152 empower the Corporation to do. Bye-Laws 2(2), 15 and 7(2) fit that reading. NTPC's three authorities were distinguishable: St. Johns restates a principle Bye-Law 3(3) satisfies; in Association of Concerned Citizens the bye-law altered the statutory method of valuation; in Thomas Joseph the regulation was directly contrary to the parent enactment.

The bench went a step further. Had Bye-Law 3(3) never been framed, NTPC's consumption would still have fallen within the charging provision. If the bye-law is relied on for the imposition at all, it “at its highest is declaratory in nature”, clarifying the operation of a statutory charge, and a provision that declares what the Act already provides cannot be said to supplant or exceed it.

Two ancillary points went the same way. The argument that Bye-Law 2(2) did not reach NTPC because the station was not connected to a licensee's works was misconceived: the definition expressly includes a person who consumes electricity generated by himself, whether or not his premises are connected, and Swaroop Vegetable Products confirms that the source is immaterial. And the court found no infirmity in compliance with Section 150. The Corporation had pointed to the 1992 resolution, the Lieutenant Governor's sanction and the rates fixed from 1 July 1992; NTPC placed nothing on record to displace them. Bye-Law 3(3), the court concluded, gives effect to the Act and does not supplant it. The judgment does not separately address the Section 481A point about laying the bye-laws before Parliament, the Article 14 plea, the interest argument, or the submission that collection was the licensee's responsibility.

Why Rs 62.50 is not tax paid twice

The double taxation plea, pressed by NTPC and by respondent nos. 3 and 4, rested on the premise that a cost built into the tariff cannot then be subjected to a separate tax. The bench examined it on two fronts: the distinction between tariff and taxation, and the illustration itself.

Tariff and tax operate in different fields. Tariff is the schedule of prices payable for the supply of electricity; tax is a statutory levy payable to the State over and above it. In National Thermal Power Corporation, the Supreme Court recognised that a regulatory commission's power to fix tariff does not extend to imposing or regulating a statutory electricity tax. The court accepted that the cost of auxiliary consumption is built into the tariff so that NTPC can recover its generation costs, but including a cost in the tariff does not confer immunity from a tax otherwise lawfully leviable on the electricity consumed. Any grievance about how the tax is treated in tariff determination belongs before the regulatory forum; absent a statutory exemption, it cannot invalidate the levy.

The illustration, the bench said, proved the opposite of what it was offered for. The Rs 50 collected on the Rs 1,000 tariff for 80 units is tax on the consumption of those 80 units by end consumers. No tax is thereby imposed on the 20 units BTPS used itself. The additional Rs 12.50 is tax on the value of those 20 units and is the first levy on them. The Rs 62.50 total is reached only by treating the cost of auxiliary consumption embedded in the tariff as tax already paid on that consumption, which the illustration does not bear out. Double taxation requires the same subject to be taxed twice; the 80 units and the 20 units are distinct quantities consumed by different persons, and the tax falls separately on each.

Thirteen years late, but the liability accrued every month

The court accepted NTPC's starting proposition that where a statute prescribes no limitation period, a statutory power must be exercised within a reasonable time. What is reasonable depends on the facts, and a delay in raising a demand “does not, by itself, extinguish a tax liability lawfully incurred”.

Three premises defeated the delay plea. First, the liability did not arise from the demand; it accrued month to month under Bye-Law 7(2) by operation of law, under a levy in force since 1992 and bye-laws in force since 1963. Second, Bye-Law 15 required NTPC to keep accounts of the electricity it consumed. The Corporation had asserted that no returns were filed and no tax paid, and NTPC's rejoinder did not controvert that. A taxpayer that failed to account for its consumption could not rely on the delay in demanding tax on it. Third, the demand recovered an existing statutory liability and imposed no new levy.

Respondent no. 5's fear that recovery would burden existing consumers through a future tariff revision did not affect NTPC's liability; recovery through tariff is a matter for the regulatory framework. The closure of BTPS in October 2018 was immaterial, because the liability arose when the electricity was consumed. Citadel Fine Pharmaceuticals and CITI Bank stated a general proposition the court did not dispute, but did not establish any prejudice to NTPC from the delay.

Order

The petition was dismissed and pending applications closed. The bench held that the taxable event under Section 113(2)(d) is consumption and auxiliary consumption at BTPS is consumption, not generation; that Bye-Law 3(3) does not enlarge the Act; that the levy is not double taxation; and that the Corporation was not barred by delay from recovering a tax that accrued by operation of law and was never paid. The court clarified that its discussion was confined to the lis in the petition, and that any dispute confined to the computation of the amount may be raised by NTPC before the appropriate forum under Section 169 of the Act, whose text as reproduced in the judgment provides for an appeal to the court of the District Judge of Delhi. The judgment was reserved on 6 October 2026 and pronounced on 27 October 2026.