State of U.P. & Ors. v. Renusagar Power Co. & Ors. (1988) 4 SCC 59
Supreme Court of India
1988
(1988) 4 SCC 59
Company / Electricity Duty
~7 min read
Author: Gulzar Hashmi |
India |
Published:
PRIMARY_KEYWORDS: Renusagar Power case, corporate veil, own source of generation
SECONDARY_KEYWORDS: Hindalco, U.P. Electricity Duty Act 1952, electricity duty, SCC 1988
Slug:
state-of-up-v-renusagar-power-co
Quick Summary
The Supreme Court looked beyond company form. It saw Hindalco and its wholly-owned power company, Renusagar, as one unit in real life. So, when Hindalco used the electricity that Renusagar generated, it was treated as if Hindalco used power from its own source. The State’s appeal failed.
- Corporate veil lifted: Renusagar had no true independent existence apart from Hindalco.
- Own source of generation: Hindalco’s consumption counted as self-supply.
- Electricity duty impact: Duty must consider real ownership and control.
Issues
- Should Hindalco and Renusagar be treated as one concern for electricity duty?
- If they are one, does Hindalco’s use of power become use from its own source of generation?
Rules
- Lifting the corporate veil: Courts may ignore separate personality if two companies are, in substance, one.
- Real test: Who truly generates and who truly consumes? If the same person in reality, treat it as self-supply.
Facts (Timeline)
- 1952: U.P. Electricity Duty Act imposes duty on consumption of electrical energy.
- 1959: Exemption created for scheduled industries (includes “Metallurgical Industries”).
- 1971: Amendments clarify duty on licensees and on consumption from one’s own source of generation.
- 1959–1964: Hindalco sets up aluminium plant at Renukoot; forms Renusagar (wholly-owned subsidiary) to generate power.
- 12 Nov 1964: Renusagar gets sanction under Section 28, Indian Electricity Act, 1910 to supply power to Hindalco.
- 1982: State demands electricity duty (~₹11,96,83,153.80); dispute travels through Allahabad High Court to Supreme Court.
Arguments
Appellants (State of U.P.)
- Renusagar is a separate licensee; duty is payable on supply to Hindalco.
- Exemption is against public interest; burden is bearable.
- Recovery notice and demand are proper under the Act.
Respondents (Hindalco / Renusagar)
- Renusagar is wholly owned and exists only to power Hindalco.
- In substance, generation and consumption are by the same person.
- Corporate veil should be lifted; treat Hindalco’s use as self-supply.
Judgment
The Supreme Court agreed with the High Court. It lifted the corporate veil and held that Hindalco and Renusagar were effectively one concern. Therefore, Hindalco’s consumption was from its own source of generation. The State’s appeal was rejected.
Ratio Decidendi
When a subsidiary has no real independent life and serves only its parent, the court may treat both as one. In such a case, power used by the parent from the subsidiary counts as use from the parent’s own source.
Why It Matters
- Shows how courts look at economic reality over company form.
- Clarifies “own source of generation” for electricity duty cases.
- Useful precedent for tax, duty, and regulatory scenarios with group companies.
Key Takeaways
- Veil Lifted Form cannot defeat substance where parent and subsidiary are one.
- Own Source Parent’s consumption via wholly-owned generator = self-supply.
- Duty Logic Levy must follow true ownership and control, not labels.
Mnemonic + 3-Step Hook
Mnemonic: “P-O-W-E-R” — Parent-subsidiary one, Own source, Weil (veil) lifted, Economic reality, Reject appeal.
- Spot if subsidiary exists only for the parent.
- Ask who truly generates and who truly consumes.
- Apply Renusagar: treat usage as self-supply; levy accordingly.
IRAC Outline
| Issue | Are Hindalco and Renusagar one concern so that Hindalco’s use is from its own source? |
|---|---|
| Rule | Lift the corporate veil where the subsidiary lacks real independence; follow economic reality. |
| Application | Renusagar, wholly owned and created to supply Hindalco, had no separate existence in substance. |
| Conclusion | They are one; Hindalco’s consumption counts as self-supply; State’s appeal dismissed. |
Glossary
- Corporate veil
- Legal separation between company and owners. Courts may ignore it to see the real actor.
- Own source of generation
- Electricity produced by the same person who uses it, not bought from outside.
- Licensee
- Entity authorised to generate/supply electricity under statute.
FAQs
Treat Hindalco and Renusagar as one. Hindalco’s consumption is self-supply. Appeal dismissed.
Renusagar existed only to feed Hindalco. It had no genuine independent life in practice.
Cite Renusagar when a parent-subsidiary setup is used to avoid a levy; argue substance over form.
U.P. Electricity Duty Act, 1952, and sanction under Section 28 of the Indian Electricity Act, 1910.
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