- 1 - HC-KAR NC: 2025:KHC:32661 WP No. 389 of 2021 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 21ST DAY OF AUGUST, 2025 BEFORE THE HON'BLE MR. JUSTICE RAVI V HOSMANI WRIT PETITION NO. 389 OF 2021 (GM-KEB) BETWEEN: 1. M/s. GOKAK POWER AND ENERGY LIMITED A SUBSIDIARY OF M/S GOKAK TEXTILES LIMITED, A COMPANY INCORPORATED UNDER THE COMPANIES ACT 1956, AND HAVING ITS REGISTERED OFFICE AT NO.1, 2ND FLOOR, 12TH CROSS, IDEAL HOMES, RAJARAJESHWARI NAGAR, BENGALURU - 560 098, REP BY ITS CEO AND MANAGING DIRECTOR, SRI RAMESH R PATIL. ALSO HAVING OFFICES AT GOKAK FALLS, GOKAK - 591 308. 2. M/s. GOKAK TEXTILES LIMITED, GOKAK MILLS DIVISION, A COMPANY INCORPORATED UNDER THE COMPANIES ACT 1956, AND HAVING ITS REGISTERED OFFICE AT NO.1, 2ND FLOOR, 12TH CROSS, IDEAL HOMES, RAJARAJESHWARI NAGAR, BENGALURU - 560 098. REP BY ITS HEAD - HUMAN RESOURCE SRI PRADEEP ANDHARE. Digitally signed by GEETHAKUMARI PARLATTAYA S Location: High Court of Karnataka - 2 - HC-KAR NC: 2025:KHC:32661 WP No. 389 of 2021 PETITIONERS 1 AND 2 ARE ALSO HAVING OFFICES AT GOKAK FALLS, GOKAK - 591 308. …PETITIONERS (BY SRI RAGHAVENDRA PRASAD M.S., ADVOCATE) AND: 1. THE STATE OF KARNATAKA, DEPARTMENT OF ENERGY, VIKAS SOUDHA, DR. AMBEDKAR VEEDHI, BANGALORE - 560 001, REP BY ITS ADDITIONAL CHIEF SECRETARY. 2. THE CHIEF ELECTRICAL INSPECTOR TO THE GOVERNMENT, 2ND FLOOR, NIRMANA BHAVAN, OPPOSITE ORION MALL, DR. RAJKUMAR ROAD, RAJAJINAGAR, BANGALORE - 560 010. …RESPONDENTS (BY Smt. WAHEEDA M.M., AGA FOR R1 & R2) THIS WP IS FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH ANNEXURE-R DATED 29.10.2020 ISSUED BY THE R-2 TO THE PETITIONERS DIRECT THE RESPONDENTS TO RETURN THE MONEY COLLECTED ALONG WITH INTEREST AT 18 PERCENT PER ANNUM FROM THE DATE IT WAS COLLECTED TO THE PETITIONERS. THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN B- GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE RAVI V HOSMANI - 3 - HC-KAR NC: 2025:KHC:32661 WP No. 389 of 2021 ORAL ORDER Challenging order dated 29.10.2020 passed by respondent no.2 at Annexure-R and seeking for direction to respondents to return excess money collected from petitioners with interest at 18% per annum from date of collection, this writ petition is filed. 2. Sri Raghavendra Prasad MS, learned counsel for petitioners submitted petitioner no.1 is a wholly owned subsidiary Company of petitioner no.2 incorporated on 17.01.2012 with object to generate power and sell it to petitioner no.2. It was submitted, petitioner no.2 is a Public Limited Company, running Textile Mill in Gokak Falls in Belgaum District, which required huge amount of electricity and for which petitioner no.1 was constituted. It was submitted, Section 2(8) of Electricity Act defines captive generating plant as follows: "(8) Captive Generating Plant" means a power plant set up by any person to generate electricity primarily for his own use and includes a power plant set up by any co- operative society or association of persons for generating electricity primarily for use of members of such cooperative society or association;" 3. It was submitted Rule 3 of Electricity Rules, 2005 imposed following requirements for Captive Generating Plant: 3. Requirements of Captive Generating Plant: - 4 - HC-KAR NC: 2025:KHC:32661 WP No. 389 of 2021 (1) No power plant shall qualify as a 'captive generating plant' under section 9 read with clause (8) of section 2 of the Act unless- (a) in case of a power plant - (i) not less than twenty six percent of the ownership is held by the captive user(s), and (ii) not less than fifty one percent of the aggregate electricity generated in such plant, determined on an annual basis, is consumed for the caption use: 4. It was submitted Rule 3(1)(b) defines Captive user as follows: 3(1)(b) "Captive User" shall mean the end user of the electricity generated in a Captive Generating Plant and the term "Captive Use" shall be construed accordingly; 5. It was submitted petitioner no.1 being subsidiary of petitioner no.2 and supplying power to petitioner no.2 - company to extent of more than 51% as required, petitioner no.1 would qualify for tax under Section 3 (2) of Karnataka Electricity (Taxation on Consumption) (Amendment) Act 2013, ('Consumption Tax Act' for short) but collect ion from petitioner was under Section 3(1) of Consumption Tax Act. It was submitted petitioner had made payments, however, under protest. Disputing same, respondent no.2 passed order on - 5 - HC-KAR NC: 2025:KHC:32661 WP No. 389 of 2021 29.06.2018 holding petitioner due to a sum of Rs.2,42,00,751/- as per Annexure - M. 6. Aggrieved by said order, WPs no.39155 and 45967/2018 were filed before this Court. On 30.10.2019, both petitions were dismissed on ground of non-exertion of alternative remedy. However, WA no.3984/2019 filed against said order came to be allowed on 10.02.2020 on ground that before passing of order at Annexure-M, no opportunity of hearing was afforded to petitioners. Thereafter petitioners appeared before respondent no.2. Though, it contended that petitioners constituted Captive Generating Unit/Captive User respectively under impugned order at Annexure-R dated 20.10.2020 respondent no.2 held petitioner to be an independent power producer attracting tax under Section 3(1) of Consumption Tax Act and calling upon petitioner to make requisite payment. Aggrieved thereby, present writ petition was filed. 7. It was firstly submitted Rule 3 of Electricity Rules requires only one of these requirements to be fulfilled: that minimum of 26% of ownership of Captive Generating Unit should be held by Captive User and not less than 51% of aggregate - 6 - HC-KAR NC: 2025:KHC:32661 WP No. 389 of 2021 electricity generated by Captive Generating Unit in a year was to be consumed by Captive User. It was submitted petitioner no.1 being wholly owned subsidiary Company of petitioner no.2 and petitioner no.2 consuming more than 51% of electricity produced by petitioner no.1, both requirements were satisfied. Such being case, Tariff applicable would be under Section 3(2) and finding of respondent no.2 about petitioner being liable to pay taxes under 3(1) would not be justified. 8. It was submitted as per Section 86(i)(f), authority to decide status of Captive Generating Unit would fall within powers of State Commission i.e., KERC and respondent no.2 was not justified in determining status of petitioner as independent power producing unit. It was also submitted, while passing impugned order, respondent no.2 had observed that it had earlier decided status of petitioner as independent power producer and same could not be digressed ignoring that while allowing Writ Appeal, Division Bench of this Court had quashed earlier finding. Therefore, impugned order was liable to be quashed on ground of non-application of mind/improper application of mind. On said ground sought for allowing petition. - 7 - HC-KAR NC: 2025:KHC:32661 WP No. 389 of 2021 9. Smt.Waheeda MM, learned AGA sought to oppose petition. Referring to statement of objections filed, it was submitted, while passing impugned order, respondent no.2 took note of fact that as per record produced by petitioners, petitioner no.2 was purchasing power from petitioner no.1 on cost as per mutual agreement. Therefore, petitioner was liable to pay electricity tax under Section 3(1) at 6% from 11.03.2013 to June 2018. Such being case, demand raised by respondents were in order and there was no merit in writ petition. 10. Heard learned counsel and perused writ petition record. 11. From above, petitioners challenge against impugned order at Annexure-R is two fold. Firstly on conclusion arrived at by respondent no.2 as being contrary to law and secondly lack of jurisdiction with respondent no.3 to decide status of petitioner. Perusal of requirement of law namely Rule 3 read with definitions under Section 2(8) and (9) of Electricity Act, when petitioner no.1 is wholly owned subsidiary Company of petitioner no.2 and more than 51% power generated by petitioner no.1 is utilised by petitioner no.2, prima-facie both conditions indicated in Rule 3 of Rules stand complied i.e., petitioner no.1 as Captive Generating - 8 - HC-KAR NC: 2025:KHC:32661 WP No. 389 of 2021 Unit and petitioner no.2 a Captive User. While arriving at conclusion noting that as per mutual agreement between petitioners, petitioner no.2 was purchasing power from petitioner no.1 at rate of 3.2 per unit, respondent no.2 determined status of petitioner no.1 as independent power producer. However, there is no statutory basis for referring to power purchase as a factor for determining status of petitioners nor pointed out by respondents even in their statement of objections. Therefore, prima facie, said finding appears to be erroneous or without basis. 12. At time of allowing Writ Appeal, this Court had quashed earlier order passed by respondent no.2 at Annexure-M. Consequent to quashing earlier findings in Annexure-M were set at naught. Therefore, recording of reason by respondent no.2 that he was unable to digress from earlier findings would indicate non-application of mind. Impugned order would be liable to be quashed on said ground also. 13. Lastly, it is claimed that Section 86 provides for powers and functions of State Commission i.e., KERC. Prima- facie same would not indicate to empower KERC to decide on - 9 - HC-KAR NC: 2025:KHC:32661 WP No. 389 of 2021 status. If it is so, petitioner would be at liberty to approach KERC or such other authority for status determination of other status as Captive Generating Unit and User. In case, petitioner succeeds, said aspect would require to be taken note by respondent no.2. 14. In view of above conclusion, writ petition is allowed, order at Annexure-R dated 29.10.2020 passed by respondent no.2 stands quashed. Respondent no.2 would require to pass orders afresh after providing opportunity to petitioners and recording reasons for its conclusion. Petitioners would be at liberty to approach appropriate forum for determination of their status as Captive Generating Unit and user produce such determination for consideration by respondent no.2. Sd/- (RAVI V HOSMANI) JUDGE PSG List No.: 1 Sl No.: 18