Provisional Assessment Based Solely on Licensee’s Internal Records Impermissible Under Section 126 of the Electricity Act: Himachal Pradesh High Court

Introduction

In M/s Kundlas Loh Udyog v. Himachal Pradesh State Electricity Board Limited, the Himachal Pradesh High Court examined whether a provisional assessment for alleged unauthorised use of electricity under Section 126 of the Electricity Act, 2003 could be initiated solely on the basis of internal data maintained by the electricity distribution licensee, without any inspection of the consumer’s premises, equipment, or relevant records.

The Court considered the statutory framework governing assessment proceedings and clarified the procedural foundation required before an assessing officer may initiate action under Section 126.

Statutory Framework: Section 126 of the Electricity Act, 2003

Section 126 of the Electricity Act, 2003 empowers an assessing officer to determine liability arising from unauthorised use of electricity. The provision contemplates that such determination follows the formation of an opinion by the assessing officer upon inspection, including:

• inspection of any place or premises where electricity is supplied or used;
• inspection of equipment, devices, or machines connected to the supply; or
• inspection of records maintained by any person.

The statutory scheme thus indicates that the assessing officer forms the requisite opinion upon inspection of the premises, equipment, or relevant records. Inspection therefore constitutes the starting point of the assessment mechanism envisaged under Section 126.

This framework suggests that proceedings under Section 126 are ordinarily triggered by material gathered through such inspection, rather than originating solely from internal scrutiny of data maintained by the distribution licensee.

Factual Matrix

The petitioner, an industrial consumer, was initially served with a demand notice in 2015 alleging tampering of its electricity meter. The allegation was based on Meter Reading Instrument (MRI) data recorded between August 2014 and May 2015.

The demand was challenged before consumer grievance and appellate forums. During the course of those proceedings, the Electricity Board ultimately withdrew the demand in February 2021.

Subsequently, in March 2021, the Board issued a fresh provisional assessment order under Section 126, raising a demand of approximately ₹4.55 crore on the basis of the same underlying allegations. The provisional assessment was founded on scrutiny of internal consumer records and MRI meter data available with the Board.

However, prior to issuing this provisional assessment, no inspection of the petitioner’s premises was carried out. Nor was any inspection undertaken of the equipment connected to supply or of records maintained by the consumer.

Interpretation of “Inspection of Records Maintained by Any Person”

A central issue before the Court concerned the interpretation of the expression “inspection of records maintained by any person” appearing in Section 126(1).

The respondent Board contended that the provision permitted reliance upon records already in its possession, including internal system data and meter records, for initiating assessment proceedings.

The Court rejected this interpretation. It observed that the statutory reference to records maintained by “any person” cannot be construed to include records generated or maintained internally by the licensee itself. Instead, the provision contemplates inspection of records maintained by the consumer or other persons connected with the use of electricity.

Accordingly, the Court clarified that:

• the inspection contemplated under Section 126 must relate to the consumer’s premises, connected equipment, or relevant records maintained by the consumer or another person; and
• internal data maintained by the distribution licensee cannot substitute the inspection envisaged under the statute.

In the absence of any inspection of the premises, equipment, or consumer records, the statutory foundation for initiating proceedings under Section 126 was found to be lacking.

Supply Code Requirements

The Court also examined the Himachal Pradesh Electricity Supply Code, 2009, framed under Sections 50 and 181 of the Electricity Act.

The Supply Code provides procedural guidance where unauthorised use of electricity is suspected. Broadly, it contemplates that the assessing officer should:

• inspect the consumer’s premises upon receiving information regarding possible unauthorised use;
• prepare an inspection report recording details such as connected load, meter condition, and relevant observations;
• document evidence indicating unauthorised use; and
• furnish a copy of the inspection report to the consumer.

The Code further envisages that a provisional assessment may follow such inspection and preparation of the inspection report.

In the present case, no inspection report had been prepared and no material was placed on record demonstrating compliance with these procedural steps.

Reliance on Supreme Court Precedent

The High Court also referred to the decision of the Supreme Court in Executive Engineer, Southern Electricity Supply Company of Orissa Ltd. v. Sri Seetaram Rice Mill. In that case, the Supreme Court explained the statutory scheme governing assessment proceedings under Section 126 and emphasised that such proceedings arise in the context of inspection conducted by the assessing authority.

Applying this principle, the High Court observed that inspection operates as the statutory trigger for the initiation of assessment proceedings. Internal analysis undertaken by the licensee, without the inspection contemplated by the statute, cannot substitute this requirement.

Conclusion

The decision clarifies that the initiation of assessment proceedings under Section 126 of the Electricity Act, 2003 is ordinarily predicated upon inspection of the consumer’s premises, equipment, or relevant records.

Where a provisional assessment is issued solely on the basis of internal records maintained by the distribution licensee, without the inspection contemplated under the statutory framework and the applicable Supply Code, the initiation of such proceedings may be found legally unsustainable.

The ruling therefore reinforces the procedural safeguards built into the assessment mechanism under the Electricity Act and underscores that compliance with the statutory inspection requirement forms an integral part of the assessment process.