●These appeals stem from the challenged ruling of the High Court of Punjab and Haryana, where a joint decision was made to resolve Criminal Appeal and Criminal Revision.
No Acts & Articles mentioned in this case
Page 1 Civil Appeal No.5479 of 2013
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5479 of 2013
M/s. Sesa Sterlite Ltd. ….Appellant(s)
Vs.
Orissa Electricity Regulatory
Comm. & Ors. …
Respondent(s)
J U D G M E N T
A.K. SIKRI, J.
1.Instant is a statutory Appeal which is filed by the
Appellant under Section 125 of the Electricity Act, 2003
(hereinafter referred to as ‘the Act’). This Appeal arises out
of the judgment and order dated 3
rd
May, 2013 passed by
Appellate Tribunal for Electricity.
2.By the aforesaid judgment, the Appellate Tribunal has
affirmed the orders of the Odisha Electricity Regulatory
Commission (hereinafter referred to as the ‘State
Commission’). The essence of these orders is that even
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Page 2 Civil Appeal No.5479 of 2013
when the Appellant is a “Deemed Distribution Licensee” for
the purpose of Electricity Act, it is still liable to pay Cross
Subsidy Surcharge (CSS) to the Respondent No.8 viz.
WESCO which is a Distribution Licensee for the area in
question.
3.To put it in nutshell, the case of the Appellant is that it
has its unit in Special Economic Zone (SEZ) and it is a
Developer in the said SEZ area. It is not drawing or utilizing
any electricity from the Distribution Licensee viz. WESCO for
its unit namely VALE-SEZ. In fact, the Appellant had
entered into a Power Purchase Agreement (PPA) dated 18
th
August, 2011 with M/s. Sterlite Energy Ltd. The Appellant
had filed application for getting approval of the said PPA.
However the Odisha State Commission, instead of granting
the approval, rejected the said PPA and directed the
Appellant to pay CSS to WESCO holding the Appellant to be
a ‘Consumer’.
4.As per the Appellant, as it is a deemed distribution
licensee for the purpose of Electricity Act by virtue of it
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Page 3 Civil Appeal No.5479 of 2013
being a ‘Developer’ because of the reason that its unit is in
SEZ area and such a recognition is given to the Appellant
statutorily under the provisions of Special Economic Zone
Act, 2005 (hereinafter referred to as SEZ Act). Therefore,
the question of payment of CSS to the Distribution Licensee
does not arise. It is also the case of the Appellant that, in
any case, since no electricity is being drawn from the open
access network of WESCO, there is no question of making
payment of cross subsidy surcharge. This is the brief
description of the dispute raised by the Appellant and in
order to understand the gravamen of this dispute, we take a
tour of the factual roadmap.
The Facts:
5.These facts are in narrow compass and have been
narrated succinctly by the Appellate Tribunal in its order. As
there is no dispute about the correctness of these facts, we
intend to traverse the same therefrom. The Appellant is
engaged in the business of production and export of
aluminium. The Appellant has set up a 1.25 MTPA capacity
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Page 4 Civil Appeal No.5479 of 2013
aluminium smelter project in a sector specific Special
Economic Zone. After getting all necessary approvals for
the development of SEZ for manufacture of export of
aluminium the appellant set up the aforesaid plant. These
approvals include the approval with captive power plant as
well. It is also a matter of record that on 27
th
February,
2009 the Ministry of Commerce and Industry, Government
of India issued a notification declaring the unit of the
Appellant to be SEZ. It was followed by Notification dated
3
rd
March, 2010 under Section 49(1) of the SEZ Act. By the
said notification, the Central Government of promoting the
objects of Special Economic Zone and in terms of powers
delegated under the Special Economic Zone Act, introduced
a proviso to the provisions of Section 14(b) of the Electricity
Act, 2003. By the said introduction, a developer of a Special
Economic Zone was declared as a deemed licensee
authorized to distribute electricity within the Special
Economic zone area. The effect of the aforesaid Notification
under section 14(b) of the Electricity Act is that the
Appellant became a deemed Distribution Licensee.
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Page 5 Civil Appeal No.5479 of 2013
6.It would be pertinent to mention at this stage that the
units of the Appellant are divided into two broad areas. One
is Domestic Tariff Area (DTA) where it has established one
of its unit. Other unit is VAL-SEZ which is in SEZ
(hereinafter referred to as VAL-SEZ Unit). In so far as its
unit in DTA is concerned, it draws power from open access
and duly phased pays cross subsidy surcharge for this area.
There is no dispute to this extent. In the present Appeal, we
are concerned with VAL-SEZ which is in SEZ Area where the
Appellant is stated as deemed Distribution Licensee for the
purpose of Electricity Act by virtue of Notification under
Section 14(b) of the Electricity Act.
7.For supply of energy to this unit in SEZ Area (VAL-2),
the Appellant entered into a PPA on 18
th
August, 2011 with
Sterlite Energy Ltd. which was arrayed as Respondent No.4
in the Appeal. However during the pendency of the Appeal
under the scheme of merger approved by the High Court,
Sterlite stood merged with the Appellant itself and because
of this reason the Respondent No.4 (hereinafter referred to
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Page 6 Civil Appeal No.5479 of 2013
as ‘Sterlite’) has been deleted from the array of parties at
the instance of the Appellant.
8.Since the supply of power by a Generating Company to
Distribution Company is regulated under the provisions of
Electricity Act, 2003, the Appellant on 30
th
August, 2011
filed a petition before the State Commission for approval of
the said PPA. Subsequently, the State Commission at the
preliminary hearing sought some clarifications with regard
to the factual aspects. The Appellant, thereafter filed two
amendment petitions. One was on 8
th
November, 2011 and
another was on 27
th
March, 2012 seeking for the additional
prayer requesting the State Commission to grant deemed
distribution licence in favour of the Appellant on the
strength of the Government of India notification issued
dated 3
rd
March, 2010 with effect from the date of the said
notification.
9.As already pointed out above, the State Commission
rejected this application for grant of deemed Distribution
Licensee and subsequently rejected the prayer of the
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Page 7 Civil Appeal No.5479 of 2013
Appellant for approval of PPA also. The State Commission,
while doing so held as under:
“a. Since the Application for grant of Distribution
License was rejected, State Commission did not
consider it necessary to go into the issues relating
to the PPA.
b. Consequent upon the rejection of the
Application for grant of Distribution License, State
Commission held that VAL is to be treated as a
consumer of WESCO.
c. As a result, VAL has to pay cross subsidy
surcharge to WESCO for open access drawal of
power from SEL.”
10.This Order of the State Commission has been upheld by
the Appellate Tribunal in Appeal filed by the Appellant.
Question of Law:
11.In the present Appeal, the Appellant has raised
following question of law which the Appellant recall this
Court to determine an answer:
“Whether a developer of a notified Special
Economic Zone, who has been deemed by law to
be a licensee for distribution of electricity, is
required to, once again, apply to Electricity
Regulatory Commission under the Electricity Act
for grant of a licence or the deeming fiction carved
out in Section 14 of the Electricity Act
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Page 8 Civil Appeal No.5479 of 2013
automatically dispenses with this requirement and
ipso facto makes such SEZ developer a distribution
licensee.”
The Arguments: Appellant
12.Mr. Shyam Diwan, Learned Senior Counsel appearing
for the Appellant, with full of passion and vehemence
argued that all the three findings of the State Commission,
which are upheld by the Appellate Tribunal, are ex facie
untenable in law. Questioning the first aspect of the order
of the authorities below refusing to register the said PPA, his
plea was that since the PPA is a contract between the two
parties, the State Commission could not have refused to
consider the same. Such outright refusal amounts to failure
to discharge the function enjoined by the Parliament on the
State Commission under Section 86(b) of the Act. Under
this provision, the State Commission has to regulate
electricity purchase and procurement process of distribution
licensee including the price at which electricity shall be
procured from the generating company. Thus it was duty
bound to approve a PPA subject to the terms and conditions
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Page 9 Civil Appeal No.5479 of 2013
which it deems fit in law and only when the parties fail to
comply with those terms of the license that such license can
be revoked. The failure to not look into a PPA altogether
amounts to non exercise of jurisdiction.
13. In so far as the opinion of the Appellate Authority that
the Appellant is to be treated as a consumer of WESCO is
concerned, Mr. Diwan placed heavy reliance on the proviso
to Section 14(b) of the Act as per which developer of the
notified SEZ itself becomes deemed Licensee from the date
of such notification. He thus argued that when there was a
specific notification under that proviso declaring the
Appellant as a developer, the Appellant was a deemed
Licensee and therefore there could not have any
requirement for the Appellant to obtain the license under
the Electricity Act. As a fortiorari, such a developer cannot
be treated as a ‘consumer’. Therefore, the authorities
below could not, in law, hold the Appellant to be a consumer
of WESCO.
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Page 10 Civil Appeal No.5479 of 2013
In the alternative, it was argued that in any case, the
Appellant was purchasing the electricity from Sterlite under
the PPA and, therefore, by no stretch of imagination, it could
be treated as consumer of WESCO. To buttress this
submission, Mr. Diwan referred to the provisions of Section
2(15) of the Electricity Act which defines the term
“consumer” and submitted that in order to treat the
Appellant as a consumer, it was necessary to establish that
it is supplied with the electricity by such “Licensee” or the
“government” or “any other person engaged in the business
of supplying electricity to the public”.
14.In so far as the third finding holding the Appellant liable
to pay CSS to WESCO for open access drawal of power from
SEZ is concerned, the submission of Mr. Diwan was that
there was no occasion for the State Commission (or for that
matter Appellate Tribunal) to go into the aspect of CSS in an
application filed by the Appellant initially for approval of PPA
only which was later amended on the directions of the State
Commission to include a prayer to the extent that the
Appellant should be recognized as a Distribution Licensee
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Page 11 Civil Appeal No.5479 of 2013
under Section 14(b) of the Electricity Act. It was submitted
that even in the amended application there was no issue of
CSS and the authorities below exceeded their jurisdiction in
going into this issue and giving such a direction.
Without prejudice to the aforesaid preliminary
submission, Mr. Diwan argued that even on merits that such
a decision was palpably contrary to law. In this behalf his
submission was that since under Section 42 of the
Electricity Act, 2003, cross subsidy surcharge is payable to
the Distribution Licensee of the area of supply only when
the “distribution system” of such Distribution Licensee is
“used” for supply of electricity. Therefore, without a clear
finding of fact on appreciation of evidence, that the supply-
line of SEL-VAL is connected to WESCO and that WESCO’s
“distribution system” is “used” for supply of electricity,
State Commission could not have held that VAL has to pay
cross subsidy surcharge to WESCO for open access drawal
of power from SEL.
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Page 12 Civil Appeal No.5479 of 2013
In this context, the attention of the Court was drawn to
the National Tariff Policy dated 6
th
January, 2014, Clause 8.5,
Orissa Electricity Regulatory Commission (Terms and
Conditions for Open access Charges) Regulations, 2005
(Clause 13(1)(ii)] and to Orissa Electricity Regulatory
Commission (Determination of Open access Charges)
Regulations, 2006 [Clause 2(j). It was submitted that from a
bare perusal of the relevant Clauses of these Regulations, it
is clear that CSS can be levied on “open access customers”
i.e. “a consumer who has availed of or intends to avail of
open access”.
In addition to the aforesaid submission, questioning the
correctness of the each of the findings of the State
Commission and the Appellate Tribunal, Mr. Diwan
emphasized that it is to be kept in mind in deciding the issue
that VAL SEZ is a Deemed Distribution Licensee by operation
of law and it need not be a Distribution Licensee within the
meaning of Section 2(17) of the Electricity Act, 2003. He
admitted that a contention of the Respondents that VAL SEZ
does not qualify as a Distribution Licensee within the
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Page 13 Civil Appeal No.5479 of 2013
meaning of Section 2(17) of the Electricity Act, 2003 is
misplaced since accepting such contention would defeat the
very purpose of the deeming fiction created by the statute.
The deeming fiction would have no relevance if the reality
which the statute creates by way of fiction already existed.
He argued that none of the five provisos to Section 14 of the
Electricity Act, 2003 require the deemed distribution
licensees mentioned therein to obtain a license under the
Electricity Act. The Developer of a notified SEZ is a special
entity under a special legislation and the definition of
“consumer” or “distribution licensee” etc. as defined under
the Electricity Act, 2003 cannot be made applicable.
It is crucial point that the SEZ Act conceptually
envisages “Developer” of an SEZ distinct from the “Zone”
itself as also distinct from “Unit”. Developer is defined under
Section 2(g) of the SEZ Act whereas Special Economic Zone
is defined under Section (za) of the SEZ Act and Unit is
defined under Section 2(zc) of the SEZ Act. Thus the
Appellant in its capacity as the Developer of the SEZ has the
duty to develop, operate and maintain the Zone. Failing the
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Page 14 Civil Appeal No.5479 of 2013
reconciliation between the provisions of the Electricity Act,
2003 and the SEZ Act, the provisions, objects and purpose of
the SEZ Act will prevail (Section 51 of the SEZ Act). The
object and purpose of the SEZ Act, inter alia, is to provide an
internationally for export production, expeditious and single
window approval mechanism and a package of incentives to
attract foreign and domestic investments for promoting
export-led growth.
The Arguments: Respondents
15.Mr. R.K. Mehta, Learned Counsel appearing on behalf of
GRIDCO Ltd. refuted the aforesaid submissions of Mr. Diwan.
His main argument was that even though the Appellant was
possessed of notification issued under Proviso to Section
14(b) of the Electricity Act, which treats the Appellant as of
Deemed Distribution Licensee, the concept of Distribution
Licensee under the Electricity Act pre-supposes
supply/distribution of power. An entity which utilizes the
entire quantum of electricity for its own consumption and
does not have any other consumers cannot be deemed to
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Page 15 Civil Appeal No.5479 of 2013
be a Distribution Licensee, even by a legal fiction. In
support of this submission, the Learned Counsel referred to
the definitions of “consumer” in Section 2(15), “Distribution
Licensee” as contained in Section 2(17) and “supply” in
relation to electricity to the consumers in Section 2(70). He
also referred to Section 42 of the Act which spells out the
duties of Distribution Licensee and open access. His
submission, thus, was that by virtue of the legal fiction
created by the Notification dated 3
rd
March, 2010, a person
who distributes Electricity can be deemed to be a
distribution licensee even though he does not have a
distribution license – But the legal fiction cannot go further
and make a person who does not distribute electricity as a
distribution licensee.
16.He also argued that if a ‘Distribution Licensee’ is
equated with ‘Consumer’ the provisions of Section 2(15),
2(17), 42 and 43 of the Electricity Act, 2003 would be
rendered otiose and nugatory. The mandate of Section 42
and 43 of the Electricity Act, 2003 cannot be negated by
exercise of power under Section 49(1)(b) of the SEZ Act. It
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Page 16 Civil Appeal No.5479 of 2013
was further submitted that only a proviso has been added to
Section 14(b) by Notification dated 3
rd
March, 2010 qua the
Appellant. There is no stipulation in the Notification that
other provisions of the Electricity Act will not apply to the
Developer of a SEZ.
17.Mr. Mehta called for harmonious construction of the
provisions of SEZ and the Electricity Act to support his
submission that the legal fiction of deemed Distribution
Licensee cannot be taken to the level of absurdity and made
applicable even when it does not involve distribution/supply
of power at all. He further pointed out the object and
scheme of SEZ Act envisages several units being set up in a
SEZ. This is evident from a collective reading of the various
provisions of the SEZ Act viz. Section 2(g)(j)(za)(zc), Section
3, 4, 11, 12, 13 and 15. There can be a Sector Specific SEZ
with Several Units i.e. for IT, Mineral Based Industries etc.
but instances of single unit SEZ like in the present case of
the appellant may be rare. The Notification dated 3
rd
March,
2010 providing for the “Developer” of an SEZ being
deemed as a “Distribution Licensee” was issued keeping in
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Page 17 Civil Appeal No.5479 of 2013
view the concept of Multi Unit SEZs and will apply only to
such cases in which the Developer is supplying the power to
multiple Units in the SEZ. The said Notification will not
apply to a Developer like the Appellant who has established
the SEZ only for itself.
18.Mr. Parag P. Tripathi, Learned Senior Counsel appeared
with Mr. Shiv Kumar Suri, Advocate on behalf of WESCO.
His submission was that in the facts of present case WESCO
was entitled to CSS on the electricity purchase by the
Appellant from Sterlite which was consumed wholly and
completely by the Appellant itself. It was pointed out that
surcharge was meant to compensate a Distribution
Licensing from the loss of cross subsidy surcharge that such
distribution licensee would suffer by reason of the consumer
taking supply from someone other than such Distribution
Licensee, the moment it is found that the Appellant is
covered by the Definition of a consumer within the meaning
of Section 2(15) of the Act. He argued that in such a
situation the mere fact that the Appellants claims to be a
deemed Distribution Licensee is of no consequence at all
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Page 18 Civil Appeal No.5479 of 2013
since the entire power purchase by the Appellant is for its
own use or consumer and not for the purpose of
Distribution. The Appellant, therefore, could be categorized
as a consumer as regards its own consumption even if it is a
deemed Licensee. On merits, it was submitted that
Transmission line between the Generating Company
(Sterlite) and the Appellant is not a Dedicated Transmission
Line, with an attempt to justify it giving various reasons
which we shall advert to all a later stage.
19.It was also argued that as per Regulation 27 of the
OERC (Conditions of supply Code) Regulations 2004, the
“service line” shall be the property of the licensee unless
otherwise specified in writing. Hence the line between the
grid sub-station and the Appellant’s SEZ qualify as the
property of WESCO and therefore any use of such line could
only be by Open Access under the EA and in any event CSS
would be payable. Reference was also made to the Rule 4
of the Electricity Rules, 2005, as per which aforesaid line
would be deemed as part of the Distribution System of
WESCO. On that basis submission of Mr. Tripathi was that
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Page 19 Civil Appeal No.5479 of 2013
from any angle the matter is to be looked into the orders of
the Appellate Tribunal was perfectly justified.
Our Analysis:
20.From the aforesaid narration of events as well as
arguments of the counsel for the parties, it has become
manifest the primary dispute relates to the CSS which the
Appellant is called upon to pay to WESCO. As per the
Appellant no such CSS is payable and the PPA which was
submitted by the Appellant to the State Commission for
approval, should have been accorded due approval by the
State Commission.
(1) Special Feature of the 2003 Act
21.Before adverting to this central issue, it would be apt to
understand conceptually the rationale of payment of such
CSS to the Distribution Company, under the scheme of the
Electricity Act. The first enactment to govern electricity
supply in India was passed in the year 1910 viz. the
Electricity Act, 1910. This Act envisaged growth of
electricity industry through private licences. It created the
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Page 20 Civil Appeal No.5479 of 2013
legal framework for laying down of wires and other works
relating to the supply of electricity. Thereafter, the
Electricity (Supply) Act, 1948 mandated the creation of a
State Electricity Board. The Board assigned the
responsibility of arranging the supply of electricity in the
State. It was experienced that over a period of time the
performance of State Electricity Boards had deteriorated on
account of various factors. Main failure on the part of these
Electricity Boards was to take decision on tariffs in
independent manner and cross subsidies had reached
untenable levels. To address this issue and also to distance
governance from determination of tariffs, the Electricity
Regulation Commission Act was enacted in the year 1998.
This Act created regulatory mechanism. Within few years, it
was felt that the three Acts of 1910, 1948 and 1998 which
were operating in the field needed to be brought in a new
self contained comprehensive legislation with the policy of
encouraging private sector participation in generation,
transmission and distribution and also the objectives of
distancing the regulatory responsibilities from the
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Page 21 Civil Appeal No.5479 of 2013
Government and giving it to the Regulatory Commissions.
With these objectives in mind the Electricity Act, 2003 has
been enacted. Significant addition is the provisions for
newer concepts like power trading and open access. Various
features of the 2003 Act which are outlined in the statement
of objects and reasons to this Act. Notably, generation is
being delicensed and captive generation is being freely
permitted. The Act makes provision for private transmission
licensees. It now provides open access in transmission from
the outset.
(2) Open Access and CSS
22.Open access implies freedom to procure power from
any source. Open access in transmission means freedom to
the licensees to procure power from any source. The
expression “open access” has been defined in the Act to
mean “the non-discriminatory provision for the use of
transmission lines or distribution system or associated
facilities with such lines or system by any licensee or
consumer or a person engaged in generation in accordance
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Page 22 Civil Appeal No.5479 of 2013
with the regulations specified by the Appropriate
Commission”. The Act mandates that it shall be duty of the
transmission utility/licensee to provide non-discriminatory
open access to its transmission system to every licensee
and generating company. Open access in transmission thus
enables the licensees (distribution licensees and traders)
and generating companies the right to use the transmission
systems without any discrimination. This would facilitate
sale of electricity directly to the distribution companies.
This would generate competition amongst the sellers and
help reduce, gradually, the cost of generation/procurement.
23.While open access in transmission implies freedom to
the licensee to procure power from any source of his choice,
open access in distribution with which we are concerned
here, means freedom to the consumer to get supply from
any source of his choice. The provision of open access to
consumers, ensures right of the consumer to get supply from
a person other than the distribution licensee of his area of
supply by using the distribution system of such distribution
licensee. Unlike in transmission, open access in distribution
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Page 23 Civil Appeal No.5479 of 2013
has not been allowed from the outset primarily because of
considerations of cross-subsidies. The law provides that
open access in distribution would be allowed by the State
Commissions in phases. For this purpose, the State
Commissions are required to specify the phases and
conditions of introduction of open access.
24.However open access can be allowed on payment of a
surcharge, to be determined by the State Commission, to
take care of the requirements of current level of cross-
subsidy and the fixed cost arising out of the licensee’s
obligation to supply. Consequent to the enactment of the
Electricity (Amendment) Act, 2003, it has been mandated
that the State Commission shall within five years necessarily
allow open access to consumers having demand exceeding
one megawatt.
(3) CSS: Its Rationale
25.The issue of open access surcharge is very crucial and
implementation of the provision of open access depends on
judicious determination of surcharge by the State
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Page 24 Civil Appeal No.5479 of 2013
Commissions. There are two aspects to the concept of
surcharge – one, the cross-subsidy surcharge i.e. the
surcharge meant to take care of the requirements of current
levels of cross-subsidy, and the other, the additional
surcharge to meet the fixed cost of the distribution licensee
arising out of his obligation to supply. The presumption,
normally is that generally the bulk consumers would avail of
open access, who also pay at relatively higher rates. As
such, their exit would necessarily have adverse effect on the
finances of the existing licensee, primarily on two counts –
one, on its ability to cross-subsidise the vulnerable sections
of society and the other, in terms of recovery of the fixed
cost such licensee might have incurred as part of his
obligation to supply electricity to that consumer on demand
(stranded costs). The mechanism of surcharge is meant to
compensate the licensee for both these aspects.
26.Through this provision of open access, the law thus
balances the right of the consumers to procure power from a
source of his choice and the legitimate claims/interests of
the existing licensees. Apart from ensuring freedom to the
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Page 25 Civil Appeal No.5479 of 2013
consumers, the provision of open access is expected to
encourage competition amongst the suppliers and also to
put pressure on the existing utilities to improve their
performance in terms of quality and price of supply so as to
ensure that the consumers do not go out of their fold to get
supply from some other source.
27.With this open access policy, the consumer is given a
choice to take electricity from any Distribution Licensee.
However, at the same time the Act makes provision of
surcharge for taking care of current level of cross subsidy.
Thus, the State Electricity Regulatory Commissions are
authorized to frame open access in distribution in phases
with surcharge for:
(a) Current level of cross subsidy to be gradually
phased out along with cross subsidies; and
(b) obligation to supply.
28.Therefore, in the aforesaid circumstances though CSS is
payable by the Consumer to the Distribution Licensee of the
area in question when it decides not to take supply from
that company but to avail it from another distribution
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Page 26 Civil Appeal No.5479 of 2013
licensee. In nutshell, CSS is a compensation to the
distribution licensee irrespective of the fact whether its line
is used or not, in view of the fact that, but for the open
access the consumer would pay tariff applicable for supply
which would include an element of cross subsidy surcharge
on certain other categories of consumers. What is
important is that a consumer situated in an area is bound to
contribute to subsidizing a low and consumer if he falls in
the category of subsidizing consumer. Once a cross subsidy
surcharge is fixed for an area it is liable to be paid and such
payment will be used for meeting the current levels of cross
subsidy within the area. A fortiorari, even a licensee which
purchases electricity for its own consumption either through
a “dedicated transmission line” or through “open access”
would be liable to pay Cross Subsidy Surcharge under the
Act. Thus, Cross Subsidy Surcharge, broadly speaking, is
the charge payable by a consumer who opt to avail power
supply through open access from someone other than such
Distribution licensee in whose area it is situated. Such
surcharge is meant to compensate such Distribution
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Page 27 Civil Appeal No.5479 of 2013
licensee from the loss of cross subsidy that such Distribution
licensee would suffer by reason of the consumer taking
supply from someone other than such Distribution licensee.
(4) Application of the CSS Principle
29.In the present case, admittedly, the Appellant (which
happens to be the operator of an SEZ) is situate within the
area of supply of WESCO. It is seeking to procure its entire
requirement of electricity from Sterlite (an Independent
Power Producer (“IPP”) (which at the relevant time was a
sister concern under the same management) and thereby is
seeking to denude WESCO of the Cross Subsidy that WESCO
would otherwise have got from it if WESCO were to supply
electricity to the Appellant. In order to be liable to pay cross
subsidy surcharge to a distribution licensee, it is necessary
that such distribution licensee must be a distribution
licensee in respect of the area where the consumer is
situated and it is not necessary that such consumer should
be connected only to such distribution licensee but it would
suffice if it is a “consumer” within the aforesaid definition.
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Page 28 Civil Appeal No.5479 of 2013
30.Having regard to the aforesaid scheme, in normal
course when the Appellant has entered to PPA with Sterlite,
another Electricity Generating Company and is purchasing
electricity from the said Company it is liable to pay CSS to
the WESCO. Admittedly under the PPA, the Appellant is
purchasing his electricity from the said generating station
and it is consumed by the single integrated unit of the
Appellant. The Appellant therefore, qualifies to be a
“consumer” under Section 2(15) of the Electricity Act. It is
also not in dispute that the unit of the Appellant is in the
area which is covered by the licenses granted to WESCO as
distribution licenses.
31.Notwithstanding the above, because of the reason that
the area where the unit of Val-SEZ unit of the Appellant is
situate is a SEZ area and the Appellant is declared as
developer for that area under the SEZ Act, it is the
contention of the Appellant that in such a scenario it is not
liable to pay any CSS to the WESCO. This submission flows
from the fact that there is a notification issued in this behalf
under proviso to Section 49 of the SEZ Act and the
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Page 29 Civil Appeal No.5479 of 2013
Appellant itself is treated as a deemed Distribution Licensee
as per the provisions of Section 14 of the Electricity Act. On
that basis, detailed submissions are made by the Appellant
with an attempt to show that it cannot be treated as a
“consumer” under the Electricity Act when the Appellant
itself is deemed to be a licensee. It is further argued that
since the supply line of VAL-SEZ is not connected to WESCO
and it is getting the electricity directly from Sterlite under
the PPA, there is no question of payment of CSS to WESCO
at all. Argument of the WESCO that the lines owned by the
VAL-SEZ are only “Transmission Lines” under Section 2 of
the Electricity Act and not “dedicated Transmission Lines”
because of the reason that the duty of the Generator to
establish and maintain dedicated transmission lines, is
sought to be refuted by arguing that even as per Section
2(72) of the Act Transmission Lines are part of the
Distribution System of Licensing”. It is argued that it is not
even the case of WESCO that the supply line of SEL-VAL is a
part of WESCO Distribution System.
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Page 30 Civil Appeal No.5479 of 2013
(5) Factual Aspect of the Electricity Supply to the
Appellant:
32.In order to appreciate these arguments, it would
appropriate to first advert to the factual aspect of the
supply of electricity by Sterlite to the Appellant under the
PPA. No doubt the Appellant is getting direct supply of
electricity from Sterlite. However, question is as to whether,
in the process, it is using dedicated transmission lines of
WESCO. We may point out at the outset that such an
argument was not even raised before the two authorities
below. Primarily it was argued that having acquired the
status of deemed distribution licensee under the Electricity
Act, it cannot be treated as a “consumer” of other
distribution licensee, viz. the WESCO. Even the question of
law which is proposed and framed in the grounds of appeal
and is already reproduced, does not raise this issue, which
is even otherwise factual. Notwithstanding, the Learned
Counsel for the WESCO has argued that the transmission
line between the Sterlite and the Appellant is not a
dedicated transmission line for the following reasons:
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Page 31 Civil Appeal No.5479 of 2013
(a) Under Section 2(16) of the Electricity Act, 2003, a
“Dedicated Transmission Line” is an electric supply line for
“point to point” transmission, which are required for the
purpose of connecting electric line or electric plan of a
generating station to “any transmission line”, or “sub-
station” or “generating station” or the “load centre”, “as the
case may be”.
(b) The Transmission Line in question commences from the
Generator (Sterlite) and connects to the 400 KV Sub-Station
at Sterlite end at Jharsuguda. It does not connect directly to
the “Load Centre” which is the Appellant.
(c) The 400 KV Busbar at the Generator (Sterlite) end is
connected to a 200 KV Busbnar at VAL-CGP caters to the
VAL - Smelter 1 in the Domestic Tariff Area.
(d) The said 400/200 KV sub-station is also connected to
the OPTCL Grid (State Transmission Utility) at Budhipadar
through 220 KV Bus at VAL – CGP end for the purpose of
evacuation of Sterlite power to GRIDCO as well as drawal of
power by VAL – Smelter – 1.
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Page 32 Civil Appeal No.5479 of 2013
(e) The said 400/220 kv sub-station is also connected to
Power Grid Corporation of India (PGCIL) line from which 2
nos of 400 KV Lines emanate for Interstate sale of its
Sterlite power through PGCIL Grid.
(f) The said 400/220 kv sub-station which is connected
through 5 Km of 220 KV line to the 220 KV Bus of switching
station at VAL – CGP end. There are 4 no’s of 200 KV
transmission lines branching out from the said 220 KV
switching station to carry power to VAL Smelter-1 Unit of the
Appellant which is within the area of the Distribution
Licensee (WESCO).
(g) The said 400/220 kv sub-station also has 2 nos of 33 KV
Tertiary transmission lines from 100/220/33 KV Transformer
supplying electricity to Vedanta Township.
(h) Three such 400 KV Transmission lines emanating from
the 400 KV Busbar at the Sterlite-IPP (Generator end) also
happens to Supply power from the sub-station to the
Appellant’s load centre (VAL-Smelter-2) in the SEZ area.
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Page 33 Civil Appeal No.5479 of 2013
(i) Hence, the only part of the “dedicated” transmission
line, if at all, is from the Generating Station 9Sterlite – IPP)
to such 400 KV Busbar of the 400/220 KV Grid Sub-station.
(j) The transmission line that connects the sub-station to
the load centre of the Appellant is only a “transmission line”
under Section 2(72) of the EP 2003.
33.Following diagram is placed by WESCO to demonstrate
this:
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Page 34 Civil Appeal No.5479 of 2013
34
Page 35 Civil Appeal No.5479 of 2013
34. Though the Appellant endeavoured to counter this
position and has given its own diagram that does not lodge
the aforesaid factual aspect. Therefore, prima facie we
accept the position as explained by the WESCO. Thus we
feel that notwithstanding that supply line of SEL-VAL is
transmission line, but not “dedicated transmission line”.
The Appellant cannot run away from the fact that under
Section 2(10) of the Electricity Act, it is the duty of the
Generating Company (i.e. WESCO) in this case to establish,
operate and maintain dedicated transmission lines. Since it
is duty bound to establish, operate and maintain these
dedicated lines by making huge investment, in order to get
into the consumption in the area in question the very
necessity of payment of CSS arises by the consumer of
Electricity covered by the definition of “consumer” under
Section 2(15) of the Act but is not getting supply of that
Generator and someone else. We have also to keep in mind
the provision of Regulation 27 of OERC (Conditions of Supply
Code) Regulation 2004. As per this Regulation the “service
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Page 36 Civil Appeal No.5479 of 2013
line” shall be the property of the licensee unless otherwise
specified in writing. This clause reads as under:
“27. The entire service line, notwithstanding that
whole or portion thereof has been paid for by the
consumer, shall be the property of the licensee
and shall be maintained by the licensee who shall
always have the right to use it for the supply of
energy to any other person unless the line has
been provided for the exclusive use of the
consumer through any arrangement agreed to in
writing.”
35. Further as per Rule 4 of the Electricity Rule, 2005 the
aforesaid line would be deemed to be part of Distribution
System of WESCO:
“4. Distribution System – The distribution system
of a distribution licensee in terms of sub-section
(19) of section 2 of the Act shall also include
electric line, sub-station and electrical plant that
are primarily maintained for the purpose of
distributing electricity in the area of supply of such
distribution licensee notwithstanding that such
line, sub-station or electrical plant are high
pressure cables or overhead lines or associated
with such high pressure cables or overhead lines;
or used incidentally for the purposes of
transmitting electricity for others.”
“Distribution system” is defined in Section 2(19) of
the Act to mean:-
“(19) “distribution system” means the system of
wires and associated facilities between the
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Page 37 Civil Appeal No.5479 of 2013
delivery points on the transmission lines or the
generating station connection and the point of
connection to the installation of the consumers:”
“Transmission Line” is defined in Section 2(72) to
mean:-
(72) “transmission lines” means all high pressure
cables and overhead lines (not being an essential
part of the distribution system of a licensee)
transmitting electricity from a generating station
to another generating station or a sub-station,
together with any step-up and step-down
transformers, switch-gear and other works….”
(6) Appellant deemed distribution Licensee: Its
effect
36. It is now to be seen as to whether the fact that the
Appellant is a Developer in SEZ, armed with Notification
dated 3
rd
March, 2010 issued under Proviso to Section 49 of
the SEZ Act and it deemed distribution licensee as per
Section 14 of the Electricity Act, this would take away the
Appellant from the clutches of CSS liability?
37. In order to appreciate this argument let us first refer to
the certain statutory provisions:
Section 49 of the Special Economic Zone Act
provides as under:
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Page 38 Civil Appeal No.5479 of 2013
“Power to modify provisions of this Act or
other enactments in relation to Special Economic
Zones.
(1) the Central Government may, by
notification, direct that any of the provision of this
Act (other than Section 54 and 56) or any other
Central Act or any rules or regulations made
thereunder or any notification or Order issued or
direction given thereunder (other than the
provisions relating to making of the rules or
regulations) specified in the notification-
(a) shall not apply to a Special Economic Zone
or a class of Special Economic Zones or all Special
Economic Zones: or
(b) shall apply to a Special Economic Zone or
a class of Special Economic Zones or all Specials
Economic Zones only with such exceptions,
modifications and adaptation, as may be specified
in the notifications.”
38. Likewise Section 14 of the Electricity Act reads as under:
“14. Grant of License
The Appropriate Commission may, on application
made to it under section 15, grant any person
licence to any person –
(a) To transmit electricity as a transmission
licensee: or
(b) To distribute electricity as a distribution
licensee: or
(c) To undertake trading in electricity as an
electricity trader, in any area which may be
specified in the licence:
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Page 39 Civil Appeal No.5479 of 2013
Provided that any person engaged in the business
of transmission or supply or electricity under the
provisions of the repealed laws or any Act
specified in the Schedule on or before the
appointed date shall be deemed to be a licensee
under this Act for such period as may be stipulated
in the licence, clearance or approval granted to
him under the repealed laws or such Act specified
in the Schedule, and the provisions of the repealed
laws or such Act specified in the Schedule in
respect of such licence shall apply for a period of
one year from the date of commencement of this
Act or such earlier period as may be specified, at
the request of the licensee, by the Appropriate
Commission and thereafter the provisions of this
Act shall apply to such business:
Provided further that the Central transmission
Utility or the State Transmission Utility shall be
deemed to be a transmission licensee under this
Act:
Provided also that in case an Appropriate
Government transmits electricity or distributes
electricity or undertakes trading in electricity,
whether before or after the commencement of this
Act, such Government shall be deemed to be a
licensee under this Act, but shall not be required
to obtain a licence under this Act:
Provided also that the Damodar Valley
Corporation, established under sub-section(1) of
section 3 of the Damodar Valley Corporation Act,
1948, shall be deemed to be a licensee under this
Act but shall not be required to obtain a licence
under this Act and the provisions of the Damodar
Valley Corporation Act, 1948, in so far as they are
not inconsistent with the provisions of this Act,
shall continue to apply to that Corporation:
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Page 40 Civil Appeal No.5479 of 2013
Provided also that the Government Company or
the Company referred to in sub-section (2) of
section 131 of this Act and the company or
companies created in pursuance of the Acts
specified in the Schedule, shall be deemed to be a
licensee under this Act.
Provided also that the Appropriate Commission
may grant a licence to two or more persons for
distribution of electricity through their own
distribution system within the same area, subject
to the conditions that the applicant for grant of
licence within the same area, subject to the
conditions that the applicant for grant of licence
within the same area shall, without prejudice to
the other conditions or requirements under this
Act, comply with the additional requirements
(including the capital adequacy, credit worthiness,
or code of conduct) as may be prescribed by the
Central Government, and no such applicant who
complies with all the requirements for grant of
licence, shall be refused grant of licence on the
ground that there already exists a licensee in the
same are for the same purpose:
Provided also that in a case where a distribution
licensee proposes to undertake distribution of
electricity for a specified area within his area of
supply through another person, that person shall
not be required to obtain any separate licence
from the concerned State Commission and such
distribution licensee shall be responsible for
distribution of electricity in his area of supply:
Provided also that where a person intends to
generate and distribute electricity in a rural area
to be notified by the State Government, such
person shall not require any licence for such
generation and distribution of electricity, but he
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Page 41 Civil Appeal No.5479 of 2013
shall comply with the measures which may be
specified by the Authority under section 53:
Provided also that a distribution licensee shall not
require a licence to undertake trading in
electricity.”
39. We would also like to take note of Notification dated 3
rd
March, 2010 issued in the case of Appellant. It makes the
following reading:
“NOTIFICATION
S.O. No.528(E). In exercise of the powers conferred by
clause(b) of sub-section (1) of section 49 of the Special
Economic zones Act, 2005 (28 of 2005), the Central
Government hereby notifies that the provisions of clause (b)
of section 14 of the Electricity Act, 2003 (36 of 2003), shall
apply to all Special Economic Zones notified under sub-
section (1) of section 4 of the Special Economic Zones Act,
2005, subject to the following modification, namely:-
In clause (b) of section 14 of the Electricity Act, 2003
(36 of 2003), the following proviso shall be inserted,
namely:-
“ Provided that the Developer of a Special
Economic Zone notified under sub section (1) of
section 4 of the Special Economic Zones Act, 2005
shall be deemed to be a licensee for the purpose
of this clause, with effect from the date of
notification of such Special Economic Zone.”
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Page 42 Civil Appeal No.5479 of 2013
40. The reading of Section 49 of SEZ Act would reveal that
the Central Government has got the authority to direct that
any of the provisions of a Central Act and rules and
regulations made thereunder would not apply or to declare
that some of the provisions of the Central Acts shall apply
with exceptions, modifications and adaptation to the Special
Economic Zone. So, under the scheme of Special Economic
Zone Act, Central Government has to first notify as to what
extent the provision of the other Acts are to be made
applicable or applicable with modification or not applicable
for the Special Economic Zone area. It is in furtherance
thereto, the Government of India, Ministry of Commerce and
Industry through its notification dated 21
st
March, 2012, with
regard to power generation in Special Economic Zone, has
declared that all the provisions of the Electricity Act, 2003
and Electricity Rule, 2005 shall be applicable to the
generation, transmission and distribution of power, whether
stand alone or captive power. This notification would clarify
that there is no inconsistency between Special Economic
Zone Act, 2005 and Electricity Act, 2003.
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Page 43 Civil Appeal No.5479 of 2013
41.No doubt vide Notification dated 3
rd
March, 2010
Central Government has added an additional proviso to
Clause (b) of Section 14 of the Electricity Act viz. the
Appellant shall be deemed to be licensee for the purpose of
the said clause w.e.f. the date of notification of such SEZ. It
is on this basis, the argument of the Appellant is that as it is
already a deemed Distribution Licensee it need not apply for
this license to the said Commission before entering into the
PPA and the State Government is bound to grant the
License. This contention is negated by the Appellate
Tribunal on two grounds which are as follows:
(i) There has to be a harmonious construction of SEZ Act
and Electricity Act to give effect to the provisions of both
the acts so long as they are not consistent with each other
in the opinion of the Tribunal. The provisions of Section 51
of SEZ Act, 2005 are to be considered along with the
provisions of Section 49 of the said Act. Accordingly, in view
of the provision of the SEZ Act, 2005 and consequent
notification by the Ministry of Commerce and Industry, the
deemed distribution licensee status as claimed by the
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Page 44 Civil Appeal No.5479 of 2013
Appellant should also be tested through other provisions of
the Electricity Act, 2003 and Electricity Rules, 2005, for
certifying its validity and converting it into a formal
distribution licensee. In fact, the Appellant has submitted to
the jurisdiction of the State Commission, by filing a petition
before the State Commission seeking for approval of the
PPA and also for grant of distribution licence. The Appellate
Tribunal, thus queried as to how could the Appellant now
question the jurisdiction?
(ii) The Appellate Tribunal pointed out that there are none
provisos to Section 14(b) of the Electricity Act and another
is added in respect of the Appellant vide Notification dated
3
rd
March, 2010. A reading of these provisos would indicate
that some of them confer status of deemed distribution
licensee on certain specified entities who are not required to
take separate licence from the State Commission under this
Act whereas some other provisos merely declare the party
as deemed licensee and nothing specified as to whether
they are required to obtain the licence or not. However
when it is specially provided in proviso 4 and proviso 8 and
44
Page 45 Civil Appeal No.5479 of 2013
2 that the Damodar Valley Corporation and State
Government are not required to obtain licence, and other
provisos do not confer such privilege, they would be
required to obtain licence.
42.Further discussion on this aspect by the Appellate
Tribunal is as under:
“42. Keeping this in mind, the statute makers by
the notification dated 3.03.2010 have inserted the
additional proviso to Section 14(b) of the
Electricity Act. Admittedly, the development and
operation of the SEZ are two distinct activities.
Thus, the jurisdiction of the State Commission to
scruitinise the deemed distribution status of the
Appellant is well established in view of the Section
49(1) of SEZ, Act, 2005 and the notification of the
Central Government dated 21.03.2012. Therefore,
the contention of the Appellant that the State
Commission dealt with the matter relating to the
grant of distribution licence by going beyond its
jurisdiction is misplaced.
43. It is noticed that the Ministry of Commerce
and Industry (Department of SEZ Section) has
accorded SEZ status to the Appellant for
development and operation and maintenance of
sector specific Special Economic Zone for
manufacture and export of aluminium on the
condition that the Appellant should establish
captive generating plant as stipulated in the
approval letter of Ministry of Commerce and
Industry but it is pointed out the still the plant has
not been established for various reasons. If
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Page 46 Civil Appeal No.5479 of 2013
Captive generating plant of 1215 MW had been
established as per the condition inside the SEZ
area, the question of power purchase from Sterlite
Energy Limited under the pretext of distribution
licensee status would not have arisen. That apart,
the State Commission has framed Orissa
Electricity Regulatory Commission (conduct of
business) Regulation, 2004 under the powers
conferred under Section 181 of the Electricity Act,
2003. The distribution of electricity Licence
(Additional requirement of Capital Adequacy,
Credit Worthiness and Code of Conduct) Rules,
2005 framed by the Central Government also
would apply to the Appellant for distribution
licence in addition to the requirements of State
Commission’s Regulations.
45. Section 174 of the Electricity Act provides that
the provisions of the Electricity Act shall have to
overriding effect notwithstanding anything
inconsistent with any other law for the time being
in force or in any instrument having effect by
virtue of any law other than Electricity Act. That
apart, Section 175 also provides that the
provisions of the Electricity Act are in addition to
and not in derogation of any other law for the time
being in force.
47. The perusal of the notification dated
03.03.2010 would make it evident that the
legislation’s intention for declaring the developer
in SEZ area as deemed distribution licence, is
confined only to clause-b of Section 14 of
Electricity Act, which deals with the grant of
license by the appropriate State Commission to
any person for distribution of electricity. The said
notification has not curtailed the power of State
Commission so far as the applicability of other
provisions is concerned. The interpretation of
various relevant terms was necessary prior to
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Page 47 Civil Appeal No.5479 of 2013
grant of deemed distribution licence by the State
Commission. Therefore, the State Commission
rightly acted upon those provisions. As a matter
of fact, by the said amendment by inserting
another proviso to Section 14(b), the context has
not been changed as claimed by the Appellant.
49. As correctly indicated by the State
Commission, the definition of term “distribution
licensee” as enumerated under Section 2(17) of
Electricity Act, 2003, emphasizes upon the
distribution licensee to operate and maintain a
distribution system and supply of power to the
consumers. Considering the definition of ‘supply’
in Section 2(70), the supply here means sale of
electricity to consumers. By merely being
authorized to operate and maintain a distribution
system as a deemed licensee, would not confer
the status of distribution licensee to any person.
The purpose of such establishment is for supply of
power to consumers. Mere fact that the Appellant
claims to be a deemed distribution licensee is of
no consequence at all since admittedly, the entire
power purchased by the Appellant is for its own
use and consumption and not for the purpose of
distribution and supply/sale to consumers.
50. An entity which utilizes the entire quantum of
electricity for its own consumption and does not
have any other consumers, cannot, by such a
notification, be deemed to be distribution licensee,
even by a legal fiction. By virtue of the legal
fiction created by the notification dated 3.03.2010,
the Developer of SEZ notified under the SEZ Act,
who distributes electricity can be deemed to be a
distribution licensee. Thus, this legal fiction
cannot go further and make a person who does
not distribute electricity to the consumers as to
distribution licensee. Therefore there is no merit
in the contention of the Appellant.
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Page 48 Civil Appeal No.5479 of 2013
43. We are in agreement with the aforesaid rationale in the
impugned order of the Appellate Tribunal as that is the only
manner in which the two Acts can be harmoniously
construed. To recapitulate briefly, in the present case no
doubt by virtue of the status of a developer in the SEZ area,
the Appellant is also treated as deemed Distribution
Licensee. However with this, it only gets exemption from
specifically applying for licence under Section 14 of the Act.
In order to avail further benefits under the Act, the Appellant
is also required to show that it is in fact having distribution
system and has number of consumers to whom it is
supplying the electricity. That is not the case here. For its
own plant only, it is getting the electricity from Sterlite Ltd.
for which it has entered into PPA. We have to keep in mind
the object and scheme of SEZ Act which envisages several
units being set up in a SEZ area. This is evident from a
collective reading of the various provisions of the SEZ Act
viz. Section 2(g)(j)(za)(zc), Section 3, 4, 11, 12, 13 and 15.
There can be a Sector Specific SEZ with Several Units i.e. for
IT, Mineral Based Industries etc. but instances of single unit
48
Page 49 Civil Appeal No.5479 of 2013
SEZ like in the present case of the Appellant may be rare.
The Notification dated 03.03.2010 providing for the
“Developer” of SEZ being deemed as a “Distribution
Licensee” was issued keeping in view the concept of Multi
Unit SEZs and will apply only to such cases in which the
Developer is supplying the power to multiple Units in the
SEZ. The said Notification will not apply to a Developer like
the Appellant who has established the SEZ only for itself.
44. Having regard to the aforesaid factual and legal aspects
and keeping in mind the purpose for which CSS is payable,
as explained in detail in the earlier part of this judgment, we
are of the view that on the facts of this case it is not possible
for the Appellant to avoid payment of CSS to WESCO. We,
therefore, do not find any merit in this Appeal which is
accordingly dismissed.
…………………………….………J.
[Surinder Singh Nijjar]
…………………………………….J.
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Page 50 Civil Appeal No.5479 of 2013
[A.K. Sikri]
New Delhi
April 25, 2014
50
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