SEZ developer must pay Cross Subsidy Surcharge despite deemed licensee status under Section 14 when operating single-unit SEZ for own use only

The SC held that a SEZ developer, though deemed a Distribution Licensee under Section 14 of the Electricity Act, cannot avoid paying Cross Subsidy Surcharge (CSS) to the distribution licensee when operating a single-unit SEZ for its own use only. The Court ruled that the deemed licensee status merely exempts from applying for a separate licence but requires actual distribution system and multiple consumers to avail further benefits. The notification treating SEZ developers as distribution licensees applies only to multi-unit SEZs where power is supplied to multiple units, not single-unit SEZs. The appeal was dismissed.

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Issues Involved:
1. Whether a developer of a notified Special Economic Zone (SEZ), who is deemed by law to be a licensee for distribution of electricity, is required to apply to the Electricity Regulatory Commission for a license.
2. Whether the appellant, as a deemed distribution licensee, is liable to pay Cross Subsidy Surcharge (CSS) to WESCO.

Issue-wise Detailed Analysis:

1. Requirement for License Application by SEZ Developer:

The appellant contended that being a deemed distribution licensee under Section 14(b) of the Electricity Act, 2003, due to its status as a developer in an SEZ, it should not be required to apply for a license from the Electricity Regulatory Commission. The appellant argued that the notification under the SEZ Act granted it this status automatically, negating the need for further application.

However, the judgment clarified that the deemed distribution licensee status conferred by the SEZ notification does not exempt the appellant from complying with other provisions of the Electricity Act. The Appellate Tribunal held that there must be a harmonious construction of the SEZ Act and the Electricity Act, ensuring that the appellant complies with all necessary regulatory requirements. The Tribunal emphasized that the appellant had submitted to the jurisdiction of the State Commission by filing a petition for the approval of the Power Purchase Agreement (PPA) and for the grant of a distribution license, thus recognizing the Commission's authority.

2. Liability to Pay Cross Subsidy Surcharge (CSS):

The appellant argued that as a deemed distribution licensee, it should not be treated as a consumer of WESCO and thus not liable to pay CSS. It was further argued that since the appellant was purchasing electricity directly from Sterlite Energy Ltd. under a PPA, it did not use WESCO's distribution system, and hence, CSS was not applicable.

The judgment explained the rationale behind CSS, which is designed to compensate the distribution licensee for the loss of cross-subsidy when a consumer opts to procure electricity from a source other than the local distribution licensee. The Court noted that the appellant's unit is located within WESCO's area of supply and is purchasing electricity from Sterlite, thereby depriving WESCO of the cross-subsidy it would have received if it supplied electricity to the appellant.

The Court found that the appellant's argument about not using WESCO's distribution system was not raised before the lower authorities and was primarily factual. The Court accepted WESCO's position that the transmission line between Sterlite and the appellant was not a dedicated transmission line, but part of WESCO's distribution system, making the appellant liable to pay CSS.

Conclusion:

The Supreme Court upheld the Appellate Tribunal's decision, affirming that the appellant, despite being a deemed distribution licensee, must comply with the regulatory framework of the Electricity Act, including the requirement to apply for a license if necessary. Furthermore, the appellant was found liable to pay CSS to WESCO, as it was situated within WESCO's supply area and was procuring electricity from an alternative source, thereby necessitating compensation for the loss of cross-subsidy. The appeal was dismissed, and the appellant's arguments were found to lack merit.

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