2014 (4) TMI 1306 - SC - Indian Laws

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

Sesa Sterlite Ltd. Versus Orissa Electricity Regulatory Comm. and Ors.

The SC held that a SEZ developer, though deemed a Distribution Licensee under Section 14 of the Electricity Act, cannot avoid paying Cross Subsidy ... Liability to pay Cross Subsidy Surcharge (CSS) to the Respondent, WESCO which is a Distribution Licensee for the area in question - developer of a notified Special Economic Zone - Appellant is a 'Deemed Distribution Licensee' for the purpose of Electricity Act - requirement to apply once again 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 automatically dispenses with this requirement and ipso facto makes such SEZ developer a distribution licensee. HELD THAT:- 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 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. Thus, on the facts of this case it is not possible for the Appellant to avoid payment of CSS to WESCO. There are no merit in this Appeal which is accordingly dismissed. 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.