2021 (12) TMI 843 - SC - Indian Laws

Supreme Court rules captive consumers exempt from surcharge under Electricity Act

Maharashtra State Electricity Distribution Co. Ltd. Versus M/s. JSW Steel Limited & Ors.

The Supreme Court upheld the decision of the Appellate Tribunal, ruling that captive consumers are not liable to pay the additional surcharge under ... Levy of additional surcharge leviable under Section 42(4) of the Electricity Act, 2003 - captive consumers/captive users are liable to pay or not - HELD THAT:- Ordinarily, a consumer or class of consumers has to receive supply of electricity from the distribution licensee of his area of supply. However, with the permission of the State Commission such a consumer or class of consumers may receive supply of electricity from the person other than the distribution licensee of his area of supply, however, subject to payment of additional surcharge on the charges of wheeling as may be specified by the State Commission to meet the fixed cost of such distribution licensee arising out of his obligation to supply. There is a logic behind the levy of additional surcharge on the charges of wheeling in such a situation and/or eventuality, because the distribution licensee has already incurred the expenditure, entered into purchase agreements and has invested the money for supply of electricity to the consumers or class of consumers of the area of his supply for which the distribution license is issued. Therefore, if a consumer or class of consumers want to receive the supply of electricity from a person other than the distribution licensee of his area of supply, he has to compensate for the fixed cost and expenses of such distribution licensee arising out of his obligation to supply - the levy of additional surcharge under sub-section (4) of Section 42 can be said to be justified and can be imposed and also can be said to be compensatory in nature. However, sub-section (4) of Section 42 shall be applicable only in a case where the State Commission permits a consumer or class of consumers to receive supply of electricity from a person other than the person – distribution licensee of his area of supply. So far as captive consumers/captive users are concerned, no such permission of the State Commission is required and by operation of law namely Section 9 captive generation and distribution to captive users is permitted. Even otherwise, it is required to be noted that the consumers defined under Section 2(15) and the captive consumers are different and distinct and they form a separate class by themselves. So far as captive consumers are concerned, they incur a huge expenditure/invest a huge amount for the purpose of construction, maintenance or operation of a captive generating plant and dedicated transmission lines. However, so far as the consumers defined under Section 2(15) are concerned, they as such are not to incur any expenditure and/or invest any amount at all - it is to be held that such captive consumers/captive users, who form a separate class other than the consumers defined under Section 2(15) of the Act, 2003, shall not be subjected to and/or liable to pay additional surcharge leviable under Section 42(4) of the Act, 2003. Appeal dismissed. Issues Involved:1. Liability of captive consumers to pay additional surcharge under Section 42(4) of the Electricity Act, 2003.Issue-wise Detailed Analysis:1. Liability of Captive Consumers to Pay Additional Surcharge under Section 42(4) of the Electricity Act, 2003:The core issue addressed in the judgment is whether captive consumers are liable to pay the additional surcharge under Section 42(4) of the Electricity Act, 2003. The appellant, a distribution licensee, challenged the Appellate Tribunal for Electricity's decision, which had set aside the Maharashtra Electricity Regulatory Commission's order that imposed additional surcharge on captive consumers.Background and Legal Provisions:The appellant filed a petition before the State Commission for the approval of Multi Year Tariff (MYT) and other related financial adjustments. The State Commission initially ruled that additional surcharge under Section 42(4) of the Electricity Act, 2003, is not applicable to captive users for their self-consumption but is applicable to all consumers who availed open access to receive supply from sources other than the distribution licensee.Subsequently, the appellant submitted a revised review petition, which included a request to approve additional surcharge for all open access consumers, including those sourcing power from Captive Power Producers (CPPs). The State Commission, in its order dated 12.09.2018, held that additional surcharge is leviable on captive consumers.Appellate Tribunal's Decision:The captive consumers approached the Appellate Tribunal, which set aside the State Commission's order, holding that captive consumers are not liable to pay additional surcharge under Section 42(4) of the Act.Supreme Court's Analysis:The Supreme Court examined the relevant provisions of the Electricity Act, 2003, particularly Sections 9 and 42. Section 9 grants the right to construct, maintain, and operate a captive generating plant and dedicated transmission lines without requiring a license. It also provides the right to open access for carrying electricity from the captive plant to the destination of use, subject to the availability of transmission facilities.Section 42(4) stipulates that additional surcharge is applicable when the State Commission permits a consumer to receive supply from a source other than the distribution licensee. However, the proviso to Section 42(2) explicitly states that such surcharge is not leviable for open access provided to a person with a captive generating plant for carrying electricity to the destination of his own use.Key Findings:The Court observed that captive generation and use are statutorily provided under Section 9, and no permission from the State Commission is required for captive users. The additional surcharge under Section 42(4) applies only when a consumer receives supply from a source other than the distribution licensee with the State Commission's permission. Captive users, having a statutory right to open access, do not fall under this category.The Court further distinguished between ordinary consumers and captive consumers, noting that the latter invest significantly in constructing and maintaining captive generating plants and transmission lines. Subjecting captive consumers to additional surcharge would be discriminatory, as they form a separate class distinct from ordinary consumers defined under Section 2(15) of the Act.Conclusion:The Supreme Court upheld the Appellate Tribunal's decision, concluding that captive consumers are not liable to pay the additional surcharge under Section 42(4) of the Electricity Act, 2003. The appeals were dismissed, and the appellant was directed to adjust the additional surcharge already recovered from captive consumers in future wheeling charges bills, considering the potential financial burden of immediate refunds.The judgment emphasizes the statutory rights of captive consumers and clarifies the non-applicability of additional surcharge under the specified legal framework.