2025 (8) TMI 326 - SC - Indian Laws

Regulator and appellate rulings upheld: distributor cannot unilaterally set procurement tariff; discounted rate only for accelerated depreciation projects

SC dismissed the appeal, upholding the regulator's and APTEL's rulings that a distribution licensee cannot unilaterally fix procurement tariff contrary to ... Entitlement to approach the GERC for determination of the tariff for procurement of power by GUVNL from their wind energy projects - HELD THAT:- It is manifest and demonstrable from the statutory scheme obtaining under the Act of 2003 that the price at which power is to be procured by a distribution licensee from a generating company is not a matter of consensus and private agreement between the parties as it is to be fixed statutorily by the Appropriate Commission. GUVNL cannot, therefore, fix its own price or bind a generating company to such price, contrary to the dictum of the GERC. Significantly, in Tariff Order No. 1 of 2010 dated 30.01.2010, the GERC clearly stipulated that the levelized price of ₹3.56 per kWh was to apply only to those wind energy projects that availed the benefit of accelerated depreciation under the Act of 1961 and the Rules of 1962 - Pertinently, the scheme of the Act of 1961 and the Rules of 1962 makes it clear that an assessee is required to choose the option of either availing accelerated depreciation or normal depreciation only at the time it files its return for the assessment year relatable to the previous year in which it started generation of power, if the same was after 01.04.1997. This liberty and discretion given to an assessee could not be truncated or cutshort by GUVNL by fixing a binding price unilaterally in the PPA executed long before the assessee had to statutorily choose its option, i.e., at the time it filed its return of income for the assessment year relatable to the previous year in which it actually started generation of power. Admittedly, GUVNL never secured any written commitments from the four respondent companies that they would only avail accelerated depreciation and would not choose to opt for the regular depreciation rate when the time came. Without securing such commitments from them, merely because these companies signed the PPAs with a fixed tariff which was applicable only to those projects that availed accelerated depreciation, GUVNL cannot take advantage of its dominant position and its PPAs so as to bind them to the price mentioned therein for the entire life of their projects. As pointed out earlier, GUVNL is bound to promote and give effect to the Government’s policy of encouraging generation of power from renewable energy sources - GUVNL does not dispute the fact that the four respondent companies did not avail such benefit. Ergo, the question of applying to them the tariff that was only meant for wind energy projects that did avail accelerated depreciation would not arise. GUVNL cannot be guided only by its own commercial interests, like a private business entity and it’s conduct, as a State-instrumentality, must be of the standard of a model citizen. However, patently unfair treatment was sought to be meted out by GUVNL to the respondent companies by binding them to a rate that was wholly inapplicable to them. Such conduct, akin to a Shylock, does not reflect positively upon GUVNL. As GUVNL failed to obtain commitments from the respondent companies that they would only avail accelerated depreciation at the time they had to choose that option, GUVNL has no indefeasible right to bind them to a tariff which was applicable only to such wind energy projects that availed accelerated depreciation. The GERC had made it quite clear that the tariff of ₹3.56 per kWh would apply only to those wind energy projects that availed accelerated depreciation. Therefore, that tariff has no application to a wind energy project that did not avail accelerated depreciation. GUVNL cannot apply that wholly inapplicable tariff to the respondent companies which, admittedly, did not avail accelerated depreciation. The orders passed by the GERC and the APTEL holding to this effect, therefore, do not brook any interference. Appeal dismissed. ISSUES: Whether wind energy projects that did not avail the benefit of accelerated depreciation under the Income Tax Act, 1961 are entitled to approach the State Electricity Regulatory Commission for determination of tariff on a case-to-case basis despite having executed Power Purchase Agreements (PPAs) specifying a tariff applicable to projects availing accelerated depreciation.Whether a distribution licensee, being a State instrumentality, can bind power producers to a fixed tariff in PPAs contrary to the statutory tariff orders and policy directives promoting renewable energy.Whether the tariff stipulated in a PPA is inviolable and beyond review by the Appropriate Commission under the Electricity Act, 2003.The legal effect of the option available under the Income Tax Act, 1961 to power producers to avail or not avail accelerated depreciation at the time of filing income tax returns, vis-à-vis the timing and binding nature of tariff fixation in PPAs. RULINGS / HOLDINGS: The Court held that wind energy projects which did not avail the benefit of accelerated depreciation under the Income Tax Act, 1961 are entitled to approach the State Electricity Regulatory Commission for project-wise determination of tariff on a case-to-case basis, notwithstanding the existence of PPAs specifying a tariff applicable only to projects availing accelerated depreciation.It was held that a distribution licensee, as an instrumentality of the State, cannot advance purely commercial considerations to bind power producers to a tariff contrary to statutory tariff orders and State policy objectives promoting renewable energy, and thus cannot unilaterally fix a binding price in PPAs that overrides the statutory scheme.The Court reaffirmed that the tariff stipulated in a PPA is not sacrosanct or inviolable and is subject to determination and review by the Appropriate Commission under the Electricity Act, 2003, consistent with public interest and changed circumstances.The option under the Income Tax Act, 1961 to avail or not avail accelerated depreciation is to be exercised at the time of filing the return of income for the relevant assessment year, and this statutory discretion cannot be curtailed or preempted by the PPA executed prior to such exercise.Since the distribution licensee failed to secure any written commitment from the power producers that they would avail accelerated depreciation, it cannot bind them to the tariff applicable only to such projects; the tariff fixed in the PPA is conditional and dependent on the exercise of the statutory option by the power producer. RATIONALE: The Court applied the statutory framework under the Electricity Act, 2003, specifically Sections 61, 62, 64, and 86, which empower the Appropriate Commission to determine and regulate tariff for electricity generation and procurement, ensuring that tariff fixation is a statutory function rather than a matter of private contractual agreement.The Court relied on the Income Tax Act, 1961 and Income Tax Rules, 1962 provisions governing accelerated depreciation, emphasizing that the option to avail such benefit is exercisable only at the time of filing income tax returns for the relevant assessment year, thus creating a temporal limitation on when the tariff applicable to a project can be conclusively fixed.Precedents were considered, including the decision distinguishing the earlier judgment concerning solar energy projects where the timing of commissioning and tariff orders differed, and the principle that tariff in a PPA is not inviolable but subject to statutory review, as affirmed in the case involving hydropower projects seeking tariff redetermination.The Court highlighted the policy objectives enshrined in the National Electricity Policy and the State's Wind Power Policies, which mandate promotion and incentivization of renewable energy projects, requiring State instrumentalities to act in furtherance of these policies rather than purely commercial interests.The Court noted the absence of any written commitment from the power producers to avail accelerated depreciation and held that without such commitment, the distribution licensee cannot impose a tariff applicable only to projects availing that benefit, as it would be contrary to the statutory and policy framework.