TaxTMI 
TaxTMI 
TaxTMI 
1995 (4) TMI 286
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....ust 16, 1984, it had entered into an agreement with the appellant-Board whereunder the Board undertook to supply power "upto but not exceeding a maximum demand of 7778 KVA/ 7000 KW". The agreement contains the following stipulations among others: (1) "The consumer has perused a copy of the Orissa State Electricity Board (General Conditions of supply) Regulations, 1981, understood its contents and undertakes to observe and abide by all the terms and conditions stipulated therein including all future modifications thereto, to the extent they are applicable to him. The Orissa State Electricity Board (General Conditions of Supply) Regulations, 1981 as modified from time to time shall be deemed to form part of this Agreement" [Vide clause (2)] (Emphasis added). (2) "The consumer shall pay to the Engineer for the power demand and electrical energy supplied under this Agreement in accordance with the tariff as mentioned below, subject to any revision that may be made by the Board from time to time. Large Industries (a) The monthly charges shall be:- Demand charges at ₹ 35.00 per KVA of maximum demand plus energy charges at the following rate on units me....
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....the water 90-91 (1/7/90 to 1. 2. 3. 4. 5. Large Industries 13. IPI STEEL Gundichapada 1.7.89 to 30.6.90 16.863 16.863 5. It is agreed by the parties that the effect of the above order is to reduce the supply by fifty per cent. The Electricity Board has explained how the said fifty per cent reduction is being implemented and operated, by producing before us a statement relating to the water year 1988-89. It would be appropriate to extract the said statement: M/S.IPI STEEL LTD: DHENKANAL 1. Contract Demand (C.D.) - 7778 KVA (Kilo-Volt-Amperes) 2. 80% of C.D. - 0.8 x 7778 KVA - 6222.4 KVA 3. 100% requirement of energy for the water year 1988-89 - 37.467 MU (Million Units) 4. % of level of allocation for the water year 1988-89requirement - 50% of the full 5. Energy allocation for the year 1988-89 - 18.737 MU Sl. No. Maximum demand Month Rate per KVA Charges Energy entitlement per month (in MU) of 80% of C.D 1. 7778 X 6 Rs.35/- Rs.16,33,380/- (no charges for (18.737/6) six months) 3.122 2. 3889 X12 Rs.35/- Rs.16,33,380/- 1.561 3. 5185 X 9 Rs.35/- Rs.16,33,275/- (no charge for (18.737/3) 3 months) 2.081 cont.- Liability of consum....
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....ed at an average power factor of 0.9 and an average load factor of fifteen per cent on the said contract demand." (The reason for prescribing the minimum charges is that the Board generates and keeps in readiness, energy for the respondent to the extent of contract demand. Even if the respondent does not avail of it, the energy cannot be stored or preserved. The respondent is, therefore, made to pay for the energy generated for his use even though he does not avail of it at the contracted level; even so, the mini- mum charges arc pegged at eighty per cent.) 9. The expression "maximum demand" is defined in clause (xx) of Regulation 3. It reads: "(xx) Maximum demand, means the average amount of kilowatts or kilovolt-amperes, as the case may be, delivered to the point of supply of the consumer and recorded during a thirty minutes' period of maximum use in the month or it shall mean twice the largest number of kilowatt-hours (KWH) or kilovolt-amperehours (KVAH) delivered to the point of supply by the consumer during any consecutive 30 minutes' period. The Board, however, reserves the right to shorten this period in special cases, if necessary." 10. T....
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....exceeding eight per cent of the energy, he pays demand and energy charges for what he utilises. Now, let us notice how the trivector meter, i.e., the meter which records the maximum demand works; the meter is so designed that it only records the maximum load/ level at which energy is drawn over any thirty-minute period in a month. It only goes forward but never goes back until it is put back manu- ally. To be more precise, suppose the respondent has drawn energy at 7770 KVA for a thirty-minute period on the first day of the month, the meter will record that figure and will stay there even if the respondent consumes at 7000 or lesser KVA level during the rest of the month. From this circumstances however, one cannot jump to the conclusion that it is an arbitrary way of levying consumption charges. Normally speaking, a factory utilises energy at a broadly constant level. May be, on certain occasions, whether on account of breakdowns, strikes or shutdowns or for other reasons, the factory may not utilise energy at the requisite level over certain periods, but these are exceptions. Every factory expects to work normally. So does the Electricity Board expect - and accordingly produces ....
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....ncerned herein prescribes the maximum demand at 7778 KVA but does not prescribe the total number of units of energy allowed to be consumed. This is for the reason, explains Sri Hegde, that the total number of units of energy consumed is determined by the load/level at which power is drawn. The formula, taking the case of the respondent is stated to be - 100% unrestricted energy requirement of the respondent = contract demand in KVA x power factor x load factor x total number of hours in a year. In concrete terms, it means - 7778 KVA x 0.90 x 0.61 1 x 8760 = 37,467,590 KWH (Units) = 37.46759 MU (Million Units). This formula, as it states expressly, is premised on unrestricted supply. Problems arise only when restrictions are placed on consumption on account of fall in production of electricity by the Board, as would be ex- plained hereinafter. 13. Even during normal times, the Electricity Boards are not able to generate energy commensurate with their installed capacity, though it is true, they do try to achieve it. But situations arise - situations beyond their control - when they are not able to produce even that much energy as they generally do. They are obliged to cut down their....
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.... obvious that an order made under Section 22-B is binding upon the Electricity Board and over- rides the con- tracts and agreements which the Board may have entered into with the consumers. When an order under Section 22-B is is- sued, the Board is freed from the obligation to supply energy at the level stipulated in the agreements with the consumers and its obligation is to supply in accordance with the order under Section 22-B. On this score, there is no controversy. The controversy is with respect to the power of the Board to collect maximum demand charges at the rate prescribed in the agreement during such periods of restricted supply. In short, the question is with respect to the power of the Board to frame Regulation 46 and more particularly, the reasonableness of the proviso to the said Regulation. 15. Section 79 of the Electricity (Supply) Act, 1948 empowers the Board to make Regulations to provide for matters specified therein. Inter alia, the matters specified include "(j) principles governing the supply of electricity by the Board to persons other than licensees under Section 49". Clause (k) is, of course, of a general nature. Section 49(1) says that: "4....
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....g such period of discontinuance/reduced supply, the consumer shall not be liable to pay the minimum charges in accordance with the agreement, but shall only pay for the actual quantity of demand and/or energy supplied to the consumer in lieu of the contracted demand. " 18.The Regulation was substituted by the Notification dated June 25, 1987. The substituted Regulation reads as follows: "If on account of shortage of the generation of electrical energy, restrictions on power supply arc imposed by the State Government under Section 22(B) of the Indian Electricity Act, 1910 or by the Board under Section 49 of the Electricity Supply Act, 1948 and all other power available under law, the Board and the Engineers shall be under no obligation to supply energy contracted for except in ac- cordance with the restriction order and subject to the other provisions of the Regulation. Provided that during the period restrictions are in force, the consumer shall not be liable to pay the minimum charges in accordance with the agreement if the restriction on supply in a month exceeds 150 (One Hundred Fifty) hours but shall only pay, in case of two part tariff, on the basis of actual ener....
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....onsumed by him. Secondly, the Board explains, there is an option available to such consumers. If their unit cannot work at a level/load less than the maximum demand/contract demand or if the consumer wishes to do so for his own reasons, he is free to draw energy at the contract/maximum demand level, but then he can work only for six months in the year of restriction since he is bound to observe the cut in consumption of energy by fifty per cent. In other words, if he avails power/ energy at the maximum agreed level, he will exhaust his fifty per cent quota in six months itself. It is however open to a consumer to draw energy at any other level so long as he does not exceed the fifty per cent quota permitted to him during the year of restriction, as explained in the tabular statement referred to hereinbefore. The option to draw at the maximum level/load permitted is probably conceived to provide for those units which cannot operate except when they draw energy at the maximum demand level. They can do so but they can operate only for six months in the year of restriction. So far as the respondent is concerned, it is admitted that it is not a unit which can operate only when it draws ....
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....uantum of energy which the industry could utilise. But to run its machinery if the industry in question on the first day of the month takes power than in the demand meter it would show 7000 KVA. Thereafter even if for next twenty nine days of the month, the industry does not take any further energy still by virtue of the proviso to Regulation 46 in accordance with the agreement between the parties the consumer will be required to pay towards "demand charge" to the extent of ₹ 35 x 7000. Levy of such a charge, in our considered opinion, cannot but be held to be arbitrary, unreasonable and confiscatory in nature." 23.The High Court then referred to the decision of this Court in M/s. Northern India Iron and Steel Co. v. The State of Haryana and Anr. (1976 (2) S.C.R.677), Maharashtra State Electricity Board v. Kalyan Borough Municipality (1968 (3) S.C.R. 137) and to the unreported decision of the Orissa High Court in MI s.J.M.Graphite Mining & Manufacturing Company v. Orissa State Electricity Board & Ors. and observed: "The ratio of the aforesaid case as well as the observations extracted above would apply while testing the reasonableness of the proviso to R....
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....annot be sustained and we accordingly quash the same." 24. Apart from criticizing the above reasoning, Sri Hegde, learned counsel for the Board complains that the decision of the High Court is coloured by the extreme example taken by it relating to the month of January, 1989 (Bill No.705 dated February 3, 1989). The learned counsel explains that during the month of January, i.e., on January 5, 1989, there was "system disturbance following failure of a 220/ 132 KV auto-transformer at TTPS, Talcher for which loads had to be restricted to all the sub-stations receiving power at 132 KV, from TTPS due to which M/ s.IPI STEEL, were not allowed to draw their furnace load during several periods in the month of January, February and March, 1989 which extended to more than 3 days at a stretch each time" and on which account a special remission has been granted to the respondent under Board Memorandum No.Com-1-70/83, a copy of which has been placed before us. The learned counsel submits that such an unusual situation cannot be taken as the standard or as a test case for judging the validity of the provision. One must go by the generality of the situation. Such breakdowns may o....
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....e has agreed with the licensee to pay to him such minimum annual sum as will give him a reasonable return on the capital expenditure, and will cover other standing charges incurred by him in order to meet the possible maximum demand for those premises, the sum payable to be determined in case of difference or dispute by arbitration." Section 48 of the Supply Act empowers the licensee to carry out arrangement under that Act." 25.The decision of the Punjab High Court in Watkins Mayor & Co. v. Jullundhar Electric Supply Co. (AIR 1955 Punj.133), it is pointed out, was also quoted with approval by this Court wherein the High Court had taken the view that: "..... the whole scheme of the Act seems to show that the provision made in any contract for a minimum charge was really to provide for a fair return on the outlay of the licensee, and it was for this reason that the law allowed the contract of this kind to be entered into. Clause XI-A of the schedule to the Act, as it then stood, provided: "A licensee may charge a consumer a minimum charge for energy of such amount and determine in such manner as may be specified by his li- cence, and such minimum charge shall be....
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....by the Board. 27. On the other hand, the learned counsel for the respondent-writ petitioner submits that if the Board is allowed to Insist upon its pound of flesh and to enforce the agreement and Regulation 46 as it stand, it would be highly unjust and inequitable to the consumers like the respondent. They would not only suffer huge losses but would be obliged to close down, affecting the workers and the national economy. He submits that because of the irregular and uncertain supply of power by the Orissa Board, the respondent-company has become sick already and its case is now pending with B.I.F.R. He submits that when the Board is not able to supply at the agreed level, it cannot at the same time seek to recover the demand charges at the agreed rate. Being a statutory public corporation and a State within the meaning of Article 12 of the Constitution of India, it is submitted, the Board must act fairly. The learned counsel relies upon the decisions of this court in Northern India Steel as also the decision in Bihar State Electricity Board & Anr. v. M/s.Dhanawat Rice & Oil Mills (1989 (1) SCC 452) besides the decision in Maharashtra State Electricity Board v. Kalyan Borough Munic....
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....the causes mentioned above, then the demand charge and guaranteed energy charge set out in the Schedule to the Agreement shall be reduced in proportion to the ability of the consumer to take or the Board to supply such power; the decision of the Chief Engineer of the Board in that behalf was declared to be final. The High Court had opined that the consumer was not at all liable to pay any annual minimum guarantee charges because of the tripping, load-shedding and power cuts. This Court, however, held that the High Court was not right in saying so. It held that in view of clause (13), the consumer is entitled to proportionate reduction only. 30. The decision of the Constitution Bench in Maharashtra State Electricity Board v. Kalyan Borough Municipality does not appear to be relevant on the question at issue herein. The learned counsel for the respondent could not bring to our notice any observation in the said judgment which supports his contentions. 31. Now coming back to the facts of the case before us, it must be stated at the outset that the validity or justifiability of the order made by the Government of Orissa under Section 22-B is not questioned nor is it in issue. We must....
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....y demand charges only for 3889 KVA plus the charges for the actual number of units consumed by him. Similarly, had the respondent availed of the energy at, say 3000 KVA he would have been liable to pay demand charges only on that basis plus the energy charges, and if he had availed of energy at maximum demand then he would have been liable to pay demand charges for the maximum demand availed by him plus the energy charges - the overall restriction being !hat he should have remained within the fifty per cent quota prescribed. Thus, in no event, a consumer is made to pay maximum demand charges for more than what he actually availed. As stated above, the over-all limitation is that he must have remained within the fifty per cent quota allotted to him during the year of restriction. We are unable to see any arbitrariness or unreasonableness in the said proviso. It means and says that during such periods of restricted supply, the consumer pays the energy charges for the actual consumption plus maximum demand charges for the maximum demand availed of by him at the rate prescribed in the agreement. 32. The High Court faulted the proviso to Regulation 46 on the ground of arbitrariness and....
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.... the failure of a 220/132 KV auto- transformer at TTPS Talcher on account of which the industries like the respondent were not allowed to draw en- ergy even in accordance with the cut and restriction imposed by the Government of Orissa and the Orissa Electricity Board. It is explained that on account of this unusual situation and on the basis of the representation of the respondent, it has been given a special rebate in Board Memorandum No.Com.1-70/83. Under this memorandum, it has been decided that "some relief be provided to the consumer by exempting the demand charge for the period when power was restricted to this industry for a continuous period of seventy two or more as special case (for the months of January '89 to March '89 only). If this is approved, the monthly maximum demand charges of this unit for the three months from January, 89 to March, 89 shall be prorated for the period of supply excluding the period when power supply was not given to the consumer continuously for seventy two hours or more. This concession, if allowed, shall be a special case not to be cited as a precedent for future." It is stated by Sri Hegde, learned counsel for the Board tha....