LEGAL ISSUE: Whether captive power consumers are liable to pay additional surcharge under Section 42(4) of the Electricity Act, 2003.
CASE TYPE: Electricity Law
Case Name: Maharashtra State Electricity Distribution Co. Ltd. vs. M/s. JSW Steel Limited & Ors.
[Judgment Date]: 10 December 2021
Introduction
Date of the Judgment: 10 December 2021
Citation: Civil Appeal Nos. 5074-5075 of 2019
Judges: M.R. Shah, J. and Sanjiv Khanna, J.
Can captive power consumers, who generate electricity for their own use, be subjected to an additional surcharge when they transmit this power through the grid? This was the core question before the Supreme Court of India in a recent case involving the Maharashtra State Electricity Distribution Company Limited (MSEDCL) and several captive power users. The court clarified the applicability of additional surcharges under the Electricity Act, 2003, specifically for those who generate their own power. The bench comprised Justices M.R. Shah and Sanjiv Khanna, with the majority opinion authored by Justice M.R. Shah.
Case Background
The Maharashtra State Electricity Distribution Company Limited (MSEDCL), a distribution licensee, filed a petition before the Maharashtra Electricity Regulatory Commission (State Commission) seeking approval for its Multi Year Tariff (MYT). This petition, Case No. 48 of 2016, included a request to levy an additional surcharge on open access consumers, including those sourcing power from captive power plants (CPPs). The State Commission initially ruled that the additional surcharge under Section 42(4) of the Electricity Act, 2003, did not apply to captive users for their self-consumption. However, MSEDCL filed a revised review petition, Case No. 195 of 2017, seeking to impose the surcharge on all open access consumers, including captive users. The State Commission then reversed its earlier stance and held that the additional surcharge was indeed applicable to captive consumers. Aggrieved by this decision, the captive users appealed to the Appellate Tribunal for Electricity, which ruled in their favor, setting aside the State Commission’s order. MSEDCL then appealed to the Supreme Court.
Timeline
| Date | Event |
|---|---|
| Case No. 48 of 2016 | MSEDCL files petition for MYT approval, including additional surcharge on open access consumers. |
| Case No. 48 of 2016 | State Commission holds that additional surcharge is not applicable to captive users for self-consumption. |
| Case No. 195 of 2017 | MSEDCL files revised review petition to impose surcharge on all open access consumers, including captive users. |
| 12.09.2018 | State Commission orders that additional surcharge is leviable on captive consumers. |
| 27.03.2019 | Appellate Tribunal sets aside the State Commission’s order, ruling against the levy of additional surcharge on captive users. |
| 01.07.2019 | Supreme Court stays the operation of the Appellate Tribunal’s order. |
| 10.12.2021 | Supreme Court dismisses the appeal, ruling in favour of captive power users. |
Course of Proceedings
The Maharashtra State Electricity Regulatory Commission (State Commission) initially held that the additional surcharge under Section 42(4) of the Electricity Act, 2003, was not applicable to captive users for their self-consumption in Case No. 48 of 2016. However, upon review in Case No. 195 of 2017, the State Commission reversed its decision, stating that the surcharge was applicable to all open access consumers, including captive users. This led to the captive users appealing to the Appellate Tribunal for Electricity, which set aside the State Commission’s order. The Appellate Tribunal ruled that captive consumers are not liable to pay the additional surcharge. MSEDCL then appealed to the Supreme Court against this decision of the Appellate Tribunal.
Legal Framework
The Supreme Court examined key sections of the Electricity Act, 2003, to determine the applicability of the additional surcharge.
-
Section 9 of the Electricity Act, 2003: This section allows a person to construct, maintain, or operate a captive generating plant and dedicated transmission lines. It states that the supply of electricity from a captive generating plant through the grid shall be regulated in the same manner as a generating station of a generating company. It also provides the right to open access for carrying electricity from a captive generating plant to the destination of its use, subject to the availability of adequate transmission facility.
“9. Captive generation.- (1) Notwithstanding anything contained in this Act, a person may construct, maintain or operate a captive generating plant and dedicated transmission lines: … (2) Every person, who has constructed a captive generating plant and maintains and operates such plant, shall have the right to open access for the purposes of carrying electricity from his captive generating plant to the destination of his use…” -
Section 42 of the Electricity Act, 2003: This section outlines the duties of distribution licensees and provisions for open access. Sub-section (2) allows the State Commission to introduce open access, subject to conditions and surcharges. Sub-section (4) states that a consumer receiving supply from a person other than the distribution licensee of their area shall be liable to pay an additional surcharge to meet the fixed costs of the distribution licensee.
“42. Duties of distribution licensees and open access.- … (4) Where the State Commission permits a consumer or class of consumers to receive supply of electricity from a person other than the distribution licensee of his area of supply, such consumer shall be liable to pay an additional surcharge on the charges of wheeling…” -
Section 2(15) of the Electricity Act, 2003: This section defines “consumer” as any person who is supplied with electricity for their own use by a licensee, the Government, or any other person engaged in the business of supplying electricity to the public.
“(15) “consumer” means any person who is supplied with electricity for his own use by a licensee or the Government or by any other person engaged in the business of supplying electricity to the public under this Act or any other law for the time being in force…”
Arguments
Appellant (MSEDCL) Arguments:
- MSEDCL argued that the captive generation under Section 9 of the Electricity Act, 2003, is subject to regulations, and therefore, the additional surcharge under Section 42(4) should apply to captive users.
- They contended that even if captive users have the right to open access, they must still pay the additional surcharge to compensate the distribution licensee for fixed costs.
- MSEDCL submitted that the supply of electricity from a captive generating plant through the grid is regulated in the same manner as a generating station of a generating company, implying the applicability of the surcharge.
Respondent (Captive Power Users) Arguments:
- The captive users argued that Section 9 of the Electricity Act, 2003, grants them the right to generate and use electricity without requiring permission from the State Commission.
- They contended that the additional surcharge under Section 42(4) applies only to consumers who receive supply from a person other than their distribution licensee, which does not include captive users who generate their own power.
- They submitted that they incur significant costs in setting up and maintaining their captive power plants and should not be subjected to additional surcharges.
- The captive users argued that they form a distinct class of consumers and should not be treated the same as ordinary consumers who receive supply from distribution licensees.
| Main Submission | Sub-Submission (MSEDCL) | Sub-Submission (Captive Power Users) |
|---|---|---|
| Applicability of Additional Surcharge | Captive generation is subject to regulations under Section 9. | Section 9 grants right to generate and use electricity without State Commission permission. |
| Liability for Surcharge | Captive users must pay to compensate distribution licensee’s fixed costs under Section 42(4). | Additional surcharge under Section 42(4) does not apply to captive users. |
| Cost Considerations | Captive users incur significant costs in setting up and maintaining their plants. | |
| Consumer Classification | Captive users form a distinct class and should not be treated as ordinary consumers. |
Issues Framed by the Supreme Court
The Supreme Court framed the following issue for consideration:
- Whether the captive consumers/captive users are liable to pay the additional surcharge leviable under Section 42(4) of the Electricity Act, 2003?
Treatment of the Issue by the Court
| Issue | How the Court Dealt with It |
|---|---|
| Whether captive users are liable to pay additional surcharge under Section 42(4) of the Electricity Act, 2003? | The Court held that captive users are not liable to pay the additional surcharge under Section 42(4) of the Electricity Act, 2003. The Court reasoned that captive users generate electricity for their own use and do not require permission from the State Commission, unlike regular consumers who receive supply from a source other than their distribution licensee. The Court also noted that captive users incur significant costs in setting up their own power plants. |
Authorities
The Supreme Court considered the following legal provisions:
- Section 9 of the Electricity Act, 2003: Deals with captive generation, allowing individuals to construct and operate captive generating plants and dedicated transmission lines. It also provides the right to open access for carrying electricity from a captive generating plant to the destination of its use.
- Section 42 of the Electricity Act, 2003: Outlines the duties of distribution licensees and provisions for open access, including the imposition of additional surcharges.
- Section 2(15) of the Electricity Act, 2003: Defines the term “consumer” under the Act.
| Authority | How the Court Considered It |
|---|---|
| Section 9, Electricity Act, 2003 | The Court interpreted this section to mean that captive generation is a statutory right, not requiring permission from the State Commission. |
| Section 42(4), Electricity Act, 2003 | The Court held that this section applies only to consumers who receive supply from a source other than their distribution licensee with the permission of the State Commission, which does not include captive users. |
| Section 2(15), Electricity Act, 2003 | The Court distinguished between consumers as defined in this section and captive consumers, noting that they form a separate class. |
Judgment
| Submission | How the Court Treated It |
|---|---|
| MSEDCL’s submission that captive generation is subject to regulations under Section 9, making additional surcharge applicable. | Rejected. The Court held that while captive generation is regulated, it does not require the State Commission’s permission, unlike consumers under Section 42(4). |
| MSEDCL’s submission that captive users must pay additional surcharge to compensate for fixed costs. | Rejected. The Court reasoned that Section 42(4) applies only when the State Commission permits a consumer to receive supply from a source other than the distribution licensee, which is not the case for captive users. |
| Captive users’ submission that Section 9 grants them the right to generate and use electricity without State Commission permission. | Accepted. The Court agreed that captive users have a statutory right to generate and use electricity without requiring permission, setting them apart from ordinary consumers. |
| Captive users’ submission that they form a distinct class of consumers. | Accepted. The Court recognized that captive users incur substantial costs to set up and maintain their plants and should not be subjected to the same surcharges as ordinary consumers. |
How each authority was viewed by the Court?
- Section 9 of the Electricity Act, 2003: The Court interpreted this section as granting a statutory right to captive generation, not requiring permission from the State Commission. The Court observed that the right to open access to transmit/carry electricity to the captive user is granted by the Act, and is not subject to and does not require the State Commission’s permission.
- Section 42(4) of the Electricity Act, 2003: The Court held that this section applies only when the State Commission permits a consumer to receive supply from a person other than the distribution licensee, which does not include captive users who generate their own power.
- Section 2(15) of the Electricity Act, 2003: The Court distinguished between consumers as defined in this section and captive consumers, noting that they form a separate class due to the expenses incurred in setting up captive generation plants.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the following factors:
- Statutory Right of Captive Generation: The Court emphasized that Section 9 of the Electricity Act, 2003, grants a statutory right to captive users to generate and use electricity without requiring permission from the State Commission. This right sets them apart from ordinary consumers.
- Distinct Class of Consumers: The Court recognized that captive users form a distinct class of consumers who incur significant costs in setting up and maintaining their captive power plants. Treating them the same as ordinary consumers would be discriminatory.
- Interpretation of Section 42(4): The Court interpreted Section 42(4) to apply only to consumers who receive supply from a source other than their distribution licensee with the permission of the State Commission. Captive users, who generate their own power, do not fall under this category.
| Reason | Sentiment Score |
|---|---|
| Statutory Right of Captive Generation | 40% |
| Distinct Class of Consumers | 35% |
| Interpretation of Section 42(4) | 25% |
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
The court’s reasoning was primarily based on a legal interpretation of the relevant sections of the Electricity Act, 2003, with a secondary emphasis on the factual differences between captive users and ordinary consumers.
Logical Reasoning:
The Court considered the argument that captive users should pay the additional surcharge to compensate the distribution licensee for their fixed costs. However, the Court rejected this argument, stating that Section 42(4) is not applicable to captive users. The Court reasoned that captive users do not require permission from the State Commission to use their own generated power, and therefore, the additional surcharge is not applicable to them.
The Supreme Court held that the additional surcharge under Section 42(4) of the Electricity Act, 2003, is not applicable to captive consumers/captive users. The Court reasoned that captive users have a statutory right to generate electricity for their own use and do not require permission from the State Commission. Therefore, they do not fall under the purview of Section 42(4), which applies to consumers who receive supply from a person other than the distribution licensee of their area of supply.
The Court quoted:
“Construction and/or maintenance and operation of a captive generating plant and dedicated transmission lines is not subjected to any permission by the State Commission.”
“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.”
“…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.”
There were no dissenting opinions in this case. The bench comprised Justices M.R. Shah and Sanjiv Khanna, and the judgment was authored by Justice M.R. Shah.
Key Takeaways
- Captive power users who generate electricity for their own use are exempt from paying the additional surcharge under Section 42(4) of the Electricity Act, 2003.
- The Supreme Court has clarified that captive users form a distinct class of consumers and cannot be treated the same as ordinary consumers who receive power from distribution licensees.
- This decision provides clarity on the rights of captive power users and their obligations under the Electricity Act, 2003.
- The additional surcharge recovered from captive users will be adjusted in future wheeling charges bills.
Directions
The Supreme Court directed that the additional surcharge recovered from the captive consumers/captive users be adjusted in their future wheeling charges bills, considering the huge liability on the distribution licensee to refund the amount at once.
Development of Law
The ratio decidendi of this case is that captive power users are not liable to pay the additional surcharge under Section 42(4) of the Electricity Act, 2003, as they have a statutory right to generate and use electricity for their own consumption, and they do not fall under the category of consumers who receive supply from a person other than the distribution licensee of their area. This judgment clarifies the distinction between ordinary consumers and captive users, ensuring that captive users are not burdened with additional costs that are not applicable to them.
Conclusion
The Supreme Court’s decision in Maharashtra State Electricity Distribution Co. Ltd. vs. M/s. JSW Steel Limited & Ors. provides significant relief to captive power users by exempting them from the additional surcharge under Section 42(4) of the Electricity Act, 2003. The Court’s ruling reinforces the statutory right of captive users to generate and use electricity for their own consumption without being subjected to additional costs meant for regular consumers. This judgment ensures a fair and equitable application of the Electricity Act, 2003, and protects the interests of captive power users who invest in their own power generation facilities.