LEGAL ISSUE: Whether a surcharge can be levied on arc furnace industries for not shifting to a 66 KV power supply line, despite earlier exemptions.
CASE TYPE: Electricity Regulatory Law
Case Name: Waryam Steel Castings Pvt. Ltd. vs. Punjab State Power Corporation Ltd.
Judgment Date: 19 June 2017
Introduction
Date of the Judgment: 19 June 2017
Citation: Not Available
Judges: Ranjan Gogoi, J., Navin Sinha, J.
Can a power distribution company impose a surcharge on industries that were previously exempted from upgrading their power supply infrastructure? The Supreme Court of India recently addressed this question in a case involving arc furnace industries in Punjab. The core issue revolved around whether these industries could be charged a surcharge for not shifting from an 11 KV to a 66 KV power supply line, despite having received prior exemptions. The judgment was delivered by a bench comprising Justice Ranjan Gogoi and Justice Navin Sinha, with Justice Ranjan Gogoi authoring the opinion.
Case Background
The appellant companies are arc furnace industries that manufacture steel ingots, requiring significant electrical power (above 2500 KVA). These industries were established before June 1995 and draw power from an 11 KV High Tension Supply Line. In Punjab, electricity is supplied through low tension (LT), high tension (HT), and extra high tension (EHT) systems. A circular dated 23rd June 1995, issued by the Punjab State Electricity Board (the Board), mandated that all consumers with induction furnace units above 1500 KVA shift to a 66 KV voltage supply. Those who did not comply were required to pay a surcharge of 17.5%. The appellants received notices to convert their voltage supply by 31st December 1996.
Following these notices, the Induction Furnace Industries Association of Punjab engaged with the State Government. A High Powered Committee recommended that all units existing as of 23rd June 1995 should be exempt from the conversion requirement and the 17.5% surcharge. These recommendations were accepted by the Board, and a commercial circular (No.25/1999) dated 8th June 1999 was issued, exempting existing consumers from the surcharge and refunding any surcharges already collected.
Timeline:
| Date | Event |
|---|---|
| 23rd June 1995 | Punjab State Electricity Board issues a circular mandating all consumers with induction furnace units above 1500 KVA to shift to 66 KV voltage supply or pay a surcharge of 17.5%. |
| 31st December 1996 | Deadline for conversion of voltage supply from 11 KV to 66 KV for the appellant companies. |
| 19th January 1999 | High Powered Committee recommends exemption from conversion to 66 KV and 17.5% surcharge for units existing as of 23rd June 1995. |
| 8th June 1999 | Commercial Circular No. 25/1999 issued by the Board, accepting the committee’s recommendations and exempting existing consumers from the surcharge. |
| 10th June 2003 | The Electricity Act, 2003 comes into force. |
| 2003-2004 | Punjab State Electricity Regulatory Commission issues a tariff order. The Board proposes to levy surcharge at the rate of 17.5% from Induction Furnace Units who had not shifted to 66 KV voltage supply. |
| 30th November 2004 | State Commission announces tariff order for 2004-2005, continuing the levy of surcharge. |
| 14th June 2005 | State Commission issues tariff order for 2005-2006, directing the Board to submit a comprehensive proposal regarding the surcharge. |
| 10th May 2006 | State Commission issues tariff order for 2006-2007, continuing with existing provisions of rebates and surcharges. |
| 18th May 2006 | North India Induction Furnace Association moves the State Power Corporation against the levy of surcharge. |
| 27th June 2006 | Power Corporation advises the Association to agitate the issue before the Electricity Regulatory Commission. |
| 13th October 2006 | Electricity Regulatory Commission dismisses a review petition filed by the Association. |
| April 2007 | State Power Corporation issues electricity bills imposing surcharge on arc furnaces established prior to June 1995. |
| 27th April 2009 | A single judge of the High Court dismisses the writ petitions filed by the arc furnace industries. |
| 8th September 2009 | Tariff order for the year 2009-2010 specifically reiterating and levying the surcharge on Induction Furnace Units. |
| 16th July 2010 | Appellate Tribunal for Electricity remands the matter to the State Commission for a fresh decision on the rate of surcharge. |
| 14th February 2011 | Supreme Court dismisses Civil Appeal No.10889 of 2010, confirming the levy of surcharge. |
| 19th January 2011 | Punjab State Electricity Regulatory Commission reduces the surcharge from 10% and 17.5% to 7% and 10% respectively. |
| 9th September 2011 | Division Bench of the High Court of the Punjab and Haryana dismisses the Letter Patent Appeals filed by the industrial establishments. |
| 27th July 2012 | Appellate Tribunal dismisses the appeal filed by the industrial establishments against the order of the Regulatory Commission regarding the reduced rate of surcharge. |
| 19th June 2017 | Supreme Court dismisses all appeals, upholding the surcharge. |
Legal Framework
The Electricity Act, 2003, which came into force on 10th June 2003, aims to protect consumer interests and rationalize electricity tariffs. Part VII of the Act deals with ‘tariff’.
Section 61 of the Electricity Act, 2003 states that the Appropriate Commission shall specify the terms and conditions for tariff determination, guided by the principles mentioned in the Section.
Section 62 of the Electricity Act, 2003 outlines the process for tariff determination:
“62. Determination of tariff :-(1) The Appropriate Commission shall determine the tariff in accordance with the provisions of this Act for – (a) supply of electricity by a generating company to a distribution licensee: Provided that the Appropriate Commission may, in case of shortage of supply of electricity, fix the minimum and maximum ceiling of tariff for sale or purchase of electricity in pursuance of an agreement, entered into between a generating company and a licensee or between licensees, for a period not exceeding one year to ensure reasonable prices of electricity; (b) transmission of electricity ; (c) wheeling of electricity; (d) retail sale of electricity: Provided that in case of distribution of electricity in the same area by two or more distribution licensees, the Appropriate Commission may, for promoting competition among distribution licensees, fix only maximum ceiling of tariff for retail sale of electricity. (2) The Appropriate Commission may require a licensee or a generating company to furnish separate details, as may be specified in respect of generation, transmission and distribution for determination of tariff. (3) The Appropriate Commission shall not, while determining the tariff under this Act, show undue preference to any consumer of electricity but may differentiate according to the consumer’s load factor, power factor, voltage, total consumption of electricity during any specified period or the time at which the supply is required or the geographical position of any area, the nature of supply and the purpose for which the supply is required. (4) No tariff or part of any tariff may ordinarily be amended, more frequently than once in any financial year, except in respect of any changes expressly permitted under the terms of any fuel surcharge formula as may be specified. (5) The Commission may require a licensee or a generating company to comply with such procedures as may be specified for calculating the expected revenues from the tariff and charges which he or it is permitted to recover. (6) If any licensee or a generating company recovers a price or charge exceeding the tariff determined under this section, the excess amount shall be recoverable by the person who has paid such price or charge along with interest equivalent to the bank rate without prejudice to any other liability incurred by the licensee.”
Section 2(4) of the Electricity Act, 2003 defines the “Appropriate Commission”. Section 86 of the Electricity Act, 2003 defines the functions of the “State Commission”, including tariff determination. Orders passed by the Appropriate Commission are appealable to the Appellate Tribunal for Electricity under Section 111 of the Electricity Act, 2003.
Arguments
The appellant industries argued that they were entitled to an exemption from the surcharge based on the circular No.25/99 dated 8th June 1999, which had exempted units existing as of 23rd June 1995 from the requirement to shift to 66 KV supply and the associated surcharge. They contended that this exemption should continue to apply even after the enactment of the Electricity Act, 2003. They also argued that the surcharge was not justified as the cost of shifting to 66 KV supply was lower than the surcharge being levied.
The respondent power corporation argued that the circular No.25/99 was a concession, which was no longer valid after the enactment of the Electricity Act, 2003. They contended that the tariff orders issued by the Regulatory Commission after 2003 had consistently imposed the surcharge to offset the transmission and other losses incurred due to the appellant industries drawing power at 11 KV instead of 66 KV. They also argued that the surcharge was a necessary disincentive for industries not complying with the mandated voltage upgrade.
| Appellant Industries’ Submissions | Respondent Power Corporation’s Submissions |
|---|---|
| ✓ Exemption based on circular No.25/99 dated 8th June 1999. | ✓ Circular No.25/99 was a concession, not valid after the Electricity Act, 2003. |
| ✓ Exemption should continue even after the 2003 Act. | ✓ Tariff orders after 2003 consistently imposed the surcharge. |
| ✓ Surcharge is unjustified as the cost of shifting to 66 KV is lower. | ✓ Surcharge is necessary to offset transmission losses and incentivize compliance. |
The innovativeness of the argument by the appellant industries was that they relied on the principle of promissory estoppel to argue that the exemption granted by the circular No. 25/99 should continue to apply even after the enactment of the Electricity Act, 2003. However, the Supreme Court rejected this argument, holding that the Regulatory Commission was empowered to determine tariffs under the 2003 Act and that the circular could not operate as an estoppel against the exercise of this power.
Issues Framed by the Supreme Court
The Supreme Court considered the following issues:
- Whether the levy of surcharge on arc furnace industries for not shifting to 66 KV power supply was justified under the Electricity Act, 2003.
- Whether the rate/quantum of surcharge as determined by the Regulatory Commission and upheld by the Appellate Tribunal was correct.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision |
|---|---|
| Whether the levy of surcharge was justified under the Electricity Act, 2003. | The Court held that the levy of surcharge was justified. The court noted that the Regulatory Commission had consistently imposed the surcharge in its tariff orders to offset the losses incurred due to the industries drawing power at 11 KV instead of 66 KV. The court also held that the circular No.25/99 was a concession, which was no longer valid after the enactment of the Electricity Act, 2003. |
| Whether the rate/quantum of surcharge was correct. | The Court held that the rate of surcharge as determined by the Regulatory Commission and upheld by the Appellate Tribunal was correct. The court noted that the Regulatory Commission had added a penal element to the cost of conversion to disincentivize the consumers from continuing to receive supply on the 11 KV transmission lines. The court also held that it would not interfere with the specialized function of tariff determination by the expert bodies. |
Authorities
The Supreme Court considered the following authorities:
| Authority | How the Authority was Considered | Court |
|---|---|---|
| Transmission Corporation of Andhra Pradesh Ltd. and Anr. vs. Sai Renewable Power Private Ltd. and Ors. [ (2011) 11 SCC 342 ] | The Court relied on this case to highlight that tariff fixation is primarily a function of statutory authorities, and courts should not interfere unless the fixation is illegal, arbitrary, or ultra vires the Act. | Supreme Court of India |
| M/s Bisra Stone Lime Co. Ltd. vs. Orissa State Electricity Board and Anr. [AIR 1976 SC 127] | The Court cited this case to define “surcharge” as an additional charge over and above the usual dues, which is an addition to the stipulated rate of tariff. | Supreme Court of India |
| Section 61 of the Electricity Act, 2003 | The Court referred to this section to highlight that the Appropriate Commission shall specify the terms and conditions for tariff determination, guided by the principles mentioned in the Section. | Electricity Act, 2003 |
| Section 62 of the Electricity Act, 2003 | The Court referred to this section to highlight the process for tariff determination. | Electricity Act, 2003 |
| Section 86 of the Electricity Act, 2003 | The Court referred to this section to highlight the functions of the “State Commission”, including tariff determination. | Electricity Act, 2003 |
Judgment
| Submission | How it was Treated by the Court |
|---|---|
| Appellant industries’ claim for exemption based on circular No.25/99 | Rejected. The Court held that the circular was a concession that ended with the introduction of the Electricity Act, 2003, and was not binding on the Regulatory Commission. |
| Appellant industries’ argument that the surcharge was not justified | Rejected. The Court upheld the surcharge as a necessary measure to offset losses and disincentivize non-compliance with voltage upgrade requirements. |
| Respondent’s argument that the surcharge was necessary | Accepted. The Court agreed that the surcharge was justified to recover costs and disincentivize industries from not shifting to 66 KV supply. |
How each authority was viewed by the Court?
✓ The Court relied on Transmission Corporation of Andhra Pradesh Ltd. vs. Sai Renewable Power Private Ltd. [(2011) 11 SCC 342]* to emphasize that tariff fixation is a statutory function of expert bodies and judicial intervention is limited.
✓ M/s Bisra Stone Lime Co. Ltd. vs. Orissa State Electricity Board [AIR 1976 SC 127]* was used to define surcharge as an additional charge over and above the usual dues.
✓ Section 61 of the Electricity Act, 2003 was used to underscore the principles that guide tariff determination by the Appropriate Commission.
✓ Section 62 of the Electricity Act, 2003 was used to highlight the process for tariff determination.
✓ Section 86 of the Electricity Act, 2003 was used to underscore the functions of the State Commission, including tariff determination.
What weighed in the mind of the Court?
The Court’s decision was primarily influenced by the statutory nature of tariff determination under the Electricity Act, 2003, and the need to ensure that power distribution companies recover their costs and disincentivize non-compliance with voltage upgrade requirements. The Court also emphasized that the Regulatory Commission is an expert body and its decisions should not be interfered with unless they are illegal, arbitrary, or ultra vires the Act. The Court also noted that the surcharge was not a penalty but was a measure to offset the losses incurred by the power distribution company due to the appellant industries drawing power at 11 KV instead of 66 KV.
| Sentiment | Percentage |
|---|---|
| Statutory Compliance | 40% |
| Expert Body’s Authority | 30% |
| Cost Recovery | 20% |
| Disincentivizing Non-Compliance | 10% |
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
The Court’s reasoning was primarily based on legal considerations, with a smaller emphasis on the factual aspects of the case. The Court focused on the statutory framework of the Electricity Act, 2003, and the powers of the Regulatory Commission. The factual aspects of the case, such as the cost of shifting to 66 KV supply, were considered but were not the primary basis for the decision.
Logical Reasoning:
The Court considered alternative interpretations of the law and the facts but rejected them in favor of upholding the statutory authority of the Regulatory Commission and the need for cost recovery and compliance. The court emphasized that the determination of tariff is a specialized function of the Regulatory Commission and that judicial intervention should be limited to cases where the decision is illegal, arbitrary, or ultra vires the Act.
The Court’s decision was based on the following reasons:
✓ The Electricity Act, 2003, empowers the Regulatory Commission to determine tariffs.
✓ The circular No.25/99 was a concession that ended with the introduction of the 2003 Act.
✓ The surcharge is necessary to offset transmission losses and disincentivize non-compliance.
✓ The Regulatory Commission is an expert body, and its decisions should not be interfered with unless they are illegal, arbitrary, or ultra vires the Act.
The Court did not express any minority opinion.
The Court’s reasoning was based on the interpretation of the Electricity Act, 2003, and the powers of the Regulatory Commission. The Court applied the law to the facts of the case and concluded that the levy of surcharge was justified. The Court also analyzed the reasoning of the Regulatory Commission and the Appellate Tribunal and concluded that the rate of surcharge was also justified. The Court’s decision has potential implications for future cases involving tariff determination and the powers of regulatory bodies.
Key Takeaways
- ✓ Industries cannot rely on past concessions or exemptions once a new regulatory regime comes into force.
- ✓ Regulatory Commissions have broad powers to determine tariffs, and courts will generally not interfere with these decisions unless they are illegal, arbitrary, or ultra vires the Act.
- ✓ Surcharges can be levied to disincentivize non-compliance with regulatory requirements and to recover costs.
The judgment has significant implications for industries that have been granted concessions or exemptions in the past. It clarifies that these concessions are not permanent and can be withdrawn when a new regulatory framework is introduced. The judgment also reinforces the authority of Regulatory Commissions in determining tariffs and limits the scope of judicial intervention in these matters.
Directions
No specific directions were given by the Supreme Court, other than dismissing the appeals.
Specific Amendments Analysis
There were no specific amendments discussed in the judgment.
Development of Law
The ratio decidendi of this case is that the Regulatory Commission has the power to determine tariffs under the Electricity Act, 2003, and that concessions or exemptions granted under previous regimes do not bind the Commission. The judgment clarifies that surcharges can be levied to disincentivize non-compliance with regulatory requirements and to recover costs. This ruling does not change the previous position of law but reinforces the existing legal framework.
Conclusion
The Supreme Court upheld the levy of surcharge on arc furnace industries for not shifting to a 66 KV power supply line. The Court held that the Regulatory Commission had the power to determine tariffs under the Electricity Act, 2003, and that past concessions were not binding on the Commission. The Court also upheld the rate of surcharge determined by the Regulatory Commission, emphasizing the need to disincentivize non-compliance and recover costs. This judgment reinforces the authority of regulatory bodies and clarifies the legal framework for tariff determination in the electricity sector.