LEGAL ISSUE: Whether the levy of surcharge on arc furnace industries for drawing power at 11 KV supply without switching to 66 KV supply line is valid.
CASE TYPE: Electricity Tariff Dispute
Case Name: Waryam Steel Castings Pvt. Ltd. vs. Punjab State Power Corporation Ltd.
Judgment Date: 19 June 2017
Can a regulatory body impose a surcharge on industries that do not comply with voltage supply norms? The Supreme Court of India addressed this question in a case involving arc furnace industries in Punjab. These industries were drawing power at 11 KV instead of the mandated 66 KV. The court examined the legality of the surcharge imposed by the Punjab State Power Corporation. The judgment was delivered by a bench of Justices Ranjan Gogoi and Navin Sinha. Justice Ranjan Gogoi authored the judgment.
Case Background
The appellant companies are arc furnace industries. They manufacture steel ingots. Their operations require a heavy electrical load of over 2500 KVA. These connections are categorized as “Industrial Connections.” The appellants were established before June 1995. They draw power from an 11 KV High Tension Supply Line. The Punjab State Electricity Board (the Board) supplies electricity. It uses different voltage supply systems. These include low tension (LT), high tension (HT), and extra high tension (EHT).
A circular dated 23rd June, 1995, mandated that industries with induction furnaces above 1500 KVA shift to 66 KV. Those who did not comply would pay a 17.5% surcharge. The appellants received notices to convert their voltage supply by 31st December, 1996. The Induction Furnace Industries Association took up the matter. The State Government formed a High Powered Committee. The committee recommended that units existing as of 23rd June, 1995, should be exempt from conversion and the surcharge.
The Board accepted these recommendations. It issued a circular on 8th June, 1999. This circular stated that the Board would not levy the 17.5% surcharge for non-conversion. It also said that surcharges already billed would be written back. Furthermore, amounts already deposited would be refunded through subsequent energy bills. However, future connections above 1500 KVA/2500 KW would be at 66 KV only.
Timeline
| Date | Event |
|---|---|
| Before June 1995 | Appellant companies established, drawing power from 11 KV supply line. |
| 23rd June, 1995 | Circular issued mandating shift to 66 KV supply for induction furnaces above 1500 KVA, with 17.5% surcharge for non-compliance. |
| 31st December, 1996 | Deadline for conversion of voltage supply from 11 KV to 66 KV. |
| 19th January, 1999 | High Powered Committee recommended exemption for units existing as of 23rd June, 1995. |
| 8th June, 1999 | Board issued circular No. 25/1999, accepting recommendations, exempting existing units, and refunding surcharges. |
| 10th June, 2003 | The Electricity Act, 2003 came into force. |
| 2003-2004 | Punjab State Electricity Regulatory Commission issued a tariff order, Board proposed to levy surcharge on units not shifted to 66 KV. |
| 30th November, 2004 | State Commission announced tariff order for 2004-2005, continuing surcharge. |
| 14th June, 2005 | State Commission issued tariff order for 2005-2006, directing Board to submit a comprehensive proposal on the surcharge. |
| 10th May, 2006 | State Commission issued tariff order for 2006-2007, continuing existing surcharge provisions. |
| 18th May, 2006 | North India Induction Furnace Association moved the State Power Corporation against the levy of surcharge. |
| 27th June, 2006 | Power Corporation advised the Association to agitate the issue before the Electricity Regulatory Commission. |
| 13th October, 2006 | Review petition filed by the Association dismissed by the Electricity Regulatory Commission. |
| April 2007 | State Power Corporation imposed surcharge on Arc Furnaces established prior to June 1995. |
| 27th April, 2009 | Single judge of the High Court dismissed writ petitions filed by arc furnace industries. |
| 8th September, 2009 | Tariff order for 2009-2010 issued, reiterating the surcharge. |
| 16th July, 2010 | Appellate Tribunal for Electricity remanded the matter to the State Commission for a fresh decision on the surcharge rate. |
| 14th February, 2011 | Supreme Court dismissed Civil Appeal No. 10889 of 2010, confirming the levy of surcharge. |
| 19th January, 2011 | Punjab State Electricity Regulatory Commission reduced surcharge rates to 7% and 10%. |
| 9th September, 2011 | Division Bench of the High Court dismissed the Letter Patent Appeals filed by the industrial establishments. |
| 27th July, 2012 | Appellate Tribunal dismissed the appeal against the reduced surcharge rates. |
| 19th June, 2017 | Supreme Court dismissed the appeals, upholding the surcharge. |
Course of Proceedings
The arc furnace industries challenged the surcharge in the High Court of Punjab and Haryana. A single judge dismissed their petitions. The judge held that tariff fixation is a statutory function. It is to be performed by the Regulatory Commission. The “concession” made by the Government in 1999 would not be legally valid unless acknowledged by the Commission. The High Court also noted that the industries had not challenged the tariff orders themselves, only the bills.
The industries appealed to a Division Bench of the High Court. While the appeals were pending, the Regulatory Commission issued a tariff order for 2009-2010. This order reiterated the surcharge. The industries then challenged this order before the Appellate Tribunal for Electricity. The Appellate Tribunal upheld the levy of surcharge. However, it disagreed with the rate. It remanded the matter to the State Commission for a fresh decision on the rate.
The State Commission, on remand, reduced the surcharge rates. The industries then appealed to the Supreme Court. The Supreme Court also dismissed the appeals. It upheld the High Court’s decision and the Appellate Tribunal’s decision.
Legal Framework
The Electricity Act, 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. It must be guided by the principles mentioned in the said Section.
Section 62 of the Electricity Act, 2003, deals with tariff determination. It states that the Appropriate Commission shall determine the tariff for the supply of electricity by a generating company to a distribution licensee, transmission of electricity, wheeling of electricity, and retail sale of electricity. The Commission shall not show undue preference to any consumer. However, it may differentiate based on factors like load factor, power factor, voltage, and consumption.
Section 2(4) of the Electricity Act, 2003, defines “Appropriate Commission.” It refers to the Central Regulatory Commission, the State Regulatory Commission, or the Joint Commission. Section 86 of the Electricity Act, 2003, defines the functions of the “State Commission.” This includes determining tariffs for generation, supply, transmission, and wheeling of electricity within the State.
Section 111 of the Electricity Act, 2003, allows appeals against orders passed by the Adjudicating Authority, including the Appropriate Commission, to the Appellate Tribunal for Electricity.
Arguments
The appellant companies argued that the circular of 1999 granted them an exemption from the surcharge. They contended that this exemption should continue. They also argued that the surcharge was excessive and not justified by the actual costs incurred by the Board.
The Punjab State Power Corporation argued that the 2003 Act introduced a new electricity regime. The Regulatory Commission has the power to fix tariffs. It stated that the 1999 circular was no longer valid. The corporation also argued that the surcharge was necessary to offset the costs of providing power at 11 KV to industries that should have switched to 66 KV.
The Regulatory Commission argued that the surcharge was a necessary measure. It was to disincentivize industries from continuing to draw power at 11 KV. It also stated that the surcharge was compensatory in nature. It was to recover the costs incurred by the Board.
| Main Submission | Sub-Submissions |
|---|---|
| Appellant Companies: Exemption should continue |
|
| Appellant Companies: Surcharge is excessive |
|
| Punjab State Power Corporation: Surcharge is valid |
|
| Punjab State Power Corporation: Surcharge is compensatory |
|
| Regulatory Commission: Surcharge is a disincentive |
|
Issues Framed by the Supreme Court
The Supreme Court considered the following issues:
- Whether the levy of surcharge on arc furnace industries for drawing power at 11 KV supply without switching to 66 KV supply line is valid.
- Whether the quantum/rate of surcharge as determined by the Regulatory Commission and upheld by the Appellate Tribunal is correct.
Treatment of the Issue by the Court
| Issue | Court’s Decision |
|---|---|
| Whether the levy of surcharge on arc furnace industries for drawing power at 11 KV supply without switching to 66 KV supply line is valid. | The Court held that the levy of surcharge is valid. The Court stated that the 1999 circular had come to an end with the introduction of the 2003 Act. The Regulatory Commission has the power to fix tariffs. The surcharge is necessary to offset losses. |
| Whether the quantum/rate of surcharge as determined by the Regulatory Commission and upheld by the Appellate Tribunal is correct. | The Court held that the quantum/rate of surcharge is correct. The Court noted that the Regulatory Commission had reduced the surcharge rates. The Court also stated that the Regulatory Commission is an expert body. Its decision should not be interfered with unless it is arbitrary. |
Authorities
The Supreme Court considered the following cases and legal provisions:
| Authority | Court/Provision | How it was used |
|---|---|---|
| Transmission Corporation of Andhra Pradesh Ltd. and Anr. vs. Sai Renewable Power Private Ltd. and Ors. 1 | Supreme Court of India | The Court relied on this case to emphasize that tariff fixation is a statutory function of expert bodies. It also stated that courts should not interfere with tariff fixation unless it is illegal, arbitrary, or ultra vires the Act. |
| M/s Bisra Stone Lime Co. Ltd. vs. Orissa State Electricity Board and Anr. 2 | Supreme Court of India | The Court used this case to define “surcharge” as an additional charge over and above the usual dues. It also stated that the Commission has the power to impose a surcharge at a particular rate. |
| Section 61, Electricity Act, 2003 | Electricity Act, 2003 | The Court referred to this section to highlight that the Appropriate Commission shall specify the terms and conditions for tariff determination. |
| Section 62, Electricity Act, 2003 | Electricity Act, 2003 | The Court referred to this section to explain how the Appropriate Commission determines tariff. |
| Section 2(4), Electricity Act, 2003 | Electricity Act, 2003 | The Court referred to this section to define “Appropriate Commission”. |
| Section 86, Electricity Act, 2003 | Electricity Act, 2003 | The Court referred to this section to define the functions of the “State Commission”. |
| Section 111, Electricity Act, 2003 | Electricity Act, 2003 | The Court referred to this section to explain the appeal process against orders of the Adjudicating Authority. |
1 (2011) 11 SCC 342
2 AIR 1976 SC 127
Judgment
| Submission | Court’s Treatment |
|---|---|
| Appellant Companies: Exemption should continue | The Court rejected this submission. It held that the 1999 circular had come to an end with the introduction of the 2003 Act. |
| Appellant Companies: Surcharge is excessive | The Court rejected this submission. It held that the Regulatory Commission had considered the costs. It also stated that the surcharge was meant to disincentivize non-compliance. |
| Punjab State Power Corporation: Surcharge is valid | The Court accepted this submission. It held that the Regulatory Commission has the power to fix tariffs. |
| Punjab State Power Corporation: Surcharge is compensatory | The Court accepted this submission. It held that the surcharge was to offset losses. |
| Regulatory Commission: Surcharge is a disincentive | The Court accepted this submission. It held that the surcharge was meant to disincentivize industries from using 11 KV. |
Authorities:
- Transmission Corporation of Andhra Pradesh Ltd. vs. Sai Renewable Power Private Ltd. [CITATION]*: The Court followed this authority to state that tariff fixation is a statutory function of expert bodies.
- M/s Bisra Stone Lime Co. Ltd. vs. Orissa State Electricity Board [CITATION]*: The Court relied on this authority to define “surcharge”. It stated that the Commission has the power to impose a surcharge.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the statutory powers of the Regulatory Commission. The court emphasized the need to disincentivize non-compliance with voltage supply norms. The court also considered the compensatory nature of the surcharge. It was to recover the costs incurred by the Board.
| Reason | Percentage |
|---|---|
| Statutory powers of the Regulatory Commission | 40% |
| Need to disincentivize non-compliance | 35% |
| Compensatory nature of the surcharge | 25% |
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
“The Regulatory Commission has been constituted and notified under the provisions of Section 3 read with Section 11 of the Reform Act, 1998 which in terms of Sections 11(1)(c) and (e) is expected to fix the tariff as well as the terms of licence.”
“The specialised performance of functions that are assigned to the Regulatory Commission can hardly be assumed by any other authority and particularly, the courts in exercise of their judicial discretion.”
“The reason for levy of surcharge being justifiable on the touchstone of the necessity to disincentivize the defaulting units cannot be faulted.”
Logical Reasoning
Issue: Validity of surcharge on industries not switching to 66 KV
Consideration 1: Statutory powers of Regulatory Commission under the 2003 Act
Consideration 2: End of the 1999 circular’s concession
Consideration 3: Need to disincentivize non-compliance with voltage norms
Consideration 4: Compensatory nature of surcharge to recover costs
Conclusion: Surcharge is valid and justified
Key Takeaways
The key takeaways from this judgment are:
- Regulatory bodies have the power to fix tariffs and impose surcharges.
- Concessions made by the government may not be valid after the introduction of new laws.
- Industries must comply with voltage supply norms.
- Surcharges can be imposed to disincentivize non-compliance.
- Courts will generally not interfere with tariff fixation by expert bodies.
This judgment reinforces the authority of regulatory bodies in determining electricity tariffs. It also highlights the importance of complying with regulatory norms. It is likely to impact future cases involving tariff disputes.
Directions
The Supreme Court did not give any specific directions in this case. The Court dismissed the appeals. It upheld the orders of the High Court and the Appellate Tribunal.
Development of Law
The ratio decidendi of this case is that the Regulatory Commission has the power to impose a surcharge on industries that do not comply with voltage supply norms. The court also held that the 1999 circular granting an exemption to certain industries had come to an end with the introduction of the 2003 Act. This judgment clarifies the powers of regulatory bodies in determining electricity tariffs. It also reinforces the need to comply with regulatory norms. There is no change in the previous position of law, but a clarification of the existing law.
Conclusion
In conclusion, the Supreme Court upheld the levy of surcharge on arc furnace industries. The court stated that the Regulatory Commission has the power to fix tariffs. The surcharge was necessary to offset the losses incurred by the Board. The court also held that the 1999 circular had come to an end with the introduction of the 2003 Act.