Surcharge on Power Supply: Supreme Court Rules Against Arc Furnace Industries in Waryam Steel Castings Case (2017)

Can electricity providers levy a surcharge on industries that don’t upgrade their power infrastructure? The Supreme Court of India addressed this question in a case involving arc furnace industries in Punjab. The court upheld the surcharge, finding it a justified measure to offset costs incurred by the power corporation. This judgment clarifies the power of regulatory bodies in setting tariffs.

Citation: Not Available

Judges: Ranjan Gogoi, J., Navin Sinha, J.

Case Background

Waryam Steel Castings Pvt. Ltd. and other appellant companies are arc furnace industries that manufacture steel ingots. These industries require a large amount of electrical power, categorized as “Industrial Connections.” They draw power from the 11 KV High Tension Supply Line.

In Punjab, electricity is supplied through different voltage systems: low tension (LT), high tension (HT), and extra high tension (EHT). High tension (HT) at 11,000 volts (11 KV) is used for large industrial connections.

On June 23, 1995, the Punjab State Electricity Board (the Board) issued a circular. It mandated that all induction furnace units with a load above 1500 KVA shift to 66 KVA voltage supply. Those who did not comply would have to pay a 17.5% surcharge. The appellants received notices to convert their voltage supply by December 31, 1996.

The Induction Furnace Industries Association of Punjab discussed the matter with the State Government. A High Powered Committee recommended that units existing as of June 23, 1995, be exempt from the conversion and the surcharge.

The Board accepted these recommendations. On June 8, 1999, they issued commercial circular No. 25/1999. This circular stated that the 17.5% surcharge would not be levied on existing consumers. It also said that surcharges already billed would be written back or refunded. All future connections above 1500 KVA/2500KW would be at 66 KV only.

Timeline

Course of Proceedings

The arc furnace industries challenged the surcharge in the High Court of Punjab and Haryana. A single judge dismissed their petitions, stating that tariff fixation is a statutory function of the Regulatory Commission under the Electricity Act, 2003. The judge held that the 1999 circular was not binding on the Commission.

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, reiterating the surcharge. The industries then challenged this order before the Appellate Tribunal for Electricity.

The Appellate Tribunal upheld the surcharge but remanded the matter to the State Commission to decide on the rate. The State Commission reduced the surcharge. The Supreme Court dismissed the appeal against the Appellate Tribunal’s order, confirming the surcharge.

Legal Framework

The Electricity Act, 2003, aims to protect consumers and rationalize electricity tariffs. Part VII of the Act deals with tariffs.

Section 61 of the Electricity Act, 2003 states that the “Appropriate Commission” shall specify the terms and conditions for determining tariffs. The Commission must be guided by the principles in this section.

Section 62 of the Electricity Act, 2003 outlines the process for determining tariffs. It states that the Appropriate Commission shall determine tariffs for the supply, transmission, wheeling, and retail sale of electricity. It also states that the Commission cannot show undue preference to any consumer. However, it may differentiate based on factors like load, voltage, and consumption.

Section 2(4) of the Electricity Act, 2003 defines “Appropriate Commission” as 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, which includes determining tariffs for electricity within the State.

Section 111 of the Electricity Act, 2003 allows appeals against orders of the Appropriate Commission to the Appellate Tribunal for Electricity.

Arguments

The appellant companies argued that the circular No. 25/99 dated 8th June, 1999, granted them an exemption from the surcharge. They contended that this exemption should continue, as they were established before the cutoff date. They also argued that the surcharge was not justified because it was higher than the actual cost of upgrading to 66 KV supply.

The Punjab State Power Corporation argued that the Electricity Act, 2003, gave the Regulatory Commission the power to determine tariffs. They argued that the 1999 circular was no longer valid after the Act came into force. The Corporation also argued that the surcharge was necessary to offset the costs of supplying power at 11 KV to industries that should have upgraded to 66 KV.

The State Regulatory Commission argued that the surcharge was a necessary measure to disincentivize industries from continuing to use the 11 KV supply. They argued that the surcharge was not only to cover costs but also to encourage compliance with the required voltage supply.

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the High Court was correct in dismissing the writ petitions filed by the arc furnace industries.
2. 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:

Authorities

The court considered the following authorities:

✓ Transmission Corporation of Andhra Pradesh Ltd. and Anr. vs. Sai Renewable Power Private Ltd. and Ors. [(2011) 11 SCC 342] – The Supreme Court discussed the nature of power exercised in determining tariff under the Electricity Act, 2003. The court held that tariff fixation is a statutory function of expert bodies. Courts should not interfere unless the tariff fixation is illegal, arbitrary, or ultra vires the Act.

✓ M/s Bisra Stone Lime Co. Ltd. vs. Orissa State Electricity Board and Anr. [AIR 1976 SC 127] – The Supreme Court defined “surcharge” as an additional charge over the usual dues. This definition was used to justify the surcharge imposed by the Regulatory Commission.

Judgment

The following table demonstrates how the court treated the submissions of the parties:

The following table demonstrates how the court viewed the authorities:

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several factors. The court emphasized the statutory power of the Regulatory Commission to determine tariffs under the Electricity Act, 2003. The court also recognized the need to disincentivize industries from using the 11 KV supply when they should have upgraded to 66 KV. The court also considered the additional costs incurred by the power corporation in supplying power at 11 KV to these industries.

The court’s reasoning was primarily based on the legal framework provided by the Electricity Act, 2003, and the statutory powers of the Regulatory Commission.

Logical Reasoning

The court reasoned that the Regulatory Commission’s decision to levy the surcharge was a statutory exercise. The court found that the 1999 circular, which exempted the industries, was no longer valid after the 2003 Act came into force. The court also noted that the surcharge was not only to cover costs but also to disincentivize industries from continuing to use the 11 KV supply.

The court also considered that the Regulatory Commission is an expert body and that its decision on the rate of surcharge should not be interfered with unless it is arbitrary or illegal. The court found that the Commission had added a penal element to the cost of conversion to disincentivize the industries, which was justified.

The Supreme Court quoted the following from the judgment:

“…the said power has been consistently held and understood by this Court to be statutory, required to be exercised within the four corners of the relevant provisions of the 2003 Act i.e. Sections 62 to 64 and in accordance with the principles laid down in Section 61 thereof.”

“The absence of continuation of the said concession made by the Government in respect of pre-1995 industries in any of the tariff orders for the subsequent years i.e. after coming into force of the Act is a conscious decision of the Regulatory Commission with regard to the necessity and justifiability of the levy of surcharge on the defaulting industries.”

“surcharge is thus a super added charge, a charge over and above the usual or current dues … it is in substance an addition to the stipulated rate of tariff.”

There were no dissenting opinions in this case.

Key Takeaways

• ✓ Regulatory bodies have the power to set tariffs and impose surcharges under the Electricity Act, 2003.
• ✓ Previous concessions or exemptions granted by the government may not be valid after the implementation of new legislation.
• ✓ Surcharges can be levied not only to cover costs but also to disincentivize certain behaviors.
• ✓ Courts will generally not interfere with the decisions of expert regulatory bodies unless they are illegal or arbitrary.

Directions

No specific directions were given by the Supreme Court in this case.

Development of Law

The Supreme Court upheld the levy of surcharge on arc furnace industries that did not upgrade to 66 KV power supply. The court clarified that the power to determine tariffs lies with the Regulatory Commission under the Electricity Act, 2003. This decision reinforces the statutory authority of regulatory bodies in setting tariffs and disincentivizing non-compliance.

The ratio decidendi of the case is that the Regulatory Commission has the statutory power to impose a surcharge on industries that do not comply with the required voltage supply. The court also held that the surcharge is a valid measure to offset costs and disincentivize non-compliance. This decision does not change any previous position of law but rather reinforces the existing legal framework.

Conclusion

The Supreme Court dismissed the appeals, upholding the surcharge on arc furnace industries. The court emphasized the statutory power of the Regulatory Commission to determine tariffs and the need to disincentivize non-compliance with voltage requirements. This judgment reinforces the authority of regulatory bodies in the electricity sector.