[Electricity Act, 2003] Captive Consumers/Captive Users Are Not Liable To Pay Additional Surcharge Under Section 42(4): Supreme Court

The Supreme Court has observed that captive consumers/captive users are not liable to pay the additional surcharge leviable under Section 42(4) of the Electricity Act, 2003 ("Act, 2003").

It was also observed that consumers defined u/s 2(15) of the Act, 2003 and the captive consumers are different and distinct and they form a separate class by themselves.

The bench of Justices MR Shah and Sanjiv Khanna in the present matter was considering a civil appeal passed by the Appellate Tribunal for Electricity, Delhi ("impugned judgement").

In the impugned judgement, the Appellate Tribunal had allowed the appeals preferred by the respondents the 'captive consumers' and had set aside the order passed by the Maharashtra Electricity Regulatory Commission ("State Commission") by which the State Commission had held that the group of 'captive consumers' are liable to pay additional surcharge.

The issue that arose for consideration was whether the captive consumers/captive users are liable to pay the additional surcharge leviable under Section 42(4) of the Electricity Act, 2003.

The bench while dismissing the civil appeal in Maharashtra State Electricity Distribution Company Limited v. M/s. JSW Steel Limited & Ors. observed that,

"Sub-section (4) of Section 42 shall be applicable only in a case where the State Commission permits a consumer or class of consumers to receive supply of electricity from a person other than the person – distribution licensee of his area of supply. So far as captive consumers/captive users are concerned, no such permission of the State Commission is required and by operation of law namely Section 9 captive generation and distribution to captive users is permitted. Therefore, as far as the captive consumers / captive users are concerned, they are not liable to pay the additional surcharge under Section 42(4) of the Act, 2003. In the case of the captive consumers/captive users, they have also to incur the expenditure and/or invest the money for constructing, maintaining or operating a captive generating plant and dedicated transmission lines. Therefore, as such the Appellate Tribunal has rightly held that so far as the captive consumers/captive users are concerned, the additional surcharge under sub-section (4) of Section 42 of the Act, 2003 shall not be leviable."

Factual Background

Maharashtra State Electricity Distribution Company Limited ("distribution licensee") had filed a petition before the State Commission for MYT approval for FY 2014-2015, provisional truing up of ARR for FY 2015-2016 and Multi Year Tariff for 3rd Control Period FY 2016-2017 to FY 2019-2020.

The State Commission held that the additional surcharge leviable under Section 42(4) of the Electricity Act, 2003 ("Act, 2003") was not applicable to captive users to the extent of their self-consumption from such plants. The State Commission also held that the additional surcharge shall be applicable to all consumers who have availed open access to receive supply from sources other than the distribution licensee to which they are connected.

The appellant submitted its revised Review Petition being for approval of final true up of ARR for FY 2015-2016 and 2016-2017, provisional true up of ARR for FY 2017-2018 and approval for revised forecast of ARR for FY 2018-2019 and 2019-2020, inter alia, including the prayer "to approve additional surcharge for all open access consumers including those sourcing power from CPPS as proposed for FY 2018-2019 to FY 2019-2020".

Pursuant to the objections received by the Captive Power Producers Association with respect to levy of additional surcharge on such captive users, the State Commission on September 12, 2018 observed that additional surcharge was leviable under Section 42(4) of the Act, 2003 on the captive consumers/captive users.

Aggrieved, the captive users/captive consumers approached the Appellate Tribunal and on March 27, 2019 the Appellate Tribunal allowed the appeals by setting aside the State Commission's order. The tribunal observed that a group of captive consumers were not liable to pay additional surcharge to the distribution licensee.

Assailing the Appellant Tribunal's order, the Distribution Licensee approached the Top Court.

Submissions Of Counsels

Appellant's counsel contended that captive generation u/s 9 was subject to the regulations as per first proviso to section 9(1) and that even open access for the purpose of carrying electricity from his captive generating plant to the destination of his use was subject to availability of the adequate transmission facility determined by the Central Transmission Utility or the State Transmission Utility. It was also their contention that Section 42(4) shall be applicable and such captive users were liable to pay the additional surcharge leviable u/s 42(4).

Supreme Court's Analysis

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

The bench in the judgement authored by Justice M.R. Shah considered Section 9 of the Act, 2003 and observed that captive generation / captive use is statutorily provided / available and for which a permission of the State Commission is not required.

"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. As provided under Section 9 of the Act, 2003, any person may construct, maintain or operate a captive generating plant and dedicated transmission lines. Merely because the supply of electricity from the captive generating plant through the grid shall be regulated in the same manner as the generating station of a generating company or the open access for the purpose of carrying electricity from the captive generating plant to the destination of his use shall be subject to availability of the adequate transmission facility determined by the Central Transmission Utility or the State Transmission Utility, it cannot be said that for captive generation plant, the State Commission's permission is required. 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. The right is conditioned by availability of transmission facility, which aspect can be determined by the Central or State transmission utility. Only in case of dispute, the State Commission may adjudicate," the Court observed in this regards.

Captive Users Do Not Require State Commission's Permission To Receive Supply Of Electricity From A Person Other Than The Distribution Licensee Of His Area Of Supply

With regards to Section 42(4) of the Act, 2003 the bench observed that, "Sub-section (4) of Section 42 shall be applicable only in a case 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 and only such consumer shall be liable to pay additional surcharge on the charges of wheeling, as may be specified by the State Commission. Captive user requires no such permission, as he has statutory right."

Consumers Defined u/s 2(15) And The Captive Consumers Are Different And Distinct And They Form A Separate Class By Themselves

Referring to the definition of consumer u/s 2(15) of the Act, 2003 the bench observed that,

"Ordinarily, a consumer or class of consumers has to receive supply of electricity from the distribution licensee of his area of supply. However, with the permission of the State Commission such a consumer or class of consumers may receive supply of electricity from the person other than the distribution licensee of his area of supply, however, subject to payment of additional surcharge on the charges of wheeling as may be specified by the State Commission to meet the fixed cost of such distribution licensee arising out of his obligation to supply. There is a logic behind the levy of additional surcharge on the charges of wheeling in such a situation and/or eventuality, because the distribution licensee has already incurred the expenditure, entered into purchase agreements and has invested the money for supply of electricity to the consumers or class of consumers of the area of his supply for which the distribution license is issued. Therefore, if a consumer or class of consumers want to receive the supply of electricity from a person other than the distribution licensee of his area of supply, he has to compensate for the fixed cost and expenses of such distribution licensee arising out of his obligation to supply. Therefore, the levy of additional surcharge under sub-section (4) of Section 42 can be said to be justified and can be imposed and also can be said to be compensatory in nature."

Remarking that captive consumers 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, the bench said that,

"So far as the consumers defined under Section 2(15) are concerned, they as such are not to incur any expenditure and/or invest any amount at all. Therefore, if the appellant is held to be right in submitting that even the captive consumers, who are a separate class by themselves are subjected to levy of additional surcharge under Section 42(4), in that case, it will be discriminatory and it can be said that unequals are treated equally. Therefore, it is to be held that 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."

Case Title: Maharashtra State Electricity Distribution Company Limited v. M/s. JSW Steel Limited & Ors. | Civil Appeal Nos. 5074-5075 OF 2019

Coram: Justices MR Shah and Sanjiv Khanna

Citation : LL 2021 SC 729

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