2016 (2) TMI 1284 - SC - Indian Laws

Determination of tariff for procurement of power by the Distribution Licensees in Gujarat from Solar Energy Projects - benefit of the accelerated depreciation - case of the 1st respondent is that notwithstanding the fact that it entered into a PPA during the control period specified in the 1st tariff order, it is not obliged to sell power to the appellant for the price specified in Article 5.2 of the PPA and is legally entitled to seek (from the 2nd respondent) fixation of a separate tariff - HELD THAT - It is admitted on all hands that the benefit of accelerated depreciation mentioned in the 1st Tariff Order and the PPA is the stipulation contained in Section 32 (1)(i) of the Income Tax Act read with Rule 5(1A) of the Income Tax Rules. They provide for the method and manner in which depreciation of the assets of an assessee is to be calculated - an undertaking engaged in generation of power has an option to claim depreciation on its assets in accordance with the scheme under Section 32(1)(i) of the Income Tax Act. Such an option could be exercised at the relevant point of time as indicated in the said proviso. What is the point of time at which the power producer can exercise such right to seek the determination of a separate tariff? - HELD THAT - The Income Tax Act gives an option to the producers of power either to avail the benefit of the accelerated depreciation or not. It also specifies the point of time at which such an option could be exercised. The right to exercise such option at a point of time specified in the 2nd proviso to Rule 5(1A) is limited only for the purpose of availing the benefits flowing from the Income Tax Act. The PPA does not make any reference to the benefits of accelerated depreciation - Whether the availability of the AD Scheme is beneficial to the power producer or not in a given case depends on various factors the details of which we do not propose to examine. It is for the power producer to make an assessment whether the availing of the AD is beneficial or not will take a decision if the scheme under Section 32 IT Act should be availed or not. The 1st respondent created enough confusion. While on one hand the 1st respondent asserted a right to seek determination of a separate tariff independent of the tariff fixed under the 1st Tariff Order in view of the stipulation contained in the 1st Tariff Order that for a project that does not get such benefit, the Commission would, on a petition in that respect, determine a separate tariff taking into account all the relevant facts did not seek a relief before the 2nd respondent to determine a separate tariff but claimed the benefit of the 2nd Tariff Order. Assuming for the sake of argument that the petition filed by the 1st respondent (1270/2012) is to be treated as an application for determination of separate tariff which would be identical with the tariff fixed under the 2nd Tariff Order, whether the 1st respondent would be entitled for such a relief depends, if at all he is entitled to seek such a determination, on a consideration of all the relevant facts but not by virtue of the operation of the 2nd Tariff Order. The impugned order cannot be sustained and the same is therefore set aside - Appeal allowed.

Summary

Issues Involved:
1. Determination of tariff for solar power projects.
2. Application of accelerated depreciation benefits under the Income Tax Act.
3. Interpretation of Power Purchase Agreement (PPA) clauses.
4. Applicability of the principle of promissory estoppel.

Detailed Analysis:

1. Determination of Tariff for Solar Power Projects:

The Gujarat Electricity Regulatory Commission (2nd respondent) issued the 1st Tariff Order on 29.01.2010, setting the tariff for solar power projects at Rs. 15 per kWh for the first 12 years and Rs. 5 per kWh for the subsequent 13 years. This tariff was based on various financial and operational parameters, including the benefit of accelerated depreciation under the Income Tax Act. A subsequent 2nd Tariff Order dated 27.01.2012 determined different tariffs for projects availing and not availing accelerated depreciation, with the latter being more favorable.

2. Application of Accelerated Depreciation Benefits:

The 1st respondent did not avail the accelerated depreciation benefits under Section 32 of the Income Tax Act. The 1st Tariff Order specified that projects not availing such benefits could seek a separate tariff determination. The 1st respondent commissioned its project on 2.3.2012, beyond the control period of the 1st Tariff Order, and sought the more favorable tariff under the 2nd Tariff Order.

3. Interpretation of Power Purchase Agreement (PPA) Clauses:

The PPA between the appellant and the 1st respondent, dated 09.12.2010, stipulated the tariff as per the 1st Tariff Order for projects commissioned on or before 31.12.2011. If commissioning was delayed, the tariff would be as determined by the Commission on the commissioning date or the previously mentioned tariff, whichever was lower. The 1st respondent entered into a Supplemental Agreement on 07.05.2011, but Articles 5.1 and 5.2 remained unaltered.

4. Applicability of the Principle of Promissory Estoppel:

The 2nd respondent and the Appellate Tribunal for Electricity ruled that the 1st respondent was entitled to the tariff under the 2nd Tariff Order. The appellant argued that the 1st respondent, having entered into the PPA, could not later opt out of the accelerated depreciation benefits and claim a different tariff. The principle of promissory estoppel was discussed but not applied, as the PPA recognized the possibility of different tariffs depending on the commissioning date and the project's benefits.

Judgment Summary:

The Supreme Court set aside the orders of the 2nd respondent and the Appellate Tribunal, ruling that the 1st respondent could not claim the more favorable tariff under the 2nd Tariff Order after entering into the PPA. The Court emphasized that the PPA clearly stipulated the applicable tariff in case of delayed commissioning and that the 1st respondent's right to seek a separate tariff should have been exercised before entering into the PPA. The appeal was allowed with costs of Rs. 2 lakhs payable by the 1st respondent. The Court also noted that the appeal raised substantial questions of law, justifying its jurisdiction under Section 125 of the Electricity Act.