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TMI Blog2014 (4) TMI 1306X X X X Extracts X X X X X X X X Extracts X X X X ..... has number of consumers to whom it is supplying the electricity. That is not the case here. For its own plant only, it is getting the electricity from Sterlite Ltd. for which it has entered into PPA. We have to keep in mind the object and scheme of SEZ Act which envisages several units being set up in a SEZ area. This is evident from a collective reading of the various provisions of the SEZ Act viz. Section 2(g)(j)(za)(zc), Section 3, 4, 11, 12, 13 and 15. There can be a Sector Specific SEZ with Several Units i.e. for IT, Mineral Based Industries etc. but instances of single unit SEZ like in the present case of the Appellant may be rare. The Notification dated 03.03.2010 providing for the Developer of SEZ being deemed as a Distribution Licensee was issued keeping in view the concept of Multi Unit SEZs and will apply only to such cases in which the Developer is supplying the power to multiple Units in the SEZ. The said Notification will not apply to a Developer like the Appellant who has established the SEZ only for itself. Thus, on the facts of this case it is not possible for the Appellant to avoid payment of CSS to WESCO. There are no merit in this Appeal which is accordingly dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge. This is the brief description of the dispute raised by the Appellant and in order to understand the gravamen of this dispute, we take a tour of the factual roadmap. The Facts: 5. These facts are in narrow compass and have been narrated succinctly by the Appellate Tribunal in its order. As there is no dispute about the correctness of these facts, we intend to traverse the same therefrom. The Appellant is engaged in the business of production and export of aluminium. The Appellant has set up a 1.25 MTPA capacity aluminium smelter project in a sector specific Special Economic Zone. After getting all necessary approvals for the development of SEZ for manufacture of export of aluminium the Appellant set up the aforesaid plant. These approvals include the approval with captive power plant as well. It is also a matter of record that on 27th February, 2009 the Ministry of Commerce and Industry, Government of India issued a notification declaring the unit of the Appellant to be SEZ. It was followed by Notification dated 3rd March, 2010 under Section 49(1) of the SEZ Act. By the said notification, the Central Government of promoting the objects of Special Economic Zone and in terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid notification. 9. As already pointed out above, the State Commission rejected this application for grant of deemed Distribution Licensee and subsequently rejected the prayer of the Appellant for approval of PPA also. The State Commission, while doing so held as under: a. Since the Application for grant of Distribution License was rejected, State Commission did not consider it necessary to go into the issues relating to the PPA. b. Consequent upon the rejection of the Application for grant of Distribution License, State Commission held that VAL is to be treated as a consumer of WESCO. c. As a result, VAL has to pay cross subsidy surcharge to WESCO for open access drawal of power from SEL. 10. This Order of the State Commission has been upheld by the Appellate Tribunal in Appeal filed by the Appellant. Question of Law: 11. In the present Appeal, the Appellant has raised following question of law which the Appellant recall this Court to determine an answer: Whether a developer of a notified Special Economic Zone, who has been deemed by law to be a licensee for distribution of electricity, is required to, once again, apply to Electricity Regulatory Commission under the Electricity A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Section 2(15) of the Electricity Act which defines the term consumer and submitted that in order to treat the Appellant as a consumer, it was necessary to establish that it is supplied with the electricity by such Licensee or the government or any other person engaged in the business of supplying electricity to the public . 14. In so far as the third finding holding the Appellant liable to pay CSS to WESCO for open access drawal of power from SEZ is concerned, the submission of Mr. Diwan was that there was no occasion for the State Commission (or for that matter Appellate Tribunal) to go into the aspect of CSS in an application filed by the Appellant initially for approval of PPA only which was later amended on the directions of the State Commission to include a prayer to the extent that the Appellant should be recognized as a Distribution Licensee under Section 14(b) of the Electricity Act. It was submitted that even in the amended application there was no issue of CSS and the authorities below exceeded their jurisdiction in going into this issue and giving such a direction. Without prejudice to the aforesaid preliminary submission, Mr. Diwan argued that even on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined under the Electricity Act, 2003 cannot be made applicable. It is crucial point that the SEZ Act conceptually envisages Developer of an SEZ distinct from the Zone itself as also distinct from Unit . Developer is defined under Section 2(g) of the SEZ Act whereas Special Economic Zone is defined under Section (za) of the SEZ Act and Unit is defined under Section 2(zc) of the SEZ Act. Thus the Appellant in its capacity as the Developer of the SEZ has the duty to develop, operate and maintain the Zone. Failing the reconciliation between the provisions of the Electricity Act, 2003 and the SEZ Act, the provisions, objects and purpose of the SEZ Act will prevail (Section 51 of the SEZ Act). The object and purpose of the SEZ Act, inter alia, is to provide an internationally for export production, expeditious and single window approval mechanism and a package of incentives to attract foreign and domestic investments for promoting export-led growth. The Arguments: Respondents 15. Mr. R.K. Mehta, learned Counsel appearing on behalf of GRIDCO Ltd. refuted the aforesaid submissions of Mr. Diwan. His main argument was that even though the Appellant was possessed of notification issued un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. but instances of single unit SEZ like in the present case of the Appellant may be rare. The Notification dated 3rd March, 2010 providing for the Developer of an SEZ being deemed as a Distribution Licensee was issued keeping in view the concept of Multi Unit SEZs and will apply only to such cases in which the Developer is supplying the power to multiple Units in the SEZ. The said Notification will not apply to a Developer like the Appellant who has established the SEZ only for itself. 18. Mr. Parag P. Tripathi, Learned Senior Counsel appeared with Mr. Shiv Kumar Suri, Advocate on behalf of WESCO. His submission was that in the facts of present case WESCO was entitled to CSS on the electricity purchase by the Appellant from Sterlite which was consumed wholly and completely by the Appellant itself. It was pointed out that surcharge was meant to compensate a Distribution Licensing from the loss of cross subsidy surcharge that such distribution licensee would suffer by reason of the consumer taking supply from someone other than such Distribution Licensee, the moment it is found that the Appellant is covered by the Definition of a consumer within the meaning of Section 2(15) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a State Electricity Board. The Board assigned the responsibility of arranging the supply of electricity in the State. It was experienced that over a period of time the performance of State Electricity Boards had deteriorated on account of various factors. Main failure on the part of these Electricity Boards was to take decision on tariffs in independent manner and cross subsidies had reached untenable levels. To address this issue and also to distance governance from determination of tariffs, the Electricity Regulation Commission Act was enacted in the year 1998. This Act created regulatory mechanism. Within few years, it was felt that the three Acts of 1910, 1948 and 1998 which were operating in the field needed to be brought in a new self contained comprehensive legislation with the policy of encouraging private sector participation in generation, transmission and distribution and also the objectives of distancing the regulatory responsibilities from the Government and giving it to the Regulatory Commissions. With these objectives in mind the Electricity Act, 2003 has been enacted. Significant addition is the provisions for newer concepts like power trading and open access. Va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of current level of cross-subsidy and the fixed cost arising out of the licensee's obligation to supply. Consequent to the enactment of the Electricity (Amendment) Act, 2003, it has been mandated that the State Commission shall within five years necessarily allow open access to consumers having demand exceeding one megawatt. (3) CSS: Its Rationale 25. The issue of open access surcharge is very crucial and implementation of the provision of open access depends on judicious determination of surcharge by the State Commissions. There are two aspects to the concept of surcharge-one, the cross-subsidy surcharge i.e. the surcharge meant to take care of the requirements of current levels of cross-subsidy, and the other, the additional surcharge to meet the fixed cost of the distribution licensee arising out of his obligation to supply. The presumption, normally is that generally the bulk consumers would avail of open access, who also pay at relatively higher rates. As such, their exit would necessarily have adverse effect on the finances of the existing licensee, primarily on two counts-one, on its ability to cross-subsidies the vulnerable sections of society and the other, in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, Cross Subsidy Surcharge, broadly speaking, is the charge payable by a consumer who opt to avail power supply through open access from someone other than such Distribution licensee in whose area it is situated. Such surcharge is meant to compensate such Distribution licensee from the loss of cross subsidy that such Distribution licensee would suffer by reason of the consumer taking supply from someone other than such Distribution licensee. (4) Application of the CSS Principle 29. In the present case, admittedly, the Appellant (which happens to be the operator of an SEZ) is situate within the area of supply of WESCO. It is seeking to procure its entire requirement of electricity from Sterlite (an Independent Power Producer ( IPP ) (which at the relevant time was a sister concern under the same management) and thereby is seeking to denude WESCO of the Cross Subsidy that WESCO would otherwise have got from it if WESCO were to supply electricity to the Appellant. In order to be liable to pay cross subsidy surcharge to a distribution licensee, it is necessary that such distribution licensee must be a distribution licensee in respect of the area where the consumer is situated and it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supply to the Appellant: 32. In order to appreciate these arguments, it would appropriate to first advert to the factual aspect of the supply of electricity by Sterlite to the Appellant under the PPA. No doubt the Appellant is getting direct supply of electricity from Sterlite. However, question is as to whether, in the process, it is using dedicated transmission lines of WESCO. We may point out at the outset that such an argument was not even raised before the two authorities below. Primarily it was argued that having acquired the status of deemed distribution licensee under the Electricity Act, it cannot be treated as a consumer of other distribution licensee, viz. the WESCO. Even the question of law which is proposed and framed in the grounds of appeal and is already reproduced, does not raise this issue, which is even otherwise factual. Notwithstanding, the learned Counsel for the WESCO has argued that the transmission line between the Sterlite and the Appellant is not a dedicated transmission line for the following reasons: (a) Under Section 2(16) of the Electricity Act, 2003, a Dedicated Transmission Line is an electric supply line for point to point transmission, which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l that notwithstanding that supply line of SEL-VAL is transmission line, but not dedicated transmission line . The Appellant cannot run away from the fact that under Section 2(10) of the Electricity Act, it is the duty of the Generating Company (i.e. WESCO) in this case to establish, operate and maintain dedicated transmission lines. Since it is duty bound to establish, operate and maintain these dedicated lines by making huge investment, in order to get into the consumption in the area in question the very necessity of payment of CSS arises by the consumer of Electricity covered by the definition of consumer under Section 2(15) of the Act but is not getting supply of that Generator and someone else. We have also to keep in mind the provision of Regulation 27 of OERC (Conditions of Supply Code) Regulation 2004. As per this Regulation the service line shall be the property of the licensee unless otherwise specified in writing. This clause reads as under: 27. The entire service line, notwithstanding that whole or portion thereof has been paid for by the consumer, shall be the property of the licensee and shall be maintained by the licensee who shall always have the right to use it fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification or Order issued or direction given thereunder (other than the provisions relating to making of the rules or Regulations) specified in the notification- (a) shall not apply to a Special Economic Zone or a class of Special Economic Zones or all Special Economic Zones: or (b) shall apply to a Special Economic Zone or a class of Special Economic Zones or all Specials Economic Zones only with such exceptions, modifications and adaptation, as may be specified in the notifications. 38. Likewise Section 14 of the Electricity Act reads as under: 14. Grant of License The Appropriate Commission may, on application made to it under Section 15, grant any person licence to any person- (a) To transmit electricity as a transmission licensee: or (b) To distribute electricity as a distribution licensee: or (c) To undertake trading in electricity as an electricity trader, in any area which may be specified in the licence: Provided that any person engaged in the business of transmission or supply or electricity under the provisions of the repealed laws or any Act specified in the Schedule on or before the appointed date shall be deemed to be a licensee under this Act for such period as m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exists a licensee in the same are for the same purpose: Provided also that in a case where a distribution licensee proposes to undertake distribution of electricity for a specified area within his area of supply through another person, that person shall not be required to obtain any separate licence from the concerned State Commission and such distribution licensee shall be responsible for distribution of electricity in his area of supply: Provided also that where a person intends to generate and distribute electricity in a rural area to be notified by the State Government, such person shall not require any licence for such generation and distribution of electricity, but he shall comply with the measures which may be specified by the Authority under Section 53: Provided also that a distribution licensee shall not require a licence to undertake trading in electricity. 39. We would also like to take note of Notification dated 3rd March, 2010 issued in the case of Appellant. It makes the following reading: NOTIFICATION S.O. No. 528(E). In exercise of the powers conferred by clause(b) of Sub-section (1) of Section 49 of the Special Economic zones Act, 2005 (28 of 2005), the Central Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Appellate Tribunal on two grounds which are as follows: (i) There has to be a harmonious construction of SEZ Act and Electricity Act to give effect to the provisions of both the acts so long as they are not consistent with each other in the opinion of the Tribunal. The provisions of Section 51 of SEZ Act, 2005 are to be considered along with the provisions of Section 49 of the said Act. Accordingly, in view of the provision of the SEZ Act, 2005 and consequent notification by the Ministry of Commerce and Industry, the deemed distribution licensee status as claimed by the Appellant should also be tested through other provisions of the Electricity Act, 2003 and Electricity Rules, 2005, for certifying its validity and converting it into a formal distribution licensee. In fact, the Appellant has submitted to the jurisdiction of the State Commission, by filing a petition before the State Commission seeking for approval of the PPA and also for grant of distribution licence. The Appellate Tribunal, thus queried as to how could the Appellant now question the jurisdiction? (ii) The Appellate Tribunal pointed out that there are none provisos to Section 14(b) of the Electricity Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distribution of electricity Licence (Additional requirement of Capital Adequacy, Credit Worthiness and Code of Conduct) Rules, 2005 framed by the Central Government also would apply to the Appellant for distribution licence in addition to the requirements of State Commission's Regulations. 45. Section 174 of the Electricity Act provides that the provisions of the Electricity Act shall have to overriding effect notwithstanding anything inconsistent with any other law for the time being in force or in any instrument having effect by virtue of any law other than Electricity Act. That apart, Section 175 also provides that the provisions of the Electricity Act are in addition to and not in derogation of any other law for the time being in force. 47. The perusal of the notification dated 03.03.2010 would make it evident that the legislation's intention for declaring the developer in SEZ area as deemed distribution licence, is confined only to clause-b of Section 14 of Electricity Act, which deals with the grant of license by the appropriate State Commission to any person for distribution of electricity. The said notification has not curtailed the power of State Commission so far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. In order to avail further benefits under the Act, the Appellant is also required to show that it is in fact having distribution system and has number of consumers to whom it is supplying the electricity. That is not the case here. For its own plant only, it is getting the electricity from Sterlite Ltd. for which it has entered into PPA. We have to keep in mind the object and scheme of SEZ Act which envisages several units being set up in a SEZ area. This is evident from a collective reading of the various provisions of the SEZ Act viz. Section 2(g)(j)(za)(zc), Section 3, 4, 11, 12, 13 and 15. There can be a Sector Specific SEZ with Several Units i.e. for IT, Mineral Based Industries etc. but instances of single unit SEZ like in the present case of the Appellant may be rare. The Notification dated 03.03.2010 providing for the Developer of SEZ being deemed as a Distribution Licensee was issued keeping in view the concept of Multi Unit SEZs and will apply only to such cases in which the Developer is supplying the power to multiple Units in the SEZ. The said Notification will not apply to a Developer like the Appellant who has established the SEZ only for itself. 44. Having regard ..... X X X X Extracts X X X X X X X X Extracts X X X X
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