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[Electricity Act, 2003] Captive Consumers/Captive Users are not Liable to Pay Additional Surcharge under Section 42(4): Supreme Court

Team SoOLEGAL 13 Dec 2021 4:21pm

[Electricity Act, 2003] Captive Consumers/Captive Users are not Liable to Pay Additional Surcharge under Section 42(4): Supreme Court

NEW DELHI: The Supreme Court ruled that captive consumers/captive users are not required to pay additional surcharge imposed by Section 42(4) of the Electricity Act of 2003 (“Act, 2003”). It was also discovered that customers, as defined in section 2(15) of the Act of 2003, and captive consumers are unique and form a separate class by themselves. In the current case, a bench of Justices MR Shah and Sanjiv Khanna was hearing a civil appeal filed by the Appellate Tribunal for Electricity, Delhi (“impugned judgment”).

In the impugned judgment, the Appellate Tribunal granted the respondents, the ‘captive customers’, appeal and overturned the order of Maharashtra Electricity Regulatory Commission (“State Commission”), which ordered that the group of ‘captive consumers’ must pay an extra premium. The question that arose for examination was whether captive consumers/captive users were obligated to pay the extra fee imposed under Section 42(4) of the Electricity Act of 2003.

While dismissing the civil appeal in Maharashtra State Electricity Distribution Company Limited v. M/s. JSW Steel Limited & Ors.; the bench stated 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 – distributing 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 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
The Maharashtra State Electricity Distribution Company Limited (“distribution licensee”) petitioned the State Commission for MYT approval for fiscal year 2014 – 2015, provisional truing up of ARR for fiscal year 2015 – 2016, and multiyear tariff for the third control period, fiscal years 2016 – 2017 to fiscal year 2019 – 2020.

The State Commission determined that the extra premium imposed under Section – 42(4) of the Electricity Act, 2003 (“Act, 2003”) did not apply to captive consumers to the extent of their self – consumption from such facilities. The State Commission also ruled that the extra cost would apply to all users who had open access to sources other than the distribution licensee to whom they were connected.

The appellant filed a revised Review Petition seeking approval of final ARR true – ups for fiscal year 2015 – 2016 and 2016 – 2017, provisional ARR true ups for fiscal years 2017 – 2018, and approval of the revised ARR forecast for fiscal year 2018 – 2019 and 2019 – 2020, among other things, as well as the prayer “to approve additional surcharges for all open access consumers, including those sourcing power from CPPS, as proposed for fiscal years 2018 – 2019 to fiscal years 2019 – 2020.”

In response to the Captive Power Producers Association’s objection to the imposition of an additional surcharge on such captive users, the State Commission ruled under on September 12th, 2018 that an additional surcharge on captive consumers/captive users was permissible under Section – 42(4) of the Act, 2003.

Captive consumers/Captive users filed an appeal with the Appellant Tribunal, on March 27, 2019; the Appellate Tribunal approved the appeals by overturning the State Commission’s Judgment. The tribunal determined that a group of captive consumers were not required to pay a fee to the distribution licensee. The Distribution Licensee appealed the Appellant Tribunal’s decision to the Supreme Court.

Submission of Counsels
Appellant’s counsel contended that captive generation under Section – 9 was subject to regulations as per the first provision 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 contingent on the availability of an adequate transmission facility determined by the Central Transmission Utility or the State Transmission Utility. It was also their position that Section – 42(4) applied, and that captive consumers were obligated to pay the extra premium levied under Section 42(4).

Supreme Court’s Analysis:
The Act grants the captive users the right to open access to transmit/carry electricity, which is not subject to and does not require the permission of the State Commission.

The court, led by Justice M.R. Shah, examined Section – 9 of the Act of 2003 and concluded that captive generation/captive usage is statutorily given / available and does not require the consent of the State Commission.

The Court observed in this regard, “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 the 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 generating plant, the State Commission’s permission is required. Right to open access to transmit/carry electricity to the captive user who is granted by the act, and is not subject to and does not requires 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.”

Captive users do not need the State Commission’s Permission to Purchase Electricity from Someone other than the Distribution Licensee in their area of supply.

In relation to Section – 42(4) of the Act of 2003, the bench noted that, “Subsection (4) of Section – 42 shall apply only if the State Commission permits a consumer or class of consumers to receive electricity supply from a person other than the distribution licensee of his area of supply, and only such consumers shall be liable to pay an additional surcharge on wheeling charges, as specified by the State Commission. A captive user does not need such authorization because he has statutory rights.”

Under Section – 2(15) is defined by consumers and captive consumers are distinct and distinct, forming a separate class by themselves.

The Court remarked, with reference to the concept of consumer under Section – 2(15) of the Act, 2003, 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 State Commission such a consumer or class of consumers may receive supply of electricity from the person other than 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 Commissions to meet the fixed cost of such distribution licensee arising out of his obligation to supply. There is logic behind the levy of additional surcharge on the charges of wheeling in such a situation and/or eventually, 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 wants 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 the compensatory in nature.”

The bench stated that captive consumers incur a large expenditure/invest a large amount for the purpose of constructing, maintain or operating a captive generating facility and dedicated transmission lines.

“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, it 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 unequal’s are treated equally. Therefore, it is to be held that such captive consumers/captive users, who form a separate class other than the consumer 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.”


Tagged: Supreme Court   Surcharge under Section 42   Electricity Act   2003   Justice MR Shah   Justice Sanjiv Khanna  
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