M/S. SESA STERLITE LTD. vs. ORISSA ELECTRICITY REGULATORY COMM

Civil Appeal No.5479 of 2013 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 5479 of 2013 M/s. Sesa Sterlite Ltd. ….Appellant(s) Vs. Orissa Electricity Regulatory Comm. & Ors. … Respondent(s) J U D G M E N T A.K. SIKRI, J. 1. Instant is a statutory Appeal which is filed by the Appellant under Section 125 of the Electricity Act, 2003 (hereinafter referred to as ‘the Act’). This Appeal arises out JUDGMENT rd of the judgment and order dated 3 May, 2013 passed by Appellate Tribunal for Electricity. 2. By the aforesaid judgment, the Appellate Tribunal has affirmed the orders of the Odisha Electricity Regulatory Commission (hereinafter referred to as the ‘State Commission’). The essence of these orders is that even 1 Page 1 Civil Appeal No.5479 of 2013 when the Appellant is a “Deemed Distribution Licensee” for the purpose of Electricity Act, it is still liable to pay Cross Subsidy Surcharge (CSS) to the Respondent No.8 viz.

question. 3. To put it in nutshell, the case of the Appellant is that it has its unit in Special Economic Zone (SEZ) and it is a Developer in the said SEZ area. It is not drawing or utilizing any electricity from the Distribution Licensee viz. WESCO for its unit namely VALE-SEZ. In fact, the Appellant had th entered into a Power Purchase Agreement (PPA) dated 18 August, 2011 with M/s. Sterlite Energy Ltd. The Appellant had filed application for getting approval of the said PPA. JUDGMENT However the Odisha State Commission, instead of granting the approval, rejected the said PPA and directed the Appellant to pay CSS to WESCO holding the Appellant to be a ‘Consumer’. 4. As per the Appellant, as it is a deemed distribution licensee for the purpose of Electricity Act by virtue of it 2 Page 2 Civil Appeal No.5479 of 2013 being a ‘Developer’ because of the reason that its unit is in SEZ area and such a recognition is given to the Appellant statutorily under the provisions of Special Economic Zone

the question of payment of CSS to the Distribution Licensee does not arise. It is also the case of the Appellant that, in any case, since no electricity is being drawn from the open access network of WESCO, there is no question of making payment of cross subsidy surcharge. 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: JUDGMENT 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 3 Page 3 Civil Appeal No.5479 of 2013 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

approvals include the approval with captive power plant as th well. It is also a matter of record that on 27 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 rd 3 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 of powers delegated under the Special Economic Zone Act, introduced JUDGMENT a proviso to the provisions of Section 14(b) of the Electricity Act, 2003. By the said introduction, a developer of a Special Economic Zone was declared as a deemed licensee authorized to distribute electricity within the Special Economic zone area. The effect of the aforesaid Notification under section 14(b) of the Electricity Act is that the Appellant became a deemed Distribution Licensee. 4 Page 4 Civil Appeal No.5479 of 2013 6. It would be pertinent to mention at this stage that the units of the Appellant are divided into two broad areas. One is Domestic Tariff Area (DTA) where it has established one

(hereinafter referred to as VAL-SEZ Unit). In so far as its unit in DTA is concerned, it draws power from open access and duly phased pays cross subsidy surcharge for this area. There is no dispute to this extent. In the present Appeal, we are concerned with VAL-SEZ which is in SEZ Area where the Appellant is stated as deemed Distribution Licensee for the purpose of Electricity Act by virtue of Notification under Section 14(b) of the Electricity Act. 7. For supply of energy to this unit in SEZ Area (VAL-2), JUDGMENT th the Appellant entered into a PPA on 18 August, 2011 with Sterlite Energy Ltd. which was arrayed as Respondent No.4 in the Appeal. However during the pendency of the Appeal under the scheme of merger approved by the High Court, Sterlite stood merged with the Appellant itself and because of this reason the Respondent No.4 (hereinafter referred to 5 Page 5 Civil Appeal No.5479 of 2013 as ‘Sterlite’) has been deleted from the array of parties at the instance of the Appellant.

th Electricity Act, 2003, the Appellant on 30 August, 2011 filed a petition before the State Commission for approval of the said PPA. Subsequently, the State Commission at the preliminary hearing sought some clarifications with regard to the factual aspects. The Appellant, thereafter filed two th amendment petitions. One was on 8 November, 2011 and th another was on 27 March, 2012 seeking for the additional prayer requesting the State Commission to grant deemed distribution licence in favour of the Appellant on the JUDGMENT strength of the Government of India notification issued rd dated 3 March, 2010 with effect from the date of the said 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 6 Page 6 Civil Appeal No.5479 of 2013 Appellant for approval of PPA also. The State Commission, while doing so held as under:

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: JUDGMENT 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 Act for grant of a licence or the deeming fiction carved out in Section 14 of the Electricity Act 7 Page 7 Civil Appeal No.5479 of 2013 automatically dispenses with this requirement and ipso facto makes such SEZ developer a distribution licensee.” The Arguments: Appellant 12. Mr. Shyam Diwan, Learned Senior Counsel appearing for the Appellant, with full of passion and vehemence argued that all the three findings of the State Commission, which are upheld by the Appellate Tribunal, are ex facie untenable in law. Questioning the first aspect of the order of the authorities below refusing to register the said PPA, his plea was that since the PPA is a contract between the two parties, the State Commission could not have refused to consider the same. Such outright refusal amounts to failure to discharge the function enjoined by the Parliament on the JUDGMENT State Commission under Section 86(b) of the Act. Under this provision, the State Commission has to regulate electricity purchase and procurement process of distribution licensee including the price at which electricity shall be procured from the generating company. Thus it was duty bound to approve a PPA subject to the terms and conditions 8 Page 8 Civil Appeal No.5479 of 2013 which it deems fit in law and only when the parties fail to comply with those terms of the license that such license can be revoked. The failure to not look into a PPA altogether

13. In so far as the opinion of the Appellate Authority that the Appellant is to be treated as a consumer of WESCO is concerned, Mr. Diwan placed heavy reliance on the proviso to Section 14(b) of the Act as per which developer of the notified SEZ itself becomes deemed Licensee from the date of such notification. He thus argued that when there was a specific notification under that proviso declaring the Appellant as a developer, the Appellant was a deemed Licensee and therefore there could not have any JUDGMENT requirement for the Appellant to obtain the license under the Electricity Act. As a fortiorari, such a developer cannot be treated as a ‘consumer’. Therefore, the authorities below could not, in law, hold the Appellant to be a consumer of WESCO. 9 Page 9 Civil Appeal No.5479 of 2013 In the alternative, it was argued that in any case, the Appellant was purchasing the electricity from Sterlite under the PPA and, therefore, by no stretch of imagination, it could

submission, Mr. Diwan referred to 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 JUDGMENT 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 10 Page 10 Civil Appeal No.5479 of 2013 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

Without prejudice to the aforesaid preliminary submission, Mr. Diwan argued that even on merits that such a decision was palpably contrary to law. In this behalf his submission was that since under Section 42 of the Electricity Act, 2003, cross subsidy surcharge is payable to the Distribution Licensee of the area of supply only when the “distribution system” of such Distribution Licensee is “used” for supply of electricity. Therefore, without a clear finding of fact on appreciation of evidence, that the supply- JUDGMENT line of SEL-VAL is connected to WESCO and that WESCO’s “distribution system” is “used” for supply of electricity, State Commission could not have held that VAL has to pay cross subsidy surcharge to WESCO for open access drawal of power from SEL. 11 Page 11 Civil Appeal No.5479 of 2013 In this context, the attention of the Court was drawn to th the National Tariff Policy dated 6 January, 2014, Clause 8.5, Orissa Electricity Regulatory Commission (Terms and

(Clause 13(1)(ii)] and to Orissa Electricity Regulatory Commission (Determination of Open access Charges) Regulations, 2006 [Clause 2(j). It was submitted that from a bare perusal of the relevant Clauses of these Regulations, it is clear that CSS can be levied on “open access customers” i.e. “a consumer who has availed of or intends to avail of open access”. In addition to the aforesaid submission, questioning the correctness of the each of the findings of the State JUDGMENT Commission and the Appellate Tribunal, Mr. Diwan emphasized that it is to be kept in mind in deciding the issue that VAL SEZ is a Deemed Distribution Licensee by operation of law and it need not be a Distribution Licensee within the meaning of Section 2(17) of the Electricity Act, 2003. He admitted that a contention of the Respondents that VAL SEZ does not qualify as a Distribution Licensee within the 12 Page 12 Civil Appeal No.5479 of 2013 meaning of Section 2(17) of the Electricity Act, 2003 is misplaced since accepting such contention would defeat the very purpose of the deeming fiction created by the statute.

which the statute creates by way of fiction already existed. He argued that none of the five provisos to Section 14 of the Electricity Act, 2003 require the deemed distribution licensees mentioned therein to obtain a license under the Electricity Act. The Developer of a notified SEZ is a special entity under a special legislation and the definition of “consumer” or “distribution licensee” etc. as defined under the Electricity Act, 2003 cannot be made applicable. It is crucial point that the SEZ Act conceptually JUDGMENT 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 13 Page 13 Civil Appeal No.5479 of 2013 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

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 under Proviso to Section JUDGMENT 14(b) of the Electricity Act, which treats the Appellant as of Deemed Distribution Licensee, the concept of Distribution Licensee under the Electricity Act pre-supposes supply/distribution of power. An entity which utilizes the entire quantum of electricity for its own consumption and does not have any other consumers cannot be deemed to 14 Page 14 Civil Appeal No.5479 of 2013 be a Distribution Licensee, even by a legal fiction. In support of this submission, the Learned Counsel referred to the definitions of “consumer” in Section 2(15), “Distribution

relation to electricity to the consumers in Section 2(70). He also referred to Section 42 of the Act which spells out the duties of Distribution Licensee and open access. His submission, thus, was that by virtue of the legal fiction rd created by the Notification dated 3 March, 2010, a person who distributes Electricity can be deemed to be a distribution licensee even though he does not have a distribution license – But the legal fiction cannot go further and make a person who does not distribute electricity as a JUDGMENT distribution licensee. 16. He also argued that if a ‘Distribution Licensee’ is equated with ‘Consumer’ the provisions of Section 2(15), 2(17), 42 and 43 of the Electricity Act, 2003 would be rendered otiose and nugatory. The mandate of Section 42 and 43 of the Electricity Act, 2003 cannot be negated by exercise of power under Section 49(1)(b) of the SEZ Act. It 15 Page 15 Civil Appeal No.5479 of 2013 was further submitted that only a proviso has been added to rd Section 14(b) by Notification dated 3 March, 2010 qua the Appellant. There is no stipulation in the Notification that

Developer of a SEZ. 17. Mr. Mehta called for harmonious construction of the provisions of SEZ and the Electricity Act to support his submission that the legal fiction of deemed Distribution Licensee cannot be taken to the level of absurdity and made applicable even when it does not involve distribution/supply of power at all. He further pointed out the object and scheme of SEZ Act envisages several units being set up in a SEZ. This is evident from a collective reading of the various JUDGMENT 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 rd the appellant may be rare. The Notification dated 3 March, 2010 providing for the “Developer” of an SEZ being deemed as a “Distribution Licensee” was issued keeping in 16 Page 16 Civil Appeal No.5479 of 2013 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

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 JUDGMENT 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 Act. He argued that in such a situation the mere fact that the Appellants claims to be a deemed Distribution Licensee is of no consequence at all 17 Page 17 Civil Appeal No.5479 of 2013 since the entire power purchase by the Appellant is for its own use or consumer and not for the purpose of Distribution. The Appellant, therefore, could be categorized

deemed Licensee. On merits, it was submitted that Transmission line between the Generating Company (Sterlite) and the Appellant is not a Dedicated Transmission Line, with an attempt to justify it giving various reasons which we shall advert to all a later stage. 19. It was also argued that as per Regulation 27 of the OERC (Conditions of supply Code) Regulations 2004, the “service line” shall be the property of the licensee unless otherwise specified in writing. Hence the line between the JUDGMENT grid sub-station and the Appellant’s SEZ qualify as the property of WESCO and therefore any use of such line could only be by Open Access under the EA and in any event CSS would be payable. Reference was also made to the Rule 4 of the Electricity Rules, 2005, as per which aforesaid line would be deemed as part of the Distribution System of WESCO. On that basis submission of Mr. Tripathi was that 18 Page 18 Civil Appeal No.5479 of 2013 from any angle the matter is to be looked into the orders of the Appellate Tribunal was perfectly justified. Our Analysis:

arguments of the counsel for the parties, it has become manifest the primary dispute relates to the CSS which the Appellant is called upon to pay to WESCO. As per the Appellant no such CSS is payable and the PPA which was submitted by the Appellant to the State Commission for approval, should have been accorded due approval by the State Commission. (1) Special Feature of the 2003 Act JUDGMENT 21. Before adverting to this central issue, it would be apt to understand conceptually the rationale of payment of such CSS to the Distribution Company, under the scheme of the Electricity Act. The first enactment to govern electricity supply in India was passed in the year 1910 viz. the Electricity Act, 1910. This Act envisaged growth of electricity industry through private licences. It created the 19 Page 19 Civil Appeal No.5479 of 2013 legal framework for laying down of wires and other works relating to the supply of electricity. Thereafter, the Electricity (Supply) Act, 1948 mandated the creation of a

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. JUDGMENT 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 20 Page 20 Civil Appeal No.5479 of 2013 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

features of the 2003 Act which are outlined in the statement of objects and reasons to this Act. Notably, generation is being delicensed and captive generation is being freely permitted. The Act makes provision for private transmission licensees. It now provides open access in transmission from the outset. (2) Open Access and CSS 22. Open access implies freedom to procure power from any source. Open access in transmission means freedom to JUDGMENT the licensees to procure power from any source. The expression “open access” has been defined in the Act to mean “the non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or a person engaged in generation in accordance 21 Page 21 Civil Appeal No.5479 of 2013 with the regulations specified by the Appropriate Commission”. The Act mandates that it shall be duty of the transmission utility/licensee to provide non-discriminatory

and generating company. Open access in transmission thus enables the licensees (distribution licensees and traders) and generating companies the right to use the transmission systems without any discrimination. This would facilitate sale of electricity directly to the distribution companies. This would generate competition amongst the sellers and help reduce, gradually, the cost of generation/procurement. 23. While open access in transmission implies freedom to the licensee to procure power from any source of his choice, JUDGMENT open access in distribution with which we are concerned here, means freedom to the consumer to get supply from any source of his choice. The provision of open access to consumers, ensures right of the consumer to get supply from a person other than the distribution licensee of his area of supply by using the distribution system of such distribution licensee. Unlike in transmission, open access in distribution 22 Page 22 Civil Appeal No.5479 of 2013 has not been allowed from the outset primarily because of considerations of cross-subsidies. The law provides that open access in distribution would be allowed by the State

Commissions are required to specify the phases and conditions of introduction of open access. 24. However open access can be allowed on payment of a surcharge, to be determined by the State Commission, to take care of the requirements 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 JUDGMENT 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 23 Page 23 Civil Appeal No.5479 of 2013 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

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-subsidise the vulnerable sections of society and the other, in terms of recovery of the fixed cost such licensee might have incurred as part of his JUDGMENT obligation to supply electricity to that consumer on demand (stranded costs). The mechanism of surcharge is meant to compensate the licensee for both these aspects. 26. Through this provision of open access, the law thus balances the right of the consumers to procure power from a source of his choice and the legitimate claims/interests of the existing licensees. Apart from ensuring freedom to the 24 Page 24 Civil Appeal No.5479 of 2013 consumers, the provision of open access is expected to encourage competition amongst the suppliers and also to put pressure on the existing utilities to improve their

ensure that the consumers do not go out of their fold to get supply from some other source. 27. With this open access policy, the consumer is given a choice to take electricity from any Distribution Licensee. However, at the same time the Act makes provision of surcharge for taking care of current level of cross subsidy. Thus, the State Electricity Regulatory Commissions are authorized to frame open access in distribution in phases with surcharge for: JUDGMENT (a) Current level of cross subsidy to be gradually phased out along with cross subsidies; and (b) obligation to supply. 28. Therefore, in the aforesaid circumstances though CSS is payable by the Consumer to the Distribution Licensee of the area in question when it decides not to take supply from that company but to avail it from another distribution 25 Page 25 Civil Appeal No.5479 of 2013 licensee. In nutshell, CSS is a compensation to the distribution licensee irrespective of the fact whether its line is used or not, in view of the fact that, but for the open

which would include an element of cross subsidy surcharge on certain other categories of consumers. What is important is that a consumer situated in an area is bound to contribute to subsidizing a low and consumer if he falls in the category of subsidizing consumer. Once a cross subsidy surcharge is fixed for an area it is liable to be paid and such payment will be used for meeting the current levels of cross subsidy within the area. A fortiorari, even a licensee which purchases electricity for its own consumption either through JUDGMENT a “dedicated transmission line” or through “open access” would be liable to pay Cross Subsidy Surcharge under the Act. Thus, 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 26 Page 26 Civil Appeal No.5479 of 2013 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.

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 JUDGMENT 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 not necessary that such consumer should be connected only to such distribution licensee but it would suffice if it is a “consumer” within the aforesaid definition. 27 Page 27 Civil Appeal No.5479 of 2013 30. Having regard to the aforesaid scheme, in normal course when the Appellant has entered to PPA with Sterlite, another Electricity Generating Company and is purchasing

the WESCO. Admittedly under the PPA, the Appellant is purchasing his electricity from the said generating station and it is consumed by the single integrated unit of the Appellant. The Appellant therefore, qualifies to be a “consumer” under Section 2(15) of the Electricity Act. It is also not in dispute that the unit of the Appellant is in the area which is covered by the licenses granted to WESCO as distribution licenses. 31. Notwithstanding the above, because of the reason that JUDGMENT the area where the unit of Val-SEZ unit of the Appellant is situate is a SEZ area and the Appellant is declared as developer for that area under the SEZ Act, it is the contention of the Appellant that in such a scenario it is not liable to pay any CSS to the WESCO. This submission flows from the fact that there is a notification issued in this behalf under proviso to Section 49 of the SEZ Act and the 28 Page 28 Civil Appeal No.5479 of 2013 Appellant itself is treated as a deemed Distribution Licensee as per the provisions of Section 14 of the Electricity Act. On that basis, detailed submissions are made by the Appellant

“consumer” under the Electricity Act when the Appellant itself is deemed to be a licensee. It is further argued that since the supply line of VAL-SEZ is not connected to WESCO and it is getting the electricity directly from Sterlite under the PPA, there is no question of payment of CSS to WESCO at all. Argument of the WESCO that the lines owned by the VAL-SEZ are only “Transmission Lines” under Section 2 of the Electricity Act and not “dedicated Transmission Lines” because of the reason that the duty of the Generator to JUDGMENT establish and maintain dedicated transmission lines, is sought to be refuted by arguing that even as per Section 2(72) of the Act Transmission Lines are part of the Distribution System of Licensing”. It is argued that it is not even the case of WESCO that the supply line of SEL-VAL is a part of WESCO Distribution System. 29 Page 29 Civil Appeal No.5479 of 2013 (5) Factual Aspect of the Electricity Supply to the Appellant: 32. In order to appreciate these arguments, it would

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 JUDGMENT 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: 30 Page 30 Civil Appeal No.5479 of 2013 (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 required for the

generating station to “any transmission line”, or “sub- station” or “generating station” or the “load centre”, “as the case may be”. (b) The Transmission Line in question commences from the Generator (Sterlite) and connects to the 400 KV Sub-Station at Sterlite end at Jharsuguda. It does not connect directly to the “Load Centre” which is the Appellant. (c) The 400 KV Busbar at the Generator (Sterlite) end is connected to a 200 KV Busbnar at VAL-CGP caters to the JUDGMENT VAL - Smelter 1 in the Domestic Tariff Area. (d) The said 400/200 KV sub-station is also connected to the OPTCL Grid (State Transmission Utility) at Budhipadar through 220 KV Bus at VAL – CGP end for the purpose of evacuation of Sterlite power to GRIDCO as well as drawal of power by VAL – Smelter – 1. 31 Page 31 Civil Appeal No.5479 of 2013 (e) The said 400/220 kv sub-station is also connected to Power Grid Corporation of India (PGCIL) line from which 2 nos of 400 KV Lines emanate for Interstate sale of its

(f) The said 400/220 kv sub-station which is connected through 5 Km of 220 KV line to the 220 KV Bus of switching station at VAL – CGP end. There are 4 no’s of 200 KV transmission lines branching out from the said 220 KV switching station to carry power to VAL Smelter-1 Unit of the Appellant which is within the area of the Distribution Licensee (WESCO). (g) The said 400/220 kv sub-station also has 2 nos of 33 KV Tertiary transmission lines from 100/220/33 KV Transformer JUDGMENT supplying electricity to Vedanta Township. (h) Three such 400 KV Transmission lines emanating from the 400 KV Busbar at the Sterlite-IPP (Generator end) also happens to Supply power from the sub-station to the Appellant’s load centre (VAL-Smelter-2) in the SEZ area. 32 Page 32 Civil Appeal No.5479 of 2013 (i) Hence, the only part of the “dedicated” transmission line, if at all, is from the Generating Station 9Sterlite – IPP) to such 400 KV Busbar of the 400/220 KV Grid Sub-station.

the load centre of the Appellant is only a “transmission line” under Section 2(72) of the EP 2003. JUDGMENT 33. Following diagram is placed by WESCO to demonstrate this: 33 Page 33 Civil Appeal No.5479 of 2013 JUDGMENT 34 Page 34 Civil Appeal No.5479 of 2013 34. Though the Appellant endeavoured to counter this position and has given its own diagram that does not lodge the aforesaid factual aspect. Therefore, prima facie we

feel 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 JUDGMENT 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 35 Page 35 Civil Appeal No.5479 of 2013 line” shall be the property of the licensee unless otherwise specified in writing. This clause reads as under:

35. Further as per Rule 4 of the Electricity Rule, 2005 the aforesaid line would be deemed to be part of Distribution System of WESCO: “4. Distribution System – The distribution system of a distribution licensee in terms of sub-section (19) of section 2 of the Act shall also include electric line, sub-station and electrical plant that are primarily maintained for the purpose of distributing electricity in the area of supply of such distribution licensee notwithstanding that such line, sub-station or electrical plant are high pressure cables or overhead lines or associated with such high pressure cables or overhead lines; or used incidentally for the purposes of transmitting electricity for others.” JUDGMENT “Distribution system” is defined in Section 2(19) of the Act to mean:- “(19) “distribution system” means the system of wires and associated facilities between the 36 Page 36 Civil Appeal No.5479 of 2013 delivery points on the transmission lines or the generating station connection and the point of connection to the installation of the consumers:”

(6) Appellant deemed distribution Licensee: Its effect 36. It is now to be seen as to whether the fact that the Appellant is a Developer in SEZ, armed with Notification rd dated 3 March, 2010 issued under Proviso to Section 49 of the SEZ Act and it deemed distribution licensee as per JUDGMENT Section 14 of the Electricity Act, this would take away the Appellant from the clutches of CSS liability? 37. In order to appreciate this argument let us first refer to the certain statutory provisions: Section 49 of the Special Economic Zone Act provides as under: 37 Page 37 Civil Appeal No.5479 of 2013 “Power to modify provisions of this Act or other enactments in relation to Special Economic Zones.

(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 JUDGMENT 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: 38 Page 38 Civil Appeal No.5479 of 2013

Provided further that the Central transmission Utility or the State Transmission Utility shall be deemed to be a transmission licensee under this Act: Provided also that in case an Appropriate Government transmits electricity or distributes electricity or undertakes trading in electricity, whether before or after the commencement of this Act, such Government shall be deemed to be a licensee under this Act, but shall not be required to obtain a licence under this Act: JUDGMENT Provided also that the Damodar Valley Corporation, established under sub-section(1) of section 3 of the Damodar Valley Corporation Act, 1948, shall be deemed to be a licensee under this Act but shall not be required to obtain a licence under this Act and the provisions of the Damodar Valley Corporation Act, 1948, in so far as they are not inconsistent with the provisions of this Act, shall continue to apply to that Corporation: 39 Page 39 Civil Appeal No.5479 of 2013

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: JUDGMENT 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 40 Page 40 Civil Appeal No.5479 of 2013 shall comply with the measures which may be specified by the Authority under section 53:

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 Government hereby notifies that the provisions of clause (b) of section 14 of the Electricity Act, 2003 (36 of 2003), shall apply to all Special Economic Zones notified under sub- section (1) of section 4 of the Special Economic Zones Act, 2005, subject to the following modification, namely:- In clause (b) of section 14 of the Electricity Act, 2003 JUDGMENT (36 of 2003), the following proviso shall be inserted, namely:- “ Provided that the Developer of a Special Economic Zone notified under sub section (1) of section 4 of the Special Economic Zones Act, 2005 shall be deemed to be a licensee for the purpose of this clause, with effect from the date of notification of such Special Economic Zone.” 41 Page 41 Civil Appeal No.5479 of 2013 40. The reading of Section 49 of SEZ Act would reveal that the Central Government has got the authority to direct that any of the provisions of a Central Act and rules and

that some of the provisions of the Central Acts shall apply with exceptions, modifications and adaptation to the Special Economic Zone. So, under the scheme of Special Economic Zone Act, Central Government has to first notify as to what extent the provision of the other Acts are to be made applicable or applicable with modification or not applicable for the Special Economic Zone area. It is in furtherance thereto, the Government of India, Ministry of Commerce and st Industry through its notification dated 21 March, 2012, with JUDGMENT regard to power generation in Special Economic Zone, has declared that all the provisions of the Electricity Act, 2003 and Electricity Rule, 2005 shall be applicable to the generation, transmission and distribution of power, whether stand alone or captive power. This notification would clarify that there is no inconsistency between Special Economic Zone Act, 2005 and Electricity Act, 2003. 42 Page 42 Civil Appeal No.5479 of 2013 rd 41. No doubt vide Notification dated 3 March, 2010 Central Government has added an additional proviso to Clause (b) of Section 14 of the Electricity Act viz. the

the said clause w.e.f. the date of notification of such SEZ. It is on this basis, the argument of the Appellant is that as it is already a deemed Distribution Licensee it need not apply for this license to the said Commission before entering into the PPA and the State Government is bound to grant the License. This contention is negated 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 JUDGMENT 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 43 Page 43 Civil Appeal No.5479 of 2013 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

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 and another is added in respect of the Appellant vide Notification dated rd 3 March, 2010. A reading of these provisos would indicate JUDGMENT that some of them confer status of deemed distribution licensee on certain specified entities who are not required to take separate licence from the State Commission under this Act whereas some other provisos merely declare the party as deemed licensee and nothing specified as to whether they are required to obtain the licence or not. However when it is specially provided in proviso 4 and proviso 8 and 44 Page 44 Civil Appeal No.5479 of 2013 2 that the Damodar Valley Corporation and State Government are not required to obtain licence, and other provisos do not confer such privilege, they would be required to obtain licence. 42. Further discussion on this aspect by the Appellate Tribunal is as under: “42. Keeping this in mind, the statute makers by the notification dated 3.03.2010 have inserted the additional proviso to Section 14(b) of the Electricity Act. Admittedly, the development and operation of the SEZ are two distinct activities. Thus, the jurisdiction of the State Commission to scruitinise the deemed distribution status of the Appellant is well established in view of the Section 49(1) of SEZ, Act, 2005 and the notification of the Central Government dated 21.03.2012. Therefore, the contention of the Appellant that the State Commission dealt with the matter relating to the grant of distribution licence by going beyond its jurisdiction is misplaced. JUDGMENT 43. It is noticed that the Ministry of Commerce and Industry (Department of SEZ Section) has accorded SEZ status to the Appellant for development and operation and maintenance of sector specific Special Economic Zone for manufacture and export of aluminium on the condition that the Appellant should establish captive generating plant as stipulated in the approval letter of Ministry of Commerce and Industry but it is pointed out the still the plant has not been established for various reasons. If 45 Page 45 Civil Appeal No.5479 of 2013

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. JUDGMENT 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 as the applicability of other provisions is concerned. The interpretation of various relevant terms was necessary prior to 46 Page 46 Civil Appeal No.5479 of 2013

JUDGMENT 50. An entity which utilizes the entire quantum of electricity for its own consumption and does not have any other consumers, cannot, by such a notification, be deemed to be distribution licensee, even by a legal fiction. By virtue of the legal fiction created by the notification dated 3.03.2010, the Developer of SEZ notified under the SEZ Act, who distributes electricity can be deemed to be a distribution licensee. Thus, this legal fiction cannot go further and make a person who does not distribute electricity to the consumers as to distribution licensee. Therefore there is no merit in the contention of the Appellant. 47 Page 47 Civil Appeal No.5479 of 2013 43. We are in agreement with the aforesaid rationale in the impugned order of the Appellate Tribunal as that is the only manner in which the two Acts can be harmoniously

doubt by virtue of the status of a developer in the SEZ area, the Appellant is also treated as deemed Distribution Licensee. However with this, it only gets exemption from specifically applying for licence under Section 14 of the Act. 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. JUDGMENT 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 48 Page 48 Civil Appeal No.5479 of 2013 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

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 to the aforesaid factual and legal aspects and keeping in mind the purpose for which CSS is payable, as explained in detail in the earlier part of this judgment, we are of the view that on the facts of this case it is not possible for the Appellant to avoid payment of CSS to WESCO. We, JUDGMENT therefore, do not find any merit in this Appeal which is accordingly dismissed. …………………………….………J. [Surinder Singh Nijjar] …………………………………….J. 49 Page 49 Civil Appeal No.5479 of 2013 [A.K. Sikri] New Delhi April 25, 2014 JUDGMENT 50 Page 50