THE TATA POWER COMPANY LIMITED vs MAHARASHTRA ELECTRICITY REGULATORY COMMISSION

Judgement in Appeal No. 23 of 2017
IN THE APPELLATE TRIBUNAL FOR ELECTRICITY
(Appellate Jurisdiction)
APPEAL NO. 23 OF 2017
st
Dated: 31 July, 2026
Present: Hon`ble Ms. Seema Gupta, Officiating Chairperson
Hon`ble Mr. Virender Bhat, Judicial Member
IN THE MATTER OF:
THE TATA POWER COMPANY LIMITED
Bombay House, 24, Homi Mody
Street, Fort, Mumbai 400001 …… Appellant
Versus
1. MAHARASHTRA ELECTRICITY REGULATORY COMMISSION
World Trade Centre,
th
Centre No.1, 13 Floor,
Cuffe Parade, Colaba,
Mumbai - 400005. …. Respondent
Counsel on record for the Appellant(s) : Mr. Basava Prabhu S. Patil, Sr. Adv.
Mr. Amit Kapur
for App. 1
Counsel on record for the Respondent(s) : Ms. Pratiti Rungta
for Res. 1
JUDGEMENT
PER HON’BLE MRS. SEEMA GUPTA, OFFICIATING CHAIRPERSON
1. The present appeal No. 23 of 2017 has been filed by The Tata Power
Company Limited (“Appellant”) challenging the Multi Year Tariff Order dated
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Judgement in Appeal No. 23 of 2017
08.08.2016 (“Impugned Order”) passed by the Maharashtra Electricity
Regulatory Commission ( hereinafter referred as “MERC/State Commission) in
Case No. 32 of 2016
Description of Parties : -
2. The Appellant, Tata Power Company Limited, is a private power utility
incorporated in 1919 under the Indian Companies Act, 1913. It is engaged in the
business of generation, transmission, distribution, and trading of electricity in
various parts of the Country. The Appellant was granted a license by Government
of Maharashtra to supply energy to the public in its Mumbai License Area and to
supply energy in bulk to Distribution Licensee. The entire generation capacity
of the Generation Business of the Appellant is tied up on a long-terms basis with
two Distribution Licensees of Mumbai, namely the distribution Business of Tata
Power and Brihanmumbai Electric Supply and Transport Undertaking (“Best”),
valid till 31.03.2018.
3. The Respondent No.1/MERC is the State Electricity Regulatory
Commission, for the State of Maharashtra.
Factual matrix of the Case:
4. Pursuant to the notification by Maharashtra Electricity Regulatory
Commission of MYT Regulations, 2011, governing tariff determination for the
period from 01.04.2011 to 31.03.2016 and MYT Regulations, 2015, applicable for
the 3rd Control Period covering FY 2016-17 to FY 2019-2020, the Appellant filed
Case No. 32 of 2016 for truing up of ARR for FY 2014-15, provisional truing up
for FY 2015-16, and determination of tariff for the Third Control Period. On
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Judgement in Appeal No. 23 of 2017
08.08.2016, State Commission passed the Order in Case No. 32 of 2016,
Appellant being aggrieved by certain findings in the Impugned Order has filed the
present Appeal.
DISCUSSION AND ANALYSIS
5. Heard Mr. B.P Patil, leaned Senior Counsel and Amit Kapur learned counsel
appearing on behalf of Appellant and Ms. Pratiti Rungta, learned counsel
appearing on behalf of State Commission and perused the Impugned Order dated
08.08.2016 and written submission filed by the parties and other documents. The
Appellant has challenged following issues: -
I. Non-Consideration of Additional PLF incentive for FY 2011-12 to FY
2013-14.
II. Disallowance of Property Tax as Uncontrollable O&M Expenses.
III. Disallowance of Income Tax for FY 2007-08 to FY 2013-14.
ISSUE I- ADDITIONAL PLF INCENTIVE FOR FY 2011-12 TO FY 2013-14.
6. The issue pertains to denial of additional PLF incentive for the period FY
2011-12 to FY 2013-14, in Case No. 32 of 2016 for truing up of ARR for FY 2014-
15, provisional truing up for FY 2015-16, and determination of tariff for the Third
Control Period, in which Impugned Order has been passed. The relevant
paragraph of Impugned Order denying the additional PLF incentive on account
of backing down of generating stations is extracted hereunder:
“5.4.1.3 TPC-G has sought additional incentive considering the backing
down of Generating Stations for FY 2011-12 to FY 2013-14. This claim
for FY 2011-12 to FY 2013-14 cannot be considered since the True-up
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Judgement in Appeal No. 23 of 2017
for these past years has already been completed taking into account
the submissions of TPC-G at that time.”
7. Learned Counsel for the Appellant contended that first proviso to
Regulation 49.8 of the MERC (Multi Year Tariff) Regulations, 2011 mandates that
actual generation "shall also consider the generation loss on account of any
backing down instruction from the Maharashtra State Load Despatch Centre".
Consequently, the Appellant's entitlement to PLF incentive on such deemed
generation is a statutory right. On account of the backing-down instructions
issued by MSLDC, the Appellant became entitled to an additional PLF incentive
of Rs. 41.96 Crore for FY 2011-12 to FY 2013-14, which has been recorded and
accepted in the Impugned Order and has also not been disputed by MERC in the
present Appeal. The claim, however, could be quantified only upon issuance of
the MSLDC certificate certifying availability and backing-down. Thus, the requisite
data was not available at the time of the original truing-up of the said years, and
the claim could only be crystallized upon receipt of the said certification.
8. Further, the sole objection raised by MERC that no such claim was made
at the earlier stage and that the truing-up for the relevant years had already
attained finality, cannot defeat the Appellant's statutory entitlement, particularly
when the claim became capable of quantification only upon issuance of the
MSLDC certificate. It is well settled that tariff determination is a continuous
exercise as held by the Hon'ble Supreme Court in UPPCL v. NTPC, (2009) 6
SCC 235, . Further, tariff determination is inquisitorial in nature and not
adversarial, and a utility cannot be deprived of its legitimate tariff entitlement
merely because the supporting material was placed on record at a subsequent
stage, as held by this Tribunal in its Judgment dated 04.05.2026 in Appeal No.
430 of 2019, Everest Power Pvt. Ltd. v. Punjab State Electricity Regulatory
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Judgement in Appeal No. 23 of 2017
Commission. Significantly, MERC itself has allowed an identical claim for PLF
incentive on deemed generation in respect of the subsequent years, namely FY
2014-15 (where the admissible incentive was Nil) and FY 2015-16, while
undertaking the respective truing-up orders. In any event, the claim has been
raised during the truing-up exercise within the same MYT Control Period.
9. Per Contra, learned counsel for the respondent submits that contention of
Appellant that the Respondent Commission failed to consider its claim for
additional Plant Load Factor (PLF) Incentive on account of deemed generation
for FY 2011-12 to FY 2013-14 is misconceived. The Appellant, while filing its MTR
Petition on 01.01.2015 seeking revised truing-up for FY 2011-12 and truing-up for
FY 2012-13 and FY 2013-14, did not raise any such claim, and State Commission
passed the order on 26.06.2015, which was upheld by this Tribunal in Appeal
No. 244 of 2015 by Judgment dated 03.06.2016. Further, Regulation 49.8 of the
MERC (Multi Year Tariff) Regulations, 2011 mandates that PLF Incentive is to be
computed and billed on a monthly basis based on the cumulative PLF, subject to
year-end adjustment. It is an admitted position that the Appellant omitted to claim
the incentive on account of deemed generation in its monthly billing from FY 2011-
12 onwards. Accordingly, the Commission, in the Impugned Order, rightly held
that the Appellant's subsequent claim for additional PLF incentive for FY 2011-12
to FY 2013-14 could not be entertained, as the truing-up for the said years had
already been concluded after duly considering the submissions made by the
Appellant at the relevant time.
10. We have heard learned counsels for the parties on this issue. The short
question is whether the Appellant's claim for additional PLF Incentive of Rs. 41.96
Crores for FY 2011-12 to FY 2013-14, admittedly not reflected in the monthly
billing contemplated under Regulation 49.8, and not urged in the MTR Petition
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Judgement in Appeal No. 23 of 2017
dated 01.01.2015, can be entertained at the belated stage. In this context it is
also of relevance to note the provisions of MYT Regulation 2011, hereunder:
C. Incentive
49.8 Incentive shall be payable at a flat rate of 25.0 paise/kWh for actual
energy generation in excess of ex-bus energy corresponding to target Plant
Load Factor.
Provided that the actual generation shall also consider the generation loss on
account of any backing down instruction from the Maharashtra State Load
Despatch Centre.
The Incentive amount shall be computed and billed on monthly basis based
on the cumulative Plant Load Factor till the respective month in a Year,
subject to adjustment at the end of the year.
11. It is also of relevance to quote a brief background of various true up
petitions filed by Appellant for the years under consideration for which additional
PLF incentive is being sought, as enumerated below:
i. The State Commission had issued the order on the MYT Petition for Tata
– G dated 05.06.2013 (in Case no. 177 of 2011) in which true up exercise
for FY 2011-12 was carried out and tariff for FY 2013-14 and FY 2015-
16 was determined in terms of the MYT Regulations 2011 dated
nd
04.02.2011, encompassing the 2 Control Period from FY 2011-12 to
FY 2014-15. Admittedly, Appellant did not claim additional PLF incentive
on account of generation backing down as per instructions of SLDC for
True up for FY 2011-12, which is the first available occasion for claiming
the same.
nd
ii. Thereafter, in the midterm review (MTR) for the MYT 2 Control Period,
State Commission passed the order on 26.06.2015 (in case no 6 of
2015), in which it had undertaken the trueing up of ARR of FY 2012-13
and FY 2013-14 and approved the net ARR of FY 2015-16 and
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provisional Truing up of FY 2014-15 and impact of various judgements
of this Tribunal was accorded for the past periods. It is again admitted
that the Appellant neither claimed the additional PLF incentive on
account of backing down for FY 2011-12 to FY 2013-14 in this petition
nor reserved the liberty to claim it in future upon availability of certificate
from MSLDC.
iii. The petition (Case No 32 of 2016), in which Impugned Order has been
passed, was admitted on 29.03.2016 and pertains to True up for FY
2014-15, provisional True up for FY 2015-16 under MYT Regulation
rd
2011 and ARR for 3 Control period (FY 2016-17 to FY 2019-20) under
MYT Regulation 2015. It was only after filing of the said Petition that
Appellant vide its letter dated 25.04.2016 made additional submissions
claiming additional PLF incentive of about Rs 54 Crore for the period
FY 2011-12 to FY 2015-16 due to backing down under MSLDC
directions. Appellant reiterated the request for additional PLF incentive
for the period FY 2011-12 to FY 2013-14 in its letter dated 05.05.2016
and requested the commission to consider the impact of additional PLF
incentive along with carrying cost while working out the Gap/surplus and
MSLDC certificate shall be submitted once received on affidavit as per
requirement.
12. Another significant fact emerges from the record that the MSLDC
Availability Certificate was issued on 18.05.2016. The Appellant's letter dated
25.04.2016, wherein the appellant for the very first time made representation for
additional PLF incentive for the period of FY 2011-12 to 2015-16, is issued almost
one month prior to MSLDC certificate came into existence and after more than
three years of passing up of True up order for FY 2011-12 and after one year of
passing of True up order of FY 2012-13 & FY 2013-14. Thus, it is clear, that the
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Judgement in Appeal No. 23 of 2017
Appellant itself has made quantification of additional PLF incentive, and
submitted the same to State Commission without waiting for the MSLDC
Certificate. It is also observed from the certificate issued by the MSLDC with
regard to backing down of generation for three years, that certificate is issued
based on the data submitted by TPCL, covering letter is extracted hereunder:
“MAHARASHTRA STATE ELECTRICITY TRANSMISSION CO.LTD.
MAHARASHTRA STATE LOAD DESPATCH CENTRE, KALWA
No. CELDK/Tech-Sol-No 00851 Date: 18 MAY 2016
To,
The Dy General Manager,
Tata Power Company Ltd.,
Power System Control Centre,
Trombay Thermal Power Station,
Mahul Road, Chembur, Mumbai-400 001
Sub: Certification of Availability, PLF & Backing Down of TPCL Power
Station for FY 2011-12, 2012-13, 2013-14, 2014-15 & 2015-16
Dear Sir.
In context with the above subject, please find enclosed herewith the
certificate of Availability, Plant Load Factor (PLF) & Backing Down data of
TPCL Power Station for FY 2011-12, 2012-13, 2013-14, 2014-15 & 2015-
16).
Certificate is issued based on data submitted by TPCL.
Thanking You,
Encl: Annexure A to D for above mentioned FY.
Yours faithfully,
Chief Engineer
MSLDC, Airoli”
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Judgement in Appeal No. 23 of 2017
Though in the remarks of the annexures enclosed with the certificate, it is
mentioned that “ certificate is based on available data with SLDC and
counterchecked with the data submitted by TPCL”.
13. Therefore, it is difficult to accept that Appellant was not aware about the
quantum of energy it could not generate on account of backing down instructions
to its generation project, and that such quantification was possible only upon
receipt of the certificate. In these circumstances, we are unable to accept that
the unavailability of MSLDC certificate, by itself, furnishes a satisfactory
explanation for the Appellant's failure to raise or reserve this claim across the
several stages. The Appellant cannot take shelter under a "blanket umbrella" that
the certificate was not available at the relevant time, when its own conduct of
raising additional submissions of PLF incentive at the much later stage but prior
to the issuance of the certificate demonstrates that the absence of the certificate
was not, in fact, an impediment to the Appellant to raise the claim or reserving
the liberty to press it once the relevant certification is received. Further, as per
2nd proviso to Regulation 49.8, the Incentive amount to be computed and billed
on monthly basis based on the cumulative Plant Load Factor till the respective
month in a year, subject to adjustment at the end of the year. Our attention has
not been drawn to any provision in the MYT Regulations 2011, that incentive
claim in the monthly bills is to be accompanied by monthly backing down
certificate from the MSLDC. Even if it is presumed that the final quantification of
a claim is genuinely not possible, a party aware of its entitlement would ordinarily
be expected to raise the claim/objection or reserving liberty to press it once the
relevant certification is received. Further, Appellant has made no submissions
with regard to the effort made by them in getting the requisite certificate from
MSLDC in time.
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Judgement in Appeal No. 23 of 2017
14. The concept of “ Truing up” has been dealt with in much detail in judgment
State Load Despatch Centre v. Gujarat Electricity Regulatory Commission,
2015 SCC OnLine APTEL 50, , North Delhi Power Ltd. v. Delhi Electricity
Regulatory Commission, 2007 SCC OnLine APTEL 16, and the same is
affirmed by the Supreme Court in BSES Rajdhani Power Ltd. v. Delhi
Electricity Regulatory Commission, (2023) 4 SCC 788. The truing-up exercise
does not involve reconsidering the principles governing tariff determination
however, it deals only with the adjustment of estimates made at the
commencement of a tariff period against the actual figures subsequently
available. A tariff determined on the basis of projections presented by petitions
in the nature of Average Revenue Requirement (“ARR”) or Annual Performance
Review (“APR”) is generally followed up by true-up orders based on audited
accounts wherein suitable corrections are incorporated. The true-up ensures
closure and certainty for consumers.
15. Appellant has placed reliance on the Hon’ble Supreme Court judgement in
“UPPCL v. NTPC, (2009) 6 SCC 235, to contend that tariff determination is a
continuous exercise and according the claim of additional PLF incentive should
be allowed, moreover when the control period is still not over. This principle,
cannot be read in isolation. In the very same judgment, the Hon'ble Supreme
Court, while considering NTPC's claim to have arrears of employee cost arising
from a retrospective pay revision, considered that the NTPC was aware at the
material period. The Supreme Court observed that such jurisdiction must be
invoked within a reasonable time and therefore the Central Commission “should
not have been asked to revisit the tariff after five years and when everybody had
arranged the affairs". The Court further held that a party "cannot... be permitted
to re-agitate the said question after passing of many stages". NTPC's claim was
accordingly disallowed, notwithstanding the continuous character of tariff-making,
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Judgement in Appeal No. 23 of 2017
precisely because NTPC possessed the relevant facts and had the opportunity
to raise them, at the relevant time but did not.
16. A general rule is that a claim not urged at the time of truing-up is deemed
to have been waived to undermine the finality of tariff determination and prejudice
consumer interest. This principle of waiver and acquiescence is well recognized
that a party who fails to assert its entitlement at the appropriate stage cannot
ordinarily revive it later save where the Regulations expressly provide otherwise
or where the omission is attributable to circumstances beyond its control and the
Commission records reasons for condoning such delay. It is well settled that the
law does not protect those who choose to sleep over their rights. Borrowing the
words from UPPCL judgement (supra), “when everybody has arranged the
affairs”, the continuous character cannot be perpetuated to open the fresh claims.
17. Therefore, while Regulation 49.8 confers a statutory entitlement to PLF
incentive on deemed generation, such entitlement must be asserted
contemporaneously in billing or truing-up proceedings. The MSLDC certificate is
evidentiary in nature and does not create the right; the Appellant, being aware of
the backing-down quantum, ought to have raised or reserved its claim at the
relevant stages. To permit revival of claims after final truing-up would erode
regulatory certainty, prejudice consumer interest, and contravene the principle
that tariff finality cannot be unsettled save where regulations expressly so
provide. Accordingly, the claim stands barred by waiver and acquiescence.
18. Further, Reliance placed by Appellant on the Judgement dated 04.05.2026
of this Tribunal in Appeal No. 430 of 2019 and Appeal No. 416 of 2022 is
misplaced. In this judgement issue pertains to Appellant making its claim of
additional Capitalisation, before the State Commission, on the basis of audited
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Judgement in Appeal No. 23 of 2017
accounts and admittedly no EPC contract or related documents were submitted
and same was denied by the State Commission. Appellant thereafter at the
Appellate Stage sought to substantiate its claim by producing EPC contract
documents etc. In this context, this Tribunal clarified that in tariff determination
proceedings, it is not bound by the rigid procedural constraints of the Code of
Civil Procedure. The exercise is inquisitorial, statutory, and rooted in public
interest. Accordingly, any document that aids in establishing the rightful tariff
under Section 61 must be admitted, even if produced belatedly, provided its
relevance is clear, its non-production is reasonably explainable, and no prejudice
is caused to the opposite party. Accordingly, this Tribunal held that additional
Capitalisation claims was not merely a self-serving assertion of the Appellant but
is corroborated by audited financial statements, and observed that the
Commission's disallowance without any finding that the actual expenditure was
excessive, unjustified, or imprudent, is arbitrary. The ratio of this judgement is not
applicable to the facts of present case as it is an admitted position that the
Appellant did not claim such additional PLF incentive either in its monthly billing
from FY 2011–12 onwards, or in its MYT Petition for true up of FY 2011-12 or in
its MTR Petition dated 01.01.2015 for the True up of FY 2012-13 and FY 2013-
14. The truing-up for the relevant years was completed, and the orders attained
finality, even being upheld by this Tribunal in Appeal No. 244 of 2015.
19. Accordingly, we find no infirmity in the Impugned Order insofar as it declines
to entertain the Appellant's claim for additional PLF Incentive of Rs. 41.96 Crores
for FY 2011-12 to FY 2013-14, the truing-up for those years having already been
completed. The finding of the State Commission on this issue is upheld.
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Judgement in Appeal No. 23 of 2017
ISSUE II- DISALLOWANCE OF PROPERTY TAX AS UNCONTROLLABLE
O&M EXPENSES.
20. Appellant contention lies on the gain/losses sharing computation aspect,
where an uncontrollable item was treated as controllable item. Appellant submits
that while computing the sharing of efficiency gains/losses on O&M expenses,
MERC failed to exclude the uncontrollable increase ( on account of taxes) from
the actual O&M against Normative O&M, which resulted in deprivation of Rs 8.57
crore of O&M entitlement, which is contrary to this tribunal decision in Appeal No.
173 of 2009, wherein the uncontrollable character of such statutory expenses is
recognised and the same is also reflected in MERC's own order dated 15.02.2012
in Case No. 105. However, MERC's position for tariff determination for the part of
the control period instead is that, since normative O&M expenses under
Regulation 45 are derived and escalated on a composite basis without
segregation into employee, R&M and A&G components, and since the escalation
factor of 5.72% allowed on normative O&M is treated as subsuming variation in
all types of taxation.
21. Appellant submits that Regulation 12.1(d) specifically and unconditionally
classifies "Taxes and Duties" as an uncontrollable factor. Regulation 12.2(g), by
contrast, is a general and illustrative provision dealing with variation in O&M
expenditure as a class. It is a well settled principle of interpretation that a specific
provision prevails over general provisions. A general escalation of 5.72% for
controllable O&M expenses by its very nature pertains to inflationary and general
expenses, and not change in taxes.
22. Per Contra, State Commission submits that Appellant had claimed
Administration and General (A&G) expenses (which includes property tax) of Rs.
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Judgement in Appeal No. 23 of 2017
107.34 which includes difference in property tax prior to amendment and the
revised property tax i.e., Rs. 12.85 crore, and same was approved by the
Commission. The Property Tax increase was correctly left within the composite
actual-versus-Normative O&M comparison for gain/loss sharing under
Regulation 14.2, under which only one-third of any resultant loss is passed
through and the remainder is absorbed by the generating company. State
Commission placed reliance on this Tribunal's judgment dated 05.04.2019 in
Appeal No. 245 of 2015, wherein it is held that increase in any type of taxation
including property tax could be subsumed in the said escalation and accordingly
did not allow the variation in property tax separately, though the said judgment is
under challenge in Civil Appeal No. 5732 of 2019 before the Hon'ble Supreme
Court.
23. We heard the learned counsel of both Appellant and State Commission.
The issue pertains, whether increase in property tax should be subsumed in
actual O&M charges for working out the loss and gain when compared with
Normative O&M Charges and treatment of such loss and gain accorded in terms
of Regulation 14.2 of MYT Regulations, 2011. Regulation 12 of MYT Regulation
2011 specifies the Controllable and Uncontrollable factors, in which Regulation
12.1 enumerates "uncontrollable factors", including at clause (d); "Taxes and
Duties". Regulation 12.2, gives an illustrative ("include, but are not limited to") list
of controllable factors, including at clause (g) "variation in operation &
maintenance expenses" . It is the contention of Appellant that since change in
taxes falls under the uncontrollable parameters, and therefore uncontrollable
increase (on account of taxes) should have been deducted from the actual O&M
against Normative O&M, while working out loss and gain.
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24. There is no dispute that O&M charges are categorized as “Controllable
factors” and are calculated in terms of Regulation 45, which provides for setting
up of the norms based on average of past actual O&M charges and an escalation
factor of 5.72 % is provided. The relevant Regulation is extracted hereunder :
“ 45.1 Existing Generating Stations
a) The Operation and Maintenance expenses including insurance shall
be derived on the basis of the average of the actual Operation and
Maintenance expenses for the three (3) years ending March 31, 2010,
based on the audited financial statements, excluding abnormal
Operation and Maintenance expenses, if any, subject to prudence
check by the Commission.
b) The average of such operation and maintenance expenses shall be
considered as operation and maintenance expenses for the financial
year ended March 31, 2009 and shall be escalated based on the
escalation factor as approved by the Commission for the respective
years to arrive at operation and maintenance expenses for the base
year commencing April 1, 2011.
c) The O&M expenses for each subsequent year shall be determined
by escalating the base expenses determined above for FY 2010-11, at
the escalation factor 5.72% to arrive at permissible O&M expenses for
each year of the Control Period. Provided that in case, an existing
Generating Station has been in operation for less than three (3) years
as at on the date of effectiveness of these Regulations, the O&M
Expenses shall be as specified at Regulation 46 for New Generating
Stations”
25. Controllable factor means that once these O&M charges are worked out,
the generating company need to manage its affairs within the amount provided.
However, admittedly, the change in taxes is provided as uncontrollable
parameters, beyond the control of generating Company. As per Regulation 13,
mechanism of pass through of gain or losses on account of uncontrollable factor
has been provided, relevant regulation is extracted hereunder:
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“ 13 Mechanism for pass through of gains or losses on account
of uncontrollable factors
13.1 The approved aggregate gain or loss to the Generating
Company (except the adjustment provided to the Generating
Company as per Regulation 49.6 of these Regulations) or
Transmission Licensee or Distribution Licensee on account of
uncontrollable factors shall be passed through under Z-factor
Charge, as an adjustment in the tariff of the Generating Company or
Transmission Licensee or Distribution Licensee on a half yearly
basis or a yearly basis, as specified in these Regulations and as may
be determined in the Order of the Commission passed under these
Regulations.
13.2 The Generating Company or Transmission Licensee or
Distribution Licensee shall submit details in the stipulated format to
the Commission on a half yearly basis for obtaining the
Commission's approval for the Z-factor Charge and, for this purpose,
shall submit such details of the variation between expenses incurred
and the figures approved by the Commission, along with the detailed
computations and supporting documents as may be required for
verification by the Commission. However, for Generating Company,
the Z-factor Charge shall exclude the variations in fuel expenses as
the Generating Company is allowed to recover fuel expense on
monthly basis through Fuel Surcharge Adjustment as specified in
Regulation 49.6.
Provided that subsequent to the notification of these Regulations, the
Generating Company or Transmission Licensee or Distribution
Licensee, shall obtain the approval of the Commission prior to
levying the Z-factor Charge:”
26. While, the Regulation 14 provides for sharing of gain and loss on account
of controllable factors, relevant Regulation reproduced hereunder:
“ 14 . Mechanism for sharing of gains or losses on account of controllable
factors
14.1 The approved aggregate gain to the Generating Company or
Transmission Licensee or Distribution Licensee on account of
controllable factors shall be dealt with in the following manner:
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Judgement in Appeal No. 23 of 2017
(a) One-third of the amount of such gain shall be passed on as a
rebate in tariff over such period as may be stipulated in the Order of the
Commission under Regulation 11.6;
(b) The balance amount, which will amount to two-third of such gain,
may be utilized at the discretion of the Generating Company or
Transmission Licensee or Distribution Licensee.
“14.2 The approved aggregate loss to the Generating Company or
Transmission Licensee or Distribution Licensee on account of controllable
factors shall be dealt with in the following manner:
(a) One-third of the amount of such loss may be passed on as an additional
charge in tariff over such period as may be stipulated in the Order of the
Commission under Regulation 11.6; and 

(b) The balance amount of loss shall be absorbed by the Generating
Company or Transmission Licensee or Distribution Licensee.”
27. Harmonious reading of various provisions of Regulations, in our view,
would mean that though the O&M charges are controllable but if there are one-
time expenses or expenses beyond the control of generating company/licensee,
they are payable extra in terms of above provision. While the gain and loss on
account of uncontrolled parameters is passed on the tariff as such, being beyond
the control of generating company, however for controllable parameters, only
1/3rd loss can be passed on to the consumer in tariff and balance loss of 2/3rd is
to be absorbed by the generating company/licensee. We, are unable to agree
with the contentions of State Commission that once O&M charges are defined
as Controllable factors, even if changes in taxes and duties are classified as
uncontrollable factors, any change on account of these uncontrollable factor
would get subsumed and escalation factor of 5.72 % provided under controllable
factor would take care of variation; further the change in controllable parameters
on account of these uncontrollable factors would also be used for the treatment
of loss and gain in terms of Regulation 14.
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28. The escalation factor in normative O&M parameters is a considered
regulatory device, grounded in economic necessity and doctrinal fairness.
Normative O&M values, once fixed, are intended to serve as benchmarks of
prudence and efficiency across the control period. Yet, it is fact that the cost
environment is not static; wages, materials, and service inputs are subject to
inflationary pressures and market variability. To ignore such dynamics would
render the norms unrealistic, thereby eroding the financial viability of utilities and
distorting the balance of interests between licensees and consumers.
Accordingly, escalation is provided as a calibrated adjustment, typically linked to
some indices such as CPI or WPI. This ensures that normative parameters
remain contemporaneous with prevailing economic conditions, while still
incentivizing efficiency by disallowing arbitrary or excessive claims. The
escalation factor thus preserves the integrity of the regulatory framework.
29. Accepting the contention of State Commission that all uncontrolled
parameters are subsumed in normative controllable parameters would render
Regulation12.1 and Regulation 13 otiose. In law, it is not permitted to interpret
one provision of a regulation in a manner that completely nullifies or ignores
another provision, unless reconciliation is impossible. Courts apply the principle
of harmonious construction that every clause must be given meaning, and no part
of the regulation should be rendered otiose or nugatory.
30. Accordingly, the Appellant is entitled to the recovery of change in property
tax due to subsequent notification of Municipal Corporation, classified as
uncontrollable parameters, only to the extent which was not part of consideration
while working out the Normative O&M parameter for the current period.
Accordingly, the findings in the Impugned Order are set aside and matter
remanded to State Commission to accord treatment of Change in Property tax as
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uncontrolled parameters, and loss and gain worked out as per Regulation 13.
Loss and gain for the balance O&M expenditure to be worked out in terms of
Regulation 14.
ISSUE III- DISALLOWANCE OF INCOME TAX FOR FY 2007-08 TO FY 2013-
14.
31. Appellants submits that the issue pertains to recomputation of income tax
for past period from FY 2007-08 to FY 2013-14 in accordance with the judgement
of this tribunal dated 03.06.2016 in Appeal No. 244 of 2015, whereby it upheld
the MYT Order of the State Commission that income tax is payable on the actual
income computed on the regulated Profit Before Tax (PBT) considering revenue
on the billed/cash basis and not on the accrual basis. Appellant submits that in
the present appeal it only seeks implementation of the Judgment dated
03.06.2016 for the period FY 2007-08 to FY 2013-14, to the extent the same has
not been given effect to. The same is without prejudice to Appellants’ pending C.A
No 1356 of 2017 against the judgement dated 03.06.2016.
32. Appellant further submits that MERC has granted permission to the
Appellant to recover, in subsequent years, the revenue gaps pertaining to earlier
years, namely, the gap of FY 2007-08 recovered in FY 2009-10, the gap of FY
2008-09 recovered in FY 2010-11, and the gaps of FY 2009-10 and FY 2010-11,
along with the impact of the judgments of this Tribunal, recovered in FY 2013-14.
However, while computing Income Tax on the billed/cash basis, MERC failed to
include such deferred recoveries as part of the Appellant's income for the relevant
years, which was also placed before MERC during the Impugned proceedings
but was completely ignored. Consequently, the Appellant has been denied
Income Tax pass-through both on the accrual basis and on the billed/cash basis
in respect of the deferred recoveries, resulting in an under-recovery of Rs. 215.75
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Crores (excluding applicable carrying cost). The relief sought neither amounts to
an alteration of the settled tariff methodology nor constitutes a belated claim for
additional Income Tax, but is merely the grant of consequential tax pass-through
on revenue actually recovered, in accordance with the settled legal position and
placed reliance upon the Judgment dated 18.05.2026 passed by this Tribunal in
TPDDL v. DERC (Appeal No. 213 of 2018).
33. Appellant further submits that in Case No. 6 of 2015, it had sought pass-
through of Income Tax on an accrual basis for FY 2007-08 to FY 2013-14, which
was rejected by MERC in favour of computation on a billed basis. However, while
granting such pass-through, MERC failed to consider the deferred recoveries as
part of the Appellant's income in the respective years in which such recoveries
were actually billed. Since the challenge in Appeal No. 244 of 2015 was confined
to the principle of computation on a billed basis as opposed to an accrual basis,
consequently, the limited issue regarding exclusion of deferred recoveries while
computing Income Tax on the billed basis neither arose nor fell for consideration
before this Tribunal in the said Appeal. Therefore, once this Tribunal upheld the
methodology of computation of Income Tax on a billed basis as prescribed by
MERC, the Appellant was fully justified in approaching MERC for grant of the
consequential pass-through of the differential Income Tax amount inadvertently
omitted while implementing the said methodology.
34. Per contra, it has been submitted by the State Commission that in its Mid-
Term Review order dated 26.06.2015, State Commission computed the income
tax liability on the PBT method by considering the billed revenue and allowed Rs.
204.99 Crore income tax for FY 2007-08 to FY 2013-14, in implementation of the
specific directions of this Tribunal in Appeal No. 105 of 2012. Aggrieved by
the said MYT order dated 26.06.2015, Appellant preferred Appeal no.244 of 2015
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Judgement in Appeal No. 23 of 2017
in which this tribunal vide its judgement dated 03.06.2016 dismissed the appeal
and upheld the Commission’s methodology for computation of income tax. The
Appellant’s review petition was also dismissed by this Tribunal vide its judgement
dated 17.11.2016. This Tribunal, in its judgement dated 03.06.2016 neither
granted relief sought by the Appellant nor issued any specific directions for
recomputation of income tax for past period and did not interfere with the
Commission’s Mid Term Review Order dated 26.06.2015 in Case no. 06 of 2015.
Permitting the Appellant's claim for re-computation of Income Tax for the past
years would amount to reopening concluded truing-up proceedings, which is
impermissible under the prevailing regulatory framework, particularly in the
absence of any specific direction from this Tribunal.
35. Appellant submits that the reliance placed by MERC on the proviso to
Regulation 34.1 of the MYT Regulations is equally misplaced, as the Appellant's
claim pertains to Income Tax on deferred revenue gaps arising from the sale of
power, which MERC itself had permitted to be recovered through its tariff orders
and which are unrelated to efficiency gains or losses. Equally, the plea of finality
is untenable, since MERC has itself revisited and readjusted concluded truing-up
exercises, including in Case No. 179 of 2011 by re-working the past Gap/Surplus
for FY 2004-05 to FY 2007-08, and Case No. 6 of 2015 by re-adjusting the past
Income Tax benefit for FY 2007-08 to FY 2010-11 during the truing-up of FY 2014-
15 , and in any event, it is well settled that tariff determination is a continuous
process, as held by the Hon'ble Supreme Court in UPPCL v. NTPC, (2009) 6
SCC 235 .
36. It is apposite to reproduce relevant Paragraph of Impugned Order, as under:
“3.1.9 The submission of TPC-G pertains to Income Tax
calculation for the period FY 2007-08 to FY 2013-14. The MTR
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Judgement in Appeal No. 23 of 2017
Order had reassessed the Income Tax for the period FY 2007-
08 to FY 2010-11 on PBT method as per the ATE Judgment in
Appeal No.105 of 2012. Further, the Commission undertook
the revised Truing-up of FY 2011-12 and Truing-up of FY 2012-
13 and FY 2013-14 and determined the Income Tax based on
PBT method as per the data and information submitted by
TPC-G
.3.1.10 TPC-G had filed an Appeal No.244 of 2015 in ATE
against the MTR Order challenging the methodology of
computation of Income Tax calculation. In its judgment dated
3 June, 2016, the ATE has dismissed all the submissions of
TPC-G on the issues relating to Income Tax calculation. The
ATE has upheld the Commission’s Order, and there is no
direction from ATE for revised calculation of Income Tax for
the past periods which have attained finality. …..”
37. Further, considering the submissions made by the parties, it is of relevance
to note the considerations in the MTR order dated 26.06.2015 against which the
Appeal No.244 of 2015 was instituted before this tribunal and judgement dated
03.06.2016 passed.
MYT Order dated 26.06.2015 (Case No.06 of 2015)
38. In this order, the Mid Term Review for the MYT 2nd control period FY 2011-
12 to FY 2015-16 has been considered. In addition, the impact of this Tribunal’s
following judgments on previous years truing up has also been considered:-
Judgement dated 31 August, 2012 in Appeal No.18 of 2011
Judgement dated 28 November, 2013 in Appeal No.105 of 2012
Judgement dated 28 November, 2013 in Appeal No.182 of 2012
Judgement dated 27 October, 2014 in Appeal No.212 of 2013
1) Impact of APTEL’s Judgment dated 31.08.2012 in Appeal No.18 of 2011
The matter pertained to Truing up of FY 2008-09, APR for FY 2009-10 and
ARR for FY 2010-11. In this Commission allowed Non DPR Capitalisation for
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Judgement in Appeal No. 23 of 2017
FY 2008-09 to FY 2010-2011 in terms of this judgement and considered impact
of such disallowed capitalization on depreciation, interest on loan and ROE
along with carrying Cost as Rs 38.90 Crore against Rs 44.74 claimed by TPC.
2) Impact of APTEL’s Judgment dated 20.11.2013 in Appeal No.105 of
2012
In this judgment, income tax for FY 2007-08 to FY 2010-11 has been
considered. Initially TPC-G has not claimed the Income tax for these years on
PBT basis, however, subsequent to further queries from commission, it
submitted Income tax on the basis of PBT for the FY 2007-08 to FY 2010-11
as Rs 72.45 Crore, Rs 88.98 Crore, Rs 125.84 Crore and Rs 79.71 Crore
respectively. Subsequently Commission reassessed the Income tax on the
period from FY 2007-08 to FY 2010-11 on standalone basis as stipulated in
the judgement of this Tribunal in Appeal no 173 of 2009 and computed income
tax liability considering Regulated PBT on billed revenue and following was
approved, Extract from MYT Order dated 26.06.2015 is reproduced
hereunder:
“ III. 2.1.12 The total impact on Income tax for the period FY 2006-07
to Fy 2010-11 as approved by the commission is Rs 80.44 Crore as
against Rs 302.96 Crore claimed by TPC-G”
….
Considering all other claims in terms of this Tribunal’s Judgement,
following recovery was approved as part of MYT Order.
3.2.9.8 Considering the ATE Judgment in Appeal No.105 of 212, the
Commission approves its net impact, along with carrying cost, as
Rs.139.65 Crore, as against Rs.640.19 Crore claimed by TPC-G.”
3) Impact of APTEL’s Judgment dated 28.11.2013 in Appeal No.182 of
2012 and dated 27.10.2014 in Appeal No 212 of 2013
In view of this Tribunal Judgement, Commission undertook the revised truing
up of FY 2011-12 in accordance with MYT Regulations and computed the
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Judgement in Appeal No. 23 of 2017
income tax liability on the regulated Profit Before Tax (PBT) basis of income
less permissible expenses and other provisions of income tax and
Commission approved as following: -
“3.3.2.53 The Commission approves the Income Tax at Rs. 31.41
Crore for FY 2011-12 for Unit 4 to 7 and Hydro Stations and,
accordingly, the impact of the ATE Judgment on account of Income
Tax has been computed as a negative amount of Rs. 72.76 Crore
considering the difference of Income Tax of Rs. 104.17 Cr. approved
in MYT Order and Rs. 31.41 Cr. approved in this Order”.3.3.3.32 The
Commission approves the income tax for unit 8 as Rs 22.57 Crore for
FY 2011-12 and accordingly determines the impact of ATE judgement
of Rs 2.32Crore”
39. Besides effecting the impact of APTEL’s Judgement, in the MYT Order,
Truing up of FY 2012-13 was carried out in which Income Tax for FY 2012-13 was
approved on Regulated PBT based on income less permissible expenses
considering only revenue recovered from sale of power. Likewise income tax
computation was done under Truing up of FY 2013-14 and revised estimates for
FY 2014-15 to FY 2015-16.
Tribunal Judgement dated 03.06.2016, in Appeal 244 of 2015
40. The MYT order dated 26.06.2015 was assailed before this Tribunal in
Appeal 244 of 2015, and Tribunal passed the judgement on 03.06.2016. In this
Appeal, besides other claims the Appellant has challenged the disallowance of
Income Tax in the MYT order on account of i) exclusion of efficiency gain and
incentive in total income ii) income considered on billed revenue instead of
accrual basis, iii) not considering entire income while calculating PBT including
the revenue gap after truing up. Appellant had emphasized on computation of
Income tax on accrual basis as generation business revenue considered for
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Judgement in Appeal No. 23 of 2017
income tax consists of only fixed and variable charges without the gap surplus of
previous year. Appellant had prayed that “State Commission be directed to
recalculate the PBT after considering entire income of the Appellant including the
income which is yet to be recovered as revenue gap as installments in the same
FY.
41. The State Commission in its submissions, has confirmed that revenue from
sales only has been considered and income booked as future tariff adjustments
has not been considered for truing purpose and following submissions made on
behalf of State Commission are noted in Paragraph 16.3 of referred judgement
dated 03.06.2016,
“16.3………
Accordingly, only revenue from sale of power is considered. Since income
booked as future tariff adjustment has not been considered for truing up
purposes. The State Commission has not considered income as payable on
such income which is yet to be approved by the State Commission and yet to
be billed or recovered. Income tax based on regulated PBT is payable on the
actual income. Regarding the Appellant’s claim on disallowance of income
tax due to non-consideration of revenue gap, the State Commission's
submissions is that the revenue gap which is approved after truing up a
particular year gets recovered in subsequent year. Accordingly, the same is
reflected in the revenue in subsequent year and cannot be considered for the
year under consideration of truing up.”
After deliberating the issue, this Tribunal held as under:
“17.8) After going through the case law, cited by the appellant, the said case
laws are not applicable to the facts of the matter in hand. They are on different
aspects with which we are not concerned in these appeals. We are clearly of
the view that income tax based on regulated PBT is payable on the actual
income in such situation. In view of the above discussion, on this issue we
approve the findings and view expressed by the State Commission in the
Impugned Order. This issue is also decided against the appellant in each of
the appeals.”
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42. We have carefully considered the rival submissions, content of MYT Order,
Tribunal Judgement dated 03.06.2016 and the statutory framework. The
Impugned Order proceeds on the premise that, in the absence of a specific
direction in the judgment dated 03.06.2016, the Appellant’s claim for
pass-through of income tax on past period recoveries cannot be entertained. It
is an admitted position that challenge in Appeal No. 244 of 2015 was confined to
the principle of computation on a billed basis as opposed to an accrual basis, and
Appellant did not raise the non-consideration of some revenue in the past period
for the purpose of computation of income tax even in the methodology adopted
by State Commission in the MYT Order. It appears that the principal issue in
Appeal No 244 of 2015 pertained to adoption of methodology for income tax
computation; whether the revenue to be considered on billed basis or accrual
basis and not the actual computation.
43. It is important to note that this Tribunal, by judgment dated 03.06.2016,
expressly upheld the methodology adopted by the State Commission in the MYT
Order, namely computation of income tax on actual billed revenues as against
accruals. The Tribunal categorically held that “income tax based on regulated
PBT is payable on the actual income,” thereby affirming the principle that the tax
liability must attach to the real income stream of the regulated business. Once
such methodology has been judicially sanctioned, absence of an express
direction cannot be construed as denial of the logical consequence of the affirmed
principle. The Commission is required to apply the methodology consistently,
subject to prudence check.
44. As noted above, State Commission, in its submissions before this Tribunal
in Appeal No. 244 of 2015, acknowledged that revenue gaps approved after truing
up are recovered in subsequent years and are then reflected in the revenue of
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Judgement in Appeal No. 23 of 2017
those years. This amounts to an admission that the computation of income tax
ultimately pertains to the entire revenue actually earned, inclusive of deferred
recoveries. To deny pass-through of income tax on such recoveries would be to
disregard the State Commission’s own submissions and to create an artificial
distinction between current and deferred revenues, which has no basis in law or
regulation.
45. Regulation 34 of the MERC (MYT) Regulations, 2011 explicitly mandates
that income tax payable on the permissible return of the regulated business shall
be provisionally approved and subsequently trued up, subject to prudence check;
Regulation 34 is reproduced hereunder:
“34 Tax on Income
34.1 The Commission, in its MYT Order, shall provisionally approve Income
Tax payable for each year of the Control Period, if any, based on the actual
income tax paid on permissible return as allowed by the Commission relating
to the electricity business regulated by the Commission, as per latest Audited
Accounts available for the applicant, subject to prudence check:
Provided that no Income Tax shall be considered on the amount of efficiency
gains and incentive earned by the Generating Companies, Transmission
Licensees and Distribution Licensees.
Provided further that the Generating Company, Transmission Licensee and
Distribution Licensee shall bill the Income Tax under a separate head called
"Income Tax Reimbursement" in their respective bills.
34.2 Variation between Income Tax actually paid and approved, if any, on the
income stream of the regulated business of Generating Companies,
Transmission Licensees and Distribution Licensees shall be reimbursed
to/recovered from the Generating Companies, Transmission Licensees and
Distribution Licensees, based on the documentary evidence submitted at the
time of Mid-term Performance Review and MYT Order of third Control Period,
subject to prudence check.
34.3 Under-recovery or over-recovery of any amount from the beneficiaries
or the consumers on account of such income tax having been passed on to
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Judgement in Appeal No. 23 of 2017
them shall be on the basis of income-tax assessment under the Income-Tax
Act, 1961, as certified by the statutory auditors. The Generating Company, or
the Transmission Licensee or Distribution Licensee, as the case may be, may
include this variation in its Mid-term Performance Review Petition and MYT
Petition of third Control Period:
Provided that tax on any income stream from other than the business
regulated by the Commission shall not constitute a pass-through component
in tariff and tax on such other income shall be borne by the Generating
Company or Transmission Licensee or the Distribution Licensee, as the case
may be.”
46. We are of the considered view that once the methodology adopted by the
State Commission has been upheld by this Tribunal, the same attains finality,
however the affirmation of methodology does not preclude the Commission from
rectifying inadvertent computational mistakes committed in applying that
methodology or omission in application of methodology. The doctrine of
rectification permits correction of errors apparent on the face of the record,
including clerical or arithmetical omissions, so long as such correction does not
amount to a review of the substantive methodology. Therefore, while the party is
estopped from re-agitating the validity of the methodology, which is not the case
in present Appeal, it is entitled to require that the Commission compute the
amounts strictly in accordance with the methodology already upheld, and to seek
rectification of computational mistakes in subsequent proceedings. The
Commission, in discharge of its statutory duty, must ensure that the figures are
correctly applied as per approved methodology so that the regulatory outcome
reflects accuracy and fairness. Further, while the principal revenue gap is allowed
to be recovered in subsequent years, if the corresponding tax liability is
disallowed though inadvertently, it will distort the true financial position of the
regulated entity and undermining the principle of revenue neutrality and as such
the income tax is a statutory obligation of the Appellant. Such denial is contrary
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Judgement in Appeal No. 23 of 2017
to the settled doctrine that tariff must reflect the legitimate costs of the regulated
business, including statutory tax liabilities, subject to prudence check.
47. In view of above deliberations, we set aside the finding in the Impugned
Order that Income tax for the past period cannot be worked out as there is no
specific direction in the APTEL Judgement dated 03.06.2016. Issue is remanded
to the State Commission with a direction to undertake prudence check of the
Income tax claimed by the Appellant for the past period as per the methodology
in the MTR Order and affirmed by this Tribunal in the judgement dated
03.06.2016, and to allow such pass-through to the extent found prudent, in
accordance with law.
ORDER
In view of above deliberations, our view of the issues in the present Appeal are
decided as under:
I. Non-Consideration of Additional PLF incentive for FY 2011-12 to FY 2013-
14; Impugned Order is upheld.
II. Disallowance of Property Tax as Uncontrollable O&M Expenses; The
findings in the Impugned Order are set aside and matter remanded to State
Commission to accord treatment of Change in Property tax as uncontrolled
parameters, and loss and gain worked out as per Regulation 13. Loss and
gain for the balance O&M expenditure to be worked out in terms of
Regulation 14.
III. Disallowance of Income Tax for FY 2007-08 to FY 2013-14; Impugned
Order set aside and Issue is remanded to the State Commission to
undertake prudence check of the Income tax claimed by the Appellant for
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Judgement in Appeal No. 23 of 2017
the past period as per the methodology in the MTR Order and affirmed by
this Tribunal in the judgement dated 03.06.2016, and to allow such
pass-through to the extent found prudent, in accordance with law
Needless to state that State Commission shall endure to pass the order on the
issues being remanded expeditiously, preferably within three months from the
date of receipt of this Judgement.
The Captioned Appeal and pending IAs, if any, are disposed of in these terms.
st
PRONOUNCED IN THE OPEN COURT ON THIS 31 DAY OF JULY, 2026.
(Virender Bhat)
Judicial Member
(Seema Gupta)
Officiating Chairperson
REPORTABLE / NON-REPORTABLE
Pr/dk/ak
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