Holding and subsidiary companies’ inter-state captive consumption is exempt from cross-subsidy surcharge.

Respondent No. 2 (SEML), a company located in Raipur, Chhattisgarh, is the 100% holding company of M/s Sharda Minerals and Alloys Limited (SMAL), which operates an 80MW captive generating plant in Andhra Pradesh

SEML procures power from SMAL’s plant through interstate open access for its own use in Chhattisgarh

The Appellant (CSPDCL), the state distribution licensee, levied a Cross Subsidy Surcharge (CSS) on SEML for FY 2017-18, contending that SEML was a non-captive user

SEML challenged this before the Chhattisgarh State Electricity Regulatory Commission (CSERC), which ruled that SEML and SMAL collectively met the ownership (26%) and consumption (51%) criteria under Rule 3 of the Electricity Rules, 2005

CSERC directed CSPDCL to refund the recovered CSS

CSPDCL appealed the decision, primarily contesting the captive status and the aggregation of ownership/consumption across different states

Whether the supply of power from a captive generating plant in one State to its holding company located in another State qualifies as "captive use" exempt from CSS under the fourth proviso to Section 42(2) of the Electricity Act, 2003

Whether consumption by a holding company can be aggregated with its subsidiary to satisfy the requirements of Rule 3 of the Electricity Rules, 2005

Whether a State Commission has the jurisdiction to determine the captive status of a plant located outside its territorial jurisdiction

The Tribunal applied Section 2(8) of the Electricity Act, 2003, which defines a "captive generating plant" as a facility set up for a person’s "own use"

Section 9(2) provides the right of open access to such plants to carry electricity to the "destination of use"

The fourth proviso to Section 42(2) of the Act stipulates that CSS shall not be leviable when open access is provided to a person using electricity from their own captive plant

Rule 3 of the Electricity Rules, 2005, prescribes the twin requirements for captive status: at least 26% ownership by the captive user(s) and at least 51% consumption of the generated electricity

The Tribunal also referenced the 2023 amendments to Rule 3, which clarified that consumption by holding or subsidiary companies is admissible as captive consumption

The Tribunal rejected the Appellant's contention that captive users must be located in the same State as the generating plant, noting that Section 2(8) and Rule 3 contain no such territorial restriction

It reasoned that "destination of use" under Section 9(2) is not restricted by state boundaries

On ownership, the Tribunal observed that since SEML holds 100% equity in SMAL, it satisfies the "ownership" definition under Rule 3(2)(c), which pertains to equity share capital with voting rights

The Tribunal compared the structure to cooperative societies and associations of persons, where collective satisfaction of criteria is permitted, concluding that a holding company and its subsidiary can similarly aggregate their interests

Finally, the Tribunal held that the 2023 amendments to Rule 3 were "clarificatory in nature" and merely affirmed the original legislative intent that existed prior to the amendment

It held that SEML qualifies as a captive user of the plant owned by its 100% subsidiary, SMAL, regardless of the interstate nature of the transaction

Consequently, the consumption is exempt from CSS under the fourth proviso to Section 42(2) of the Electricity Act, 2003

CSPDCL was directed to comply with the lower Commission's order regarding the refund of recovered surcharges