Indian Railways as a Consumer Liable for Cross-Subsidy Surcharge Despite Status as Deemed Distribution Licensee

The Appellant, Indian Railways, sought to procure 100 MW of power via inter-state open access from Gujarat for its traction substations in Maharashtra

Transmission utilities and various State Electricity Regulatory Commissions (SERCs) disputed the Railways' status, primarily whether it qualifies as a "deemed distribution licensee" (DDL) exempt from certain surcharges

The Railways contended that under Section 11 of the Railways Act, 1989, it has independent statutory authority to distribute electricity

In 2015, the CERC ruled in favor of the Railways

On 12.02.2024, the APTEL set aside the CERC order, holding that the Railways is primarily a consumer and not a DDL under the Electricity Act, 2003

1. Whether the activities provided under Section 11(g) and (h) of the Railways Act constitute "distribution" of electricity and qualify the Appellant as a DDL

2. Whether the Indian Railways qualifies as an "Appropriate Government" under Section 2(5) and Section 14 of the Electricity Act

3. Whether the Indian Railways, even if held to be a DDL, is exempt from paying Cross-Subsidy Surcharge (CSS) and Additional Surcharge (AS) for open access under Section 42

4. Whether a proposed but unpassed legislation (Draft Electricity Amendment Bill, 2025) can be used as an aid to interpret existing statutory gaps

Electricity Act, 2003, specifically Section 2(17) defining a distribution licensee, Section 2(19) defining a distribution system, and Section 14, which provides for deemed licensee status

Section 11 of the Railways Act, 1989, regarding the power to erect electrical installations

The precedent in Sesa Sterlite Ltd. v. OERC (2014), which established that an entity consuming electricity for its own use, even if technically a licensee, is a "consumer" for the purpose of surcharges

Functional test for "Appropriate Government" from SAIL v. National Union Waterfront Workers (2001)

Principle that a legislative casus omissus cannot be supplied by courts, as seen in Vodafone International Holdings BV v. Union of India (2012)

The Court reasoned that "distribution" under the Electricity Act requires the twin functions of maintaining a system and supplying electricity to third-party consumers

It found that the Railways’ "distribution installations" under Section 11 of the Railways Act are for internal conveyance and self-consumption, not for sale to consumers, thus failing the definition of a distribution system

Although the Court acknowledged the Railways functions under the authority of the Central Government (satisfying the functional test for "Appropriate Government"), it held that this nominal status does not grant DDL benefits without the substantive act of distribution

Applying the Sesa Sterlite functionality test, the Court determined that since the Railways uses the procured power for its own traction and operations, it is a "consumer" under Section 2(15)

Consequently, it is liable to pay CSS and AS under Section 42(2) and 42(4) to compensate DISCOMS for stranded costs and the loss of cross-subsidy

Finally, the Court noted that the Draft Electricity (Amendment) Bill, 2025—which proposes a 5-year phase-out of CSS for Railways—proves that such an exemption does not exist in the current law

The Court ordered the Railways to pay the outstanding Cross-Subsidy Surcharge and Additional Surcharge as computed by the respective DISCOMS. The interim protection against the payment of these charges was vacated