TDSAT Rules Actual Incurred Costs and Prior Precedents Binding Over Normative Benchmarks in Tariff Determination

Mumbai International Airport Ltd. (MIAL), the operator of Chhatrapati Shivaji Maharaj International Airport (CSMIA), challenged AERA’s Order No. 01/2025-26 dated 07.05.2025.

This order determined aeronautical tariffs for the Fourth Control Period (2024–2029).

MIAL contended that AERA disregarded the Operation, Management and Development Agreement (OMDA), the State Support Agreement (SSA), and binding precedents from the Tribunal.

Key grievances included the application of normative cost benchmarks instead of actuals, the treatment of the General Aviation (GA) terminal as a non-aeronautical asset, and the imposition of a 1% penalty on unspent capital expenditure.

1. Whether AERA can apply normative benchmarks for capital costs instead of evaluating expenditures on an actual basis.

2. Whether the "S-factor" (cross-subsidy) should be treated as aeronautical revenue for the purpose of computing corporate taxes ("T").

3. Whether AERA has the authority to reduce the Hypothetical Regulatory Asset Base (HRAB) due to the demolition of Terminal 1.

4. Whether AERA can fix a minimum threshold for non-aeronautical revenue and restrict true-ups only to cases where actual revenue exceeds that threshold.

5. Whether AERA can adjust Target Revenue based on an unproven "Self-Contained Note" from an Investigation Agency.

Section 13(1)(a) of the AERA Act, 2008, which mandates tariff determination based on actual capital expenditure "incurred" and the "concessions offered by the Central Government" in agreements like the SSA and OMDA.

Cellular Operators Association of India v. Union of India [2003 3 SCC 186] to emphasize the Tribunal’s wide appellate jurisdiction to examine the "legality, propriety, or correctness" of expert body decisions.

Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association [1992 3 SCC 1] to affirm that the mere filing of an appeal does not stay or extinguish the precedential value of a judgment.

The "Market Discovered Price" principle established in its own previous MIAL and DIAL judgments (2023/2025), holding that AERA cannot rewrite contracts or substitute actual costs with normative assumptions.

The Tribunal reasoned that AERA's use of normative benchmarks violates Section 13(1)(a)(i) of the Act, as "cost" is a floating concept dependent on market forces discovered through bidding; AERA cannot re-evaluate these costs unless they are found to be imprudent.

Regarding the GA Terminal, the Tribunal identified a fallacy in AERA’s reasoning: while the service might be non-aeronautical, the asset (building) facilitates aeronautical functions like security and customs, making it a "common asset".

On the "S-factor," the Tribunal held that since it is a mechanism to recover aeronautical revenue through cross-subsidy, it partakes the character of aeronautical revenue and must be included in tax (T) calculations; excluding it would deny the operator the full corporate tax allowance mandated by the SSA.

The Tribunal found AERA's reliance on a "Self-Contained Note" from an investigation agency to be "Wednesbury Unreasonable" and a violation of natural justice, as the note was an undisclosed hearsay document and the investigation had not reached judicial finality.

The Tribunal struck down the "minimum revenue floor" for non-aeronautical revenue, holding that AERA cannot regulate non-aeronautical pricing indirectly nor can it create a one-sided true-up mechanism that only benefits the regulator.

The Tribunal allowed the appeal and modified AERA’s order. AERA is directed to give effect to these modifications within three months.