# GUJARAT URJA VIKAS NIGAM LIMITED v. EMCO LIMITED & OTHERS

- **Citation:** [2016] 1 S.C.R. 857
- **Court:** Supreme Court of India
- **Decided:** 2016-02-02
- **Case number:** Civil Appeal No. 1220 of2015
- **Bench:** J. Chelameswar, Abhay Manohar Sapre
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/gujarat-urja-vikas-nigam-limited-v-emco-limited-others-31126
- **Pages:** 22

## Headnote

Electricity - Tariff determination - For procurement of power
by Distribution Licensees in Gujarat from Solar Energy Projects -
Tariff determination by order dated 29.1.2010 (first tariff order)
taking into account the benefit of accelerated depreciation under
s.32 of the Income Tax Act and Rules - The order also.provided for
determination of separate tariff for the project which did not get
the benefit of accelerated depreciation - Appellant entered into
Power Purchase Agreement (PPA) for sale and purchase of electricity
with the respondent-power producer for the project to be established
by it - However, could not commence generation of power within
control period stipulated under first tariff order - Another order
dated 27.1.2012 (second tariff order) determining the tariff
applicable to the projects to be commissioned on or after 29.1.2012
- The power producer commenced generation of power subsequent
to second tariff order - The power producers petition to State
Commission for permission to. claim tariff as per second tariff order,
allowed - Order of State Commission confirmed by the Appellate
Tribunal - On appeal, held: The terms of the PPA does not entitle
the power producer to the tariff as determined by the Second tariff
order - 'The benefit of accelerated promotion 'flows from the Income
Tax Act which was dependent on the option of the power producer
- PPA does not make any reference to such benefit - The availability
of the option does not relieve the power producer of the contractual
obligations incurred under the PPA - Therefore.the power producer
is not entitled to tariff as per second tariff order.
·Allowing the appeal, the Court
HELD: 1. An undertaking engaged in generation of power
has an option to claim depreciation on its assets in accordance
with the scheme under Section 32(1 )(i) of the Income Tax Act.
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Such an option could be exercised at the relevant point of time
as indicated in the second proviso to Role 5(1) of Income Tax
Roles, 1962.(Para 15)(869-C-D)
2. The 2°• respondent proposed the tariff for all classes of
PROJECTS taking into account that all of them would be entitled
to claim the 'benefit of accelerated depreciation' under Section
32 of Income Tax Act. The 2•• respondent must be presumed to
have known at the time of propounding the 1" tariff order that
the Income Tax Act and the Rules thereunder provide an option
to the assessee (producer of power) either to claim or not the
'benefit of accelerated depreciation'. Hence, the stipulation.
Therefore, it cannot be said that the tariff under the 1" Tariff
Order is not applicable to those power generating PROJECTS
which by operation of law are not entitled to claim.the benefit of
the scheme under Section 32(1 )(i) of the Income Tax Act. [Paras
18 and 16)(869-E-F; 870-D-E]
3. The PPA does not giv~ any option to the respondent to
opt out of the terms of the PPA. It only visualises a possibility of
the producer not commissioning its PROJECT within the "control
period" stipulated under the 1" Tariff Order and provides that in
such an eventuality what should be the tariff applicable to the
sale of power by the 1" respondent.
Secondly, the PPA does not
'entitle' the 1" respondent to the "tariff as determined by the"
2°• respondent by the 2"' Tariff Order. [Para 26][875-A-B]
4. The right of the 1" respondent not to avail the "benefit
of accelerated depreciation" flows from the Income Tax Act. It
is only the 1" Tariff Order which gives an option to the 1"
respondent (for that matter to all the power producers who are
similarly situated as the 1" respondent) not to sell the power
produced by it at the price specified in the 1" Tariff Order but
seek the determination of a separate tariff. Such a right and option
is available to the power producers only in one contingency i.e.,
that they are not inclined to avail the 'benefit of accelerated
depreciation'. [Para 26][875-D-E]
5. The Inc

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[2016] 1 S.C.R. 857
GUJARAT URJA VIKAS NIGAM LIMITED
V.
EMCO LIMITED & OTHERS
(Civil Appeal No. 1220 of2015)
FEBRUARY 02, 2016
[J. CHELAMESWAR AND ABHAY MANOHAR SAPRE, JJ.]
Electricity - Tariff determination - For procurement of power
by Distribution Licensees in Gujarat from Solar Energy Projects -
Tariff determination by order dated 29.1.2010 (first tariff order)
taking into account the benefit of accelerated depreciation under
s.32 of the Income Tax Act and Rules - The order also.provided for
determination of separate tariff for the project which did not get
the benefit of accelerated depreciation - Appellant entered into
Power Purchase Agreement (PPA) for sale and purchase of electricity
with the respondent-power producer for the project to be established
by it - However, could not commence generation of power within
control period stipulated under first tariff order - Another order
dated 27.1.2012 (second tariff order) determining the tariff
applicable to the projects to be commissioned on or after 29.1.2012
- The power producer commenced generation of power subsequent
to second tariff order - The power producers petition to State
Commission for permission to. claim tariff as per second tariff order,
allowed - Order of State Commission confirmed by the Appellate
Tribunal - On appeal, held: The terms of the PPA does not entitle
the power producer to the tariff as determined by the Second tariff
order - 'The benefit of accelerated promotion 'flows from the Income
Tax Act which was dependent on the option of the power producer
- PPA does not make any reference to such benefit - The availability
of the option does not relieve the power producer of the contractual
obligations incurred under the PPA - Therefore.the power producer
is not entitled to tariff as per second tariff order.
·Allowing the appeal, the Court
HELD: 1. An undertaking engaged in generation of power
has an option to claim depreciation on its assets in accordance
with the scheme under Section 32(1 )(i) of the Income Tax Act.
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Such an option could be exercised at the relevant point of time
as indicated in the second proviso to Role 5(1) of Income Tax
Roles, 1962.(Para 15)(869-C-D)
2. The 2°• respondent proposed the tariff for all classes of
PROJECTS taking into account that all of them would be entitled
to claim the 'benefit of accelerated depreciation' under Section
32 of Income Tax Act. The 2•• respondent must be presumed to
have known at the time of propounding the 1" tariff order that
the Income Tax Act and the Rules thereunder provide an option
to the assessee (producer of power) either to claim or not the
'benefit of accelerated depreciation'. Hence, the stipulation.
Therefore, it cannot be said that the tariff under the 1" Tariff
Order is not applicable to those power generating PROJECTS
which by operation of law are not entitled to claim.the benefit of
the scheme under Section 32(1 )(i) of the Income Tax Act. [Paras
18 and 16)(869-E-F; 870-D-E]
3. The PPA does not giv~ any option to the respondent to
opt out of the terms of the PPA. It only visualises a possibility of
the producer not commissioning its PROJECT within the "control
period" stipulated under the 1" Tariff Order and provides that in
such an eventuality what should be the tariff applicable to the
sale of power by the 1" respondent.
Secondly, the PPA does not
'entitle' the 1" respondent to the "tariff as determined by the"
2°• respondent by the 2"' Tariff Order. [Para 26][875-A-B]
4. The right of the 1" respondent not to avail the "benefit
of accelerated depreciation" flows from the Income Tax Act. It
is only the 1" Tariff Order which gives an option to the 1"
respondent (for that matter to all the power producers who are
similarly situated as the 1" respondent) not to sell the power
produced by it at the price specified in the 1" Tariff Order but
seek the determination of a separate tariff. Such a right and option
is available to the power producers only in one contingency i.e.,
that they are not inclined to avail the 'benefit of accelerated
depreciation'. [Para 26][875-D-E]
5. The Income Tax Act gives an option to the producers of
power either to avail the 'benefit of the accelerated depreciation'
or not. It also specifies the point of time at whith such an option
GUJARAT URJA VIKAS NIGAM LIMITED v. EMCO LIMITED
& OTHERS
could be exercised. The right to exercise such option at a point
of time specified in the 2'' proviso to Rule 5(1A) is limited only
for the purpose of availing the benefits flowing from the Income
Tax Act. The PPA does not make any reference to the "benefits
of accelerated depreciation". It simply specified the price to be
paid by the appellant for the power purchased by it from the 1"
respoudeut. The appellant determined the said price after taking
into consideration various factors. One of them happened to be
that the Power Producers are entitled to certain 'benefits' under
the Income Tax Act. The availability of such 'benefit' is dependent
upon the option of the power producers. Though the 1" Tariff
Order employs the expression 'benefit' in the context of the AD
Scheme under Section 32 of the IT Act, the applicability of the
provision to a power producer depends upon the choice of the
power producer. Whether the availability of the AD Scheme is
beneficial to the power producer or· not in a given case depends
on various factors. It is for the power producer to make an
assessment whether the availing of the AD is beneficial or not
will take a decision if the scheme under Section 32 IT Act should
be availed or not. But the availability of such an option to the
power producer for the purpose of the assessment of income
under the IT Act does not relieve the power producer of the
contractual obligations incurred under the PPA. No doubt that
the 1" respondent as a power producer has the freedom of
contract either to accept the price offered by the appellant or not
before the PPA was entered into. But such freedom is
extinguished after the PPA is entered into.[Paras 28 and 29)
[875-G-H; 876-A-D]
6. The 1" respondent knowing fully well entered into the
PPA in question which expressly stipulated under Article 5.2 that
"the tariff is determined by the Commission vide tariff order for
solar based power project dated 29.1.2010. Apart from that both
the respondent No. 2 and the appellate tribunal failed to notice
and the 1" respondent conveniently ignored one crucial condition
of the PPA contained in the last sentence of para 5.2 of the PPA.
The said stipulation clearly envisaged a situation where
notwithstanding the contract between the parties (the PPA), there
is a possibility of the first respondent not being able to commence
the generation of electricity within the "control period" stipulated
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A in the 1" tari.ff order. H also visualised that for the subsequent
control period, the tariffs payable to a PROJECTS/power
producers (similarly situated as the first respondent) could be
different. In recognition of the said two factors, the PPA clearly
stipulated that in such a situation, the 1" respondent would be
B
entitled only for lower of the two tariffs. The said stipulation is
totally overlooked by the second respondent and the appellate
tribunal. [Paras 30 and 31)[876-E-H; 877-A-B]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1220
of2015
c
From the Judgment and Order dated 20.11.2014 of the Appellate
Tribunal for Electricity, New Delhi in Appeal No. 252of2013
C. A. Sundaram, MG Ramachandran, Hemantika Wahi, Anand
Ganeshan, Shubham Arya for the Appellant.
Vikas Singh, Heman! Sahai, Puja Priyadarshini, Saoloni Tangri,
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Nar Hari Singh, Sakya Singha Chaudhuri, Shekhar Prit Jha, Dr. Richa
Dubey for the Respondents.
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The Judgment of the Court was delivered by
CHELAMESWAR, J. 1. The 2"' respondent herein, the Gujarat
Electricity Regulatory Commission is a body constituted under Section
82 of the Electricity Act, 2003 (hereinafter referred to as "the Act"). In
exercise of its statutory powers under Sections 61(h), 62(l)(a) and
86( l)(e) of the Act the 2"' respondent issued Order No.2 of 20 I 0 dated
29.01.2010 (hereinafter referred to as the "l" Tariff Order") determining
the tariff for procurement of power by the Distribution Licensees in
Gujarat from Solar Energy Projects1• The said order was issued after
an elaborate consideration of the various relevant factors including the
policy guidelines of the State of Gujarat and Union oflndia. Under the
said order, tariff for procurement ofelectricity generated by PROJECTS
employing Solar Photovoltaic (SPY) Technology was fixed at Rs.15 per
G
kWh for the initial 12 years starting from the date ofcommercial operation
of the project and Rs.5 per kWh from the l 3'h year to 25'h year. The
said order was declared to have had come into force w.e.f. 29.01.2010.
' The Tariff Order uses the term 'Solar Energy Projects ' and the PPA uses the term
'Solar Power Projects•. The terms 'Solar Power Projects' and 'Solar Energy Projects
H
'are identical. Hereinafter, 're use the term ·PROJECTS 'to denote them.
I
GUJARAT URJA VIKAS NIGAM LIMITED v. EMCO LIMITED
& OTHERS [CHELAMESWAR, J.]
Various financial and operational parameters taken into consideration
for determining the tariff are mentioned at para 4 of the said Order'.
One of the factors taken into consideration is the 'Rate of Depreciation'.
It is specified at para 5 of the Order that the tariff fixed under the said
Order "took into account the benefit of accelerated depreciation under
the Income Tax Act and Rules". It is further declared that "for a project
that does not get such benefit, the Commission would, on a. petition in
that respect, determine a separate tarifftaking into account all the relevant
facts."
2. The l" respondent produces electric energy (power) from one
of the PROJECTS. The appellant and l" respondent' entered into a
Power Purchase Agreement (PPA) dated 09.12.2010 for sale and
purchase of electricity from the 5 MW project to be established by the
l" respondent in Surendra Nagar district of Gujarat. The provisions
relevant for the dispute in the present appeal are Clauses 5.1 & 5.2,
"Article 5: Rates and Charges
5.1 Monthly Energy Charges: GUVNL shall pay to the Power
Producer every month for Scheduled Energy/Energy injected as
certified in the monthly SEA by SLDC the amounts (the "Tariff')
set forth in Article 5.2.
5 .2 GUVNL shall pay the fixed tariff mentioned hereunder for
the period of25 years for all the Scheduled Energy/Energy injected
2· Para 4. Components of Tariff
The follo\ring financial and operational parameters have been considered \rhile
determining the tariff.
I.
Capital cost
2.
£,·acuation cost
3.
Operations & Maintenance charges
4.
Debt - Equity Ratio
5.
Loan Tenure
6.
Interest rate on loan
7.
Return on ~qqity
8.
Rate of Depreciation
9.
Interest on Working Capital
10.
Capacity Utilization Factor
1 I.
Duration of Tariff
12.
Auxiliary Consumption
3 Described as power producer in the PPA
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A
as certified in the monthly SEA by SLDC. The tariff is determined
by Hon 'ble Commission vide Tariff Order for Solar based power
project dated 29.01.20 l 0.
B
Tariff for Photovoltaic Project:
Rs.15/kWh for First 12 years
and
Thereafter Rs.5/kWh from 13" Year
To 25'h Year.
Above tariff shall apply for solar projects commissioned on or
before 31" December 20 I I. In case, commissioning of Solar
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Power Pro.ject is delayed beyond 31" December 2011,
GUVNL shall pay the tariff as determined by Hon'ble GERC
for Solar Projects effective on the date of commissioning of
solar power project or above mentioned tariff, whichever
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is lower."
and Clauses 12.8' & 12.1 O; of the said PPA.
3. However, after entering into the abovementioned PPA,
respondent no. I decided to change the PROJECT'S location. Therefore,
a Supplemental Agreement was entered into between the appellant and
respondent no.I on 07.05.2011 making appropriate and necessary
~ 12.8 Amendments:
This Agreement shall not be amended. changed. altered. or modified except
by a \vritten instrument duly executed by an authorized representative of both Parties.
Ho\vever. GUVNL may consider any amendment or change that the Lenders may
require to be made to this Agreement.
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' 12. l 0 Entire Agreement. Appendices:
This Agreement constitutes the entire agreement behveen GUVNL and the
Power Producer, concerning the subject matter hereof. All previous documents.
undertakings, and agreements, whether oral, written. or otherwise, between the Parties
concerning the subject matter hereof are hereby cancelled and shall be of no further
force or effect and shall not affect or modify any of the terms or obligations set forth in
this Agreement, except as the same may be made part of this Agree1nent in accordance
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\Yith its tenns, including the terms of any of the appendices, attachments or exhibits.
The appendices, attachments and exhibits are hereby made an integral part of this
Agreement and shall be fully binding upon the Parties.
In the event of any inconsistency between the text of the Articles of this
Agreement and the appendices, attachments or exhibits hereto or in the event of any
inconsistency between the provisions and particulars of one appendix, attachment or
exhibit and those of any other appendix, attachment or exhibit GUVNL and the Power
H · Producer shall consult to resolve the inconsistency.
GUJARAT URJA VIKAS NIGAM LIMITED v. EMCO LIMITED
863
& OTHERS [CHELAMESWAR, J.]
modifications to the PPA dated 09.12.2010. However, Articles 5. land
5.2 of the original PPA remained unaltered.
4. 2"' respondent passed another order dated 27.01.2012
(hereinafter referred to as the "2"' Tariff Order'') determining the tariff
applicable to the PROJECTS to be commissioned on or after 29.01.2012.
The tariff fixed under the said order for the PROJECTS generating
electrical Energy through Solar Photovoltaic (SPY) Technology "availing
the benefit of accelerated depreciation under the Income Tax Act" is
less favourable to the power producers and the tariff payable by the
appellant to the power producers which do not avail "the benefit of
accelerated depreciation" under the Income-tax Act is more favourable
to such power producers.
5. The 1" respondent commissioned its PROJECT only on
2.3.2012, i.e., beyond the "control period' .. Para 7.2 Control Period "of
tariff specified under the l" Tariff Order. The said "control period"
ended on 28.01.2012. The 1" respondent admittedly did not avail the
accelerated depreciation under Section 32 of the Income-tax Act.
6. The l" respondent, therefore, filed a petition no.1270 of20!2
before the State Commission invoking Section 86( l )(f) of the Act praying
"(A) This Hon'ble Commission be pleased to hold and declare that the
Petitioner is entitled to claim the tariff applicable to megawatt scale
solar photovoltaic projects not availing of accelerated depreciation as
per tariff order dated 27.1.2012; and (B) This Hon'ble Commission be
pleased to quash and set aside the decision of the Respondent taken in
letters dated 20.4.2012, 22.6.2012 and 20.11.2012 for denying the tariff
applicable to megawatt scale solar photovoltaic projects not availing of
accelerated depreciation as per tariff order dated 27. 1.2012 to the
Petitioner and direct the Respondent to forthwith make payment of a
sum of Rs. 59,50,260/- to the Petitioner being the differential amount of
invoices which is unpaid by the Respondent;"
6· Para 7.2 Control Period
The Commission had proposed a control period for this order as the period from the
date of final order of the Commission to 31.12.20 I I.
Commission) Ruling·.
"It has been observed that the capital cost of the solar power project might reduce
drastically as time elapses. Ho\vever, since the gestation period for Solar PV projects
is about 6 months and that for Solar Thermal Projects is 18-24 months, the Commission
decides that the control period for this order will be 2 years."
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7. The 2"' respondent by its order dated 08.08.2013 held that the
l" respondent is entitled for the benefit of the tariff specified in the 2"'
Tariff Order dated 27.01.20127• The 2"' respondent also held that the
benefit of its adjudicatory order should not only go to the l" respondent
but also to others who have commissioned their PROJECTS subsequent
to the 2"' Tariff Order.
8. Aggrieved by the order dated 08.08.2013, the appellant herein
preferred an appeal before the Appellate Tribunal for Electricity
(hereinafter referred to as "the Appellate Tribunal"), constituted under
Section 110 of the Act invoking its jurisdiction under Section 111 of the
Act.
9. By the impugned order dated 20.11.2014, the Appellate Tribunal
confirmed the order of the 2"' respondent.
"Para 62. Summary of Findings:
(a) The PPA dated 19.12.2010 entered into between the Appellant
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and the Respondent No. I provided for tariff as determined by the
State Commission vide order dated 30.1.2010, viz. Rs.15 per kWh
for first 12 years and thereafter Rs.5 per kWh from J3•h year to
25'h year, provided the Solar Project is commissioned on or before
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1 Para 7. Considering the above, we decide that the petition succeeds. We decide that
the petitioner's project, \vhich is not availing the benefit of Accelerated Depreciation is
entitled to the tariff of Rs.11.25/Unit for the first 12 years of the project and Rs. 7.50/
Unit for the subsequent 13 years. The respondent is directed to pay the amount of
difference of Rs.11.25 - Rs. 9. 98 ~ 1.27/KWh to the petitioner for the invoices so far
raised by the petitioner and payment of which have already been made by the respondent.
The respondent is further directed that he shall pay the above tariff now onward also
to the petitioner for energy supplied by him.
Para 8. Before parting with the judgment. we would like to observe that the issue raised
in the present petition is in fact on interpretation of the Order No.1 of 2012 dated
27.01.2012; and hence the decision in this case would impact not only the petitioner,
but also other developers \Vho have either commissioned or are likely to commission
their projects within the control period of the said order. Some of such developers
might not avail the benefits of accelerated depreciation and it \vould be unfair if all of
them arc required to file separate petitions to seek justice, especially when we have
already decided that in the Order No. I of2012. the Commission has determined separate
tariff for such projects. We, therefore, in the interest of justice and fairness, decide that
the present order shall be applicable in all such cases. The onus of proofregarding nonavailing of accelerated depreciation shall. ho,vever. be on such developers.
GUJARAT URJA VIKAS NIGAM LIMITED v. EMCO LIMITED
& OTHERS [CHELAMESWAR, J.]
'31" December 2011. However, in case commissioning of the
project is delayed beyond 31" December, 2011, the Appellant has
to pay the tariff as determined by the State Commission effective
on the date of commissioning of Solar Power Project. The Solar
Project of the Respondent No. I was commissioned on 2.3.2012.
Therefore, the tariff as determined by the State Commission by
the Order dated 27.1.2012 for the next control period from 29.1.2012
to 31.3.2015 will be applicable to the Respondent No. I.
(b) In order dated 27.1.2012, the State Commission has determined
the tariff for Solar Project availing accelerated depreciation and
without availing the accelerated depreciation. As the Respondent
No. I has not availed the accelerated depreciation, the tariff
determined without accelerated depreciation in the order dated
27.1.2012 will be applicable in terms of the PPA and the tariff
order of the State Commission dated 27.1.2012.
(c) Complete reading of the Tariff Order dated 27.1.2012 clearly
indicates that the State Commission has determined tarifffor both,
the projects availing accelerated depreciation and those not availing
accelerated depreciation. The order gives a choice to the Solar
Developer to avail or not to avail the benefit of accelerated
· depreciation."
Hence, the instant appeal under Section 125 of the Act.
10. Both the 1" Tariff Order and the 2"' Tariff Order issued by
the 2"' respondent deal with the tariffpayable to the producers of power.
The distinction between both the tariff orders insofar as it is relevant for
the purpose of the present case is that:
(I) 1" Tariff Order fixed the tariff for the PROJECTS which get
the "benefit of accelerated depreciation" under Section 32 of the Income
Tax Act.
· "Based on the various parameters as discussed above, the levelised
tariff including RoE of Solar PV power generation, using a
discounting rate of I 0.19% works out to Rs. 12.54 per kWh and
levelised tariff using the same discounting factor for Solar Thermal
Power generation works out to Rs. 9.29 ·per kWh. However, the
Commission feels that it would be appropriate to determine tariff
for two sub-periods: 12 years· and l3 years instead of the same
tarifffor 25 years. Hence, the Commission determines the tariff
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for generation of electricity from Solar PY Power Project at Rs.
15 per kWh for the initial 12 (twelve) years starting from the date
of Commercial operation of the project and Rs. 5 per kWh from
the IJ'h (Thirteenth) year to 25'" (twenty fifth) year.
The
Commission also determines the tariff for generation of electricity
from Solar Thermal Power project at Rs. 11 per kWh for the
initial 12 (twelve) years starting from the date of Commercial
operation of the project and Rs. 4.00 per kWh from the l J'h
(Thirteenth) year to 25'" (twenty fifth) year.
The above tariffs take into account the benefit of accelerated
depreciation under the Income Tax Act and Rules. For a project
that does not get such benefit, the Commission would, on a petition
in that respect, determine a separate tarifftaking into account all
the relevant facts."
(II) 2"' Tariff Order, on the other hand, fixed the tariff for both
the classes of PROJECTS' i.e. those which "avail" the ·'benefit of
accelerated depreciation" (under Section 32 of the Income Tax Act)
and those which do not "avail" the "benefit of accelerated depreciation".
"Based on these technical and financial parameters, the levelized
tariff including return on equity for megawatt-scale solar
photovoltaic power projects availing accelerated depreciation
is calculated to be Rs. 9.28 per kWh, while the tariff for similar
projects not availing accelerated depreciation is calculated to be
Rs. 10.37 per kWh. The Commission also decides to determine
the tarifffor two sub-periods. For megawatt-scale photovoltaic
projects availing accelerated depreciation, the tariff for the first
12 years shall be Rs. 9.98 per kWh and for the subsequent 13
years shall be Rs. 7 per kWh.
Similarly, for megawatt-scale
photovoltaic projects not availing accelerated depreciation,
8 There is some dispute between the parties in this regard and the Appellate Tribunal
recorded:~
"36. . The Tariff Order 2012 determines both the tariffs i.e. with or without
accelerated depreciation."
In our opinion, the conclusion of the Tribunal in this regard is right. The Tenor of the
two tariff orders (relevant portions of,vhich are extracted above) is too obvious and
does not call for any further explanation to justify the abO\e conclusion of the Appellate
Tribunal.
GUJARAT URJA VIKAS NIGAM LIMITED v. EMCO LIMITED
& OTHERS [CHELAMESWAR, J.]
the tariff for the first 12 years shall be Rs. 11.25 per kWh and
for the subsequent 13 years shall be Rs. 7.50 per kWh."
11. The case of the I" respondent is that notwithstanding the fact
that it entered into a PPA during the "control period" specified in the I"
tariff order, it is not obliged to sell power to the appellant for the price
specified in Article 5.2 of the PPA and is legally entitled to seek (from
the 2"' respondent) fixation of a separate tariff. It is the further case of
the I" respondent that under the PPA, the appellant is under an obligation
to procure the power from the I" respondent for a period of 25 years if
the I" respondent commences the generation of power within the "control
period" and is also obliged to pay for the power procured by it at the
rates specified in Article 5.2 of the PPA. But the obligation of the I"
respondent to sell power generated by it to the appellant at the rates
specified in Article 5.2 of the PPA comes into existence only on the
happening of the two contingencies, i.e., the I" respondent (i)
commencing the generation of power within the "control period" stipulated
under the I" Tariff Order; and (ii) choosing to avail the "benefit of
accelerated depreciation" under the Income Tax Act. According to the
I" respondent, the stipulation under the I" Tariff Order that the tariff
fixed thereunder is not applicable to those PROJECTS which "does not
get such benefit, the Commission would on a petition in that respect
determine a separate tariff taking into account all the relevant facts
from not" would only imply that tariff fixed under the I" Tariff Order is
not applicable to those PROJECTS/power producers which do not avail
the "benefit of accelerated depreciation" under the Income Tax Act.
12. On the other hand, the case of the appellants throughout has
been that the I" respondent clearly knew when it entered into the PPA
that the tariff propounded under the 1" Tariff Order is applicable only
for those PROJECTS which avail the "benefit of accelerated
depreciation" under the Income Tax Act. If the first respondent did not
intend to avail the "benefit of the accelerated depreciation" under the
Income Tax Act, it ought not to have entered into the PPA without first
seeking the determination of the tariff by the 2"' respondent. Having
chosen to enter into a PPA, the I" respondent cannot decide not to avail
the "benefit of accelerated depredation" at a later point of time i.e.
beyond the control period prescribed under the I" Tariff Order and claim
the benefit ofa more advantageous tariff fixed in the 2"' Tariff Order in
favour of the PROJECTS which do not avail the "benefit of accelerated
depreciation".
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[20 l 6] l S.C.R.
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13. We have already noticed that the l" respondent did not
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commence generation of power within "control period" stipulated under
the l" Tariff Order and also did not avail the "benefit of the accelerated
depreciation" under the Income Tax Act.
14. It is admitted on all hands that the "benefit of accelerated
depreciation" mentioned in the l" Tariff Order and the PPA is the
stipulation contained in Section 32 ( 1 )(i) of the Income Tax Act read
with Rule 5(1A) of the Income Tax Rules. They provide for the method
and manner in which depreciation of the assets of an assessee is to be
calculated. Section 32 of the Income Tax Act (insofar as relevant)
stipulates as follows:-
"32( 1) in respect of depreciation of-
(i) buildings, machinery, plant or furniture, being tangible assets;
(ii) know-how, patents, copyrights, trade marks, licences,
franchises or any other business or commercial rights of similar
nature, being intangible assets acquired on or after the l" day
of April, l 998.
owned, wholly or partly, by the assessee and used
for the purposes of the business or profession, the following
deductions shall be allowed -
(i) in the case of assets of an undertaking engaged in
generation or generation and distribution of power, such
percentage on the actual cost thereof to the assessee as
may be prescribed."
The prescription contemplated is found in Rule 5(1 A) of the Income
Tax Rules, 1962 which reads as follows:-
"(! A) The allowance under clause (i) of sub-section (I) of section
32 of the Act in respect of depreciation of assets acquired on or
after l" day of April, 1997 shall be calculated at the percentage
specified in the second column of the Table in Appendix IA of
these rules on the actual cost thereof to the assessee as are used
for the purposes of the business of the assessee at any time during
the previous year:"
Under the second proviso to the said Rule, it is further provided;
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"Provided further thatthe undertaking specified in clause (i) of
GUJARAT URJA VIKAS NIGAM LIMITED v. EMCO LIMITED
869
& OTHERS [CHELAMESWAR, J.]
sub-section (I) of section 32 of the Act may, instead cifthe
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depreciation specified in Appendix IA, at its option, be allowed
depreciation under sub-rule (I) read with Appendix I, if such option
is exercised before the due date for furnishing the return ofincome
under sub-section (I) of section 139 of the Act,
(a) for the assessment year 1998-99, in the case of an
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undertaking which began to generate power prior to I• day of .
April, 1997;and
(b) for the assessment year relevant to the previous year in
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which it begins to generate power, in case of any other
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undertaking:"
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I 5. It can be seen from the above extracted proviso, an undertaking
engaged in generation of power has an option to claim depreciation on
·its assets in accordance with the scheme under Section 32(I)(i) of the
· Income Tax Act. Such an optiori could be exercised at the relevant
point of time as indicated in the said proviso.
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. 1.6. The argument of the first respondent throughout has been
that the stipulation fn the J• Tariff Order that "a project that does not
get such a benefit .... " only means that the tariff propounded under the
said order does not apply to PROJECTS w)lich do not choose to exercise
the option to be governed by the scheme under Section 32 of the Income
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Tax Act:~ On the other hand, the argument by the appellant throughout
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has been that such a clause only implies that the tariff under the I•
· ·Tariff Order is not applicable to those power generating PROJECTS
which by operation of law (but not because of the violation of the
assessees) are not entitled to claim the benefit of the scheme under
Sectio~ ~2(l)(i) of the Income Tax Act.
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I 7. We do not wish to examine the question whether there is a
possibility under the Income Tax Act for any PROJECT/ undertaking
engaged in the generation of power' not to fall within the operation of
Section 32( I Xi) apart from those css~ 'INl.otthe "undertaking" chooses
not to be governed by ~Vi rr.0i.,.e.. tleliher of the parties made the
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•·The relevant portion of Section 32 of the Income Tax Act reads as under:
• ..... undertaking engaged in generation .... of power ...•.... "
The said Section covers not only Solar Power Projects but also all kinds of Power
Projects.·.
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SUPREME COURT REPORTS
(20 l 6] l S.C.R.
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submission that in law there is a possibility of a power project not getting
the benefit o.fthe accelerated depreciation.
l 8. Assuming for the sake of argument that in law such a possibility
exists, the construction such as the one sought to be placed on the relevant
portion of para 5 of the l" Tariff Order by the appellant cannot be
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accepted because it would be inherently illogical. At the cost of repetition,
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we reproduce that portion of the para 5 of the I" Tariff Order:
The above tariffs take into account the benefit of accelerated
depreciation under the Income Tax Act and Rules. For a project
that does not get such benefit, the Commission would, on a
petition in that respect, determine a separate tariff taking into
account all the relevant facts."
It is not the case of either the appellant or the 2"' respondent that
Section 32(1 )(i) of the Income Tax Act does not apply to some
PROJECTS. The tenor of the statement is clear. The 2"' respondent
proposed the tariff for all classes of PROJECTS taking into account
that all of them would be entitled to claim the 'benefit of accelerated
depreciation' under Section 32 oflncome Tax Act. The 2"' respondent
must be presumed to have known at the time of propounding the l"
·tariff order that the lnconie Tax Act and the Rules thereunder provide
an option to the assessee (producer of power) either to claim or not the
'benefit .of accelerated depreciation'. Hence, the stipulation. The
submission 'of the appellant regarding the construction of the above
. extracted clause of the l" Tariff Order is rejected.
19. However, that does not solve the problem on hand.
Two
questions still remain to be examined, (i) Even ifthe interpretation placed
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by the 1" respondent ·on the above extracted portion of para 5 of the I"
Tariff Order is correct (in fact it would be the logical consequence of
the rejection of the submission of the appellant), would the I" respondent
. have a right to exercise the choice not to avail the 'benefit of accelerated
·depreciation' after signing the PPA? (ii) Whether the I" respondent's
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right under the Income Tax Act to make. such a choice could be so
exercised which would result in a situation whi:reby the appeilant would
be obliged under the PPA to purchase the power generated by the l"
respondent for a period of25 years without knowing the price at wliich
the I" respondent would be obliged to supply the power?
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20. These questions were raised and' argued before the 2"'
GUJARAT URJA VIK.AS NIGAM LIMITED v. EMCO LIMITED
& OTHERS [CHELAMESWAR, J.]
respondent but unfortunately the issue was unnecessarily complicated
by the arguments based on promissory estoppel'0• After noticing the
issue, the appellate tribunal elaborately extracted from the order of the
2•' respondent dated 8.8.2013. The relevant part of which reads as
under:
"6. I 6. However, it is also a fact that the parties to·the above PPA
agreed in the second para of the Article 5.2 of the PPA that ifthe
project of the Petitioner is not commissioned during the control
period of the Order No.2 of2010 dated 29.1.2010, either the
tariff that was agreed in Article 5.2 of the PPA or the tariff
determined by the Commission as on the date of
commissioning of the project, whichever is lower, will be
applicable. Thus, the aforesaid PPA recognizes the two
tariffs applicable to the Petitioner case. As the Petitioner's
project was commissioned on 2.3.2012, it falls under the control
period of Order No.I of2012 dated 27.01.2012, for tariff purposes,
relevant para of which is reproduced below:
xxx
xxx
xxx
xxx
The above table reveals that both the tariffs i.e. one for the project
availing the benefit of Accelerated Depreciation and another for
the project not availing the benefit of accelerated Depreciation_ is
allowed by the Commission for the projects commissioned during
the control period of 29.01.2012 to 31.03.2015. Such being the
case, on the cogent reading of the Article 5.2 of the PPA and the
tariff Order No. I of 2012 dated 27.01.2012, we are of the view
that the Principle of Promissory Estoppel is not applicable in the.
present case."
[Extracted portion of the order of the 2"'
respondent in the impugned order]
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It can be seen from the above that the 2"' respondent noticed the
stipulation in the PPA that if the I" respondent does not commission the
PROJECT doring the control period specified under the 1" Tariff Order
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"· 18, 0.ne .other.issue raised by the Appellant before the State Commission is that the
choice to sell electriciiy at the tariffwithur without accelerated depreciation was to be
exercised by the Developer only a\ the.relevant time and such a clajm made subsequently
is barred by the principies of estoppel,
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[2016] I S.C.R.
" .... either the tariffthat was agreed ... or the tariff determined by the
Commission ... whichever is lower will be applicable but reached a
conclusion that ....... on a cogent reading of the Article 5.2 ....... and
the tariff order No. I of2012 dated 27.01.2012, we are of the view that
the Principle of Promissory Estoppel is not applicable in the present
case." The 2"d respondent noticed the stipulation of the PPA regarding
the applicable tariff in the event of the I" respondent not commissioning
the PROJECT would be the lowerof the two tariffs. Without examining
the legal effect of such stipulation, the 2"d respondent went into the
analysis of the 2"d Tariff Order which is neither necessary (nor called
for) for determining the legal effect of the stipulation of the PPA.
21. The appellate Tribunal after noticing the issue and the elaborate .
consideration bestowed on it by the 2'' respondent did not record in the
impugned order its view regarding the correctness of the above extracted
conclusion of the 2"' respondent. We can only presume that the appellate
tribunal approved the reasoning and the conclusion of the 2"" respondent
since it did not reverse the 2"' respondent's order.
22. One of the submissions of the l" respondent which was
accepted by the Tribunal is thatthe issue is covered by an earlier judgment
of the Tribunal in Appeal No. I I I of 2012 dated 30" April, 2013 11
pertaining to Rasna Marketing Services LLP 1: Gujarat Urja Vikas
Nigam Limited & Another (hereinafter referred to as "RASNA case").
23. The facts of RASNA case are: that Rasna, a power producer,
entered into a power purchase agreement on 1!.12.2010 with the appellant
(GUVNL) herein. Under the said PPA, Rasna agreed to sell power at
the rate prescribed by the I" Tariff Order. Eventually, Rasna
11. 29. According to the Respondent, the issue has already been decided in favour of
the Developer in judgment dated 30.4.2013 in Appeal No.I I I of2012.
31. In the above judgment in Rasna case, the Tribunal decided that there is no infirmity
in the State Commission detennining the tariff for the Solar Po\'.rer Projects of Rasna
Marketing Services Ltd. without considering the benefit of accelerated depreciation in
terms of the Order No.2 of2010 dated 29.1.2010. In that case, Rasna Marketing
Services Ltd. had commissioned its project within the Control Period specified in the
State Commission's order dated 29.1.20 IO. The order dated 29.1.20 I 0 determined the
tariff for Solar Projects with accelerated depreciation but provided that for a P.roject
that does QOt get the accelerated depreciation benefit, the Commission on a Petition
fi~ed by the Developer \vould determine a separate tariff \Yithout accelerated
depreciation.
GUJARAT URJA VIKAS NIGAM LIMITED v. EMCO LIMITED
& OTHERS [CHELAMESWAR, J.)
commissioned its power plant on 3I.I2.2011 within the control period
stipulated in the I" Tariff Order. How.ever, Rasna filed a petition before
the 2"' respondent praying for determination of specific tariff for the
sale ofpoweron the ground that Rasna would not be availing accelerated
depreciation benefits. The said application ofRasna was resisted by the
GUVNL. A preliminary objection that such an application is not
maintainable was raised by GUVNL on the ground that Rasna having
received the benefit of the PPA and also the payment pursuant thereto
is debarred from seeking the relief such as the one sought by it. The 2"'
respondent overruled the preliminary objection. Therefore, GUVNL
went before the appellate tribunal. Dealing with the said appeal, the
Tribunal took note of the categoric objection raised by the GUVNL that
the application for determination of a separate tariff by Rasna could not
be entertained after Rasna had signed the PPA."
24. The Tribunal rejected the said obj'ection of GUVNL." In
substance, the conclusion of the Tribunal in RASNA case was that the
execution of the PPAdoes not put any embargo on the right ofRasna to
seek the determination of a specific tariff. The tribunal's reasons for
such a conclusion are that (i) the]" Tariff Order recognises the right of
"
2 I.