# M/S SESASTERLITE LTD v. ORI SSA ELECTRICITY REGULATORY COMM. & ORS

- **Citation:** [2014] 13 S.C.R. 426
- **Court:** Supreme Court of India
- **Decided:** 2014-04-25
- **Case number:** Civil Appeal No. 5479 of 2013
- **Bench:** Surinder Singh Nijjaranda. K. Sikri
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-sesasterlite-ltd-v-ori-ssa-electricity-regulatory-comm-ors-29596
- **Pages:** 34

## Headnote

c
Electricity Act, 2003 - Enactment of - Object- Payment •
of Cross Subsidy Surcharge (CSS) to Distribution company
- Rationale - Discussed- Held: CSS is the charge payable
by a consumer who opts to avail power supply through open
access from someone other than Distribution licensee in
D whose area it is situated - Such surcharge is meant to
compensate such Distribution licensee from the loss of cross
subsidy that such Distribution licensee would suffer by
reason of the consumer taking supply from someone other
than such Distribution licensee.
E
Eh~ctricity Act, 2003- s. 14 -Appellant, a Developer in
the SEZ area having its unit in the SEZ, not drawing or utilizing
any electricity from the Distribution Licensee viz. WESCO
for its unit- State Electricity Regulatory Commission rejected
F the Power Purchase Agreement (PPA) entered into by the
appellant with Mis. Sterlite Energy and directed the appellant
to pay Cross Subsidy Surcharge (CSS) to WESCO holding
the appellant to be a 'consumer' -
Validity -
Whether
developer of a notified SEZ, who has been deemed by law to
G be a licensee for distribution of electricity, is required to, once
again, apply to the Electricity Regulatory Commission for
grant of a licence or the deeming fiction carved out in s. 14 of
the Electricity Act automatically dispenses with this
requirement and ipso facto makes such SEZ developer a
H
426
M/S SESA STERLITE LTD. v. ORI SSA ELECTRICITY
427
REGULATORY COMM.
distribution licensee - Held: No doubt by virtue of the status A
of a developer in the SEZ area, the appellant was also treated
as deemed Distribution Licensee- However with this, it only
got exemption from specifically applying for licence uls.14
of the Electricity Act- In order to avail further benefits under
the Act, the appellant was also required to show that it was in
B
fact having distribution system and had number of consumers
to whom it was supplying the electricity - That was not the
case here- Notification dated 03.03.2010 issued u/s.49(1)
of the SEZ Act providing for the "Developer" of SEZ being
deemed as a "Distribution Licensee" was issued keeping in C
view the concept of Multi Unit SEZs and did not apply to a
Developer like appellant who had established the SEZ only
for itself-Appellant to make payment of CSS to WESCO -
Special Economic Zone Act, 2005- s. 2(g)lj)(za)(zr:), ss. 3, 4,
11; 12, 13, 15and49.
D
Dismissing the appeal, the Court
HELD:1. In the present case, no doubt by virtue of
the status of a developer in the SEZ area, the Appellant E
is also treated as deemed Distribution Licensee.
However with this, it only gets exemption from
specifically applying for licence under Section 14 of the·
Electricity Act, 2003. In order to avail further benefits
under the Act, the Appellant is also required to show that F
it is in fact having distribution system and has number
of consumers to whom it is supplying the electricity. That
is not the case here. For its own plant only, it is getting
the electricity from Sterlite Ltd. for which it has entered ·
into PPA. The object and scheme of SEZ Act envisages G
several units being set up in a SEZ area. This is evident
from a collective reading of the various provisions of the
Special Economic Zone Act, 2005 (SEZ Act) viz. Section
2(g)U)(za)(zc), Section 3, 4, 11, 12, 13 and 15. The
H
428
SUPREME COURT REPORTS
[2014] 13 S.C.R.
A Notification dated 03.03.2010 issued under Section 49(1)
of the SEZ Act providing for the "Developer" of SEZ
being deemed as a "Distribution Licensee" ~as issued
keeping in view the concept of Multi Unit SEZs and will
apply only to such cases in which the Developer is
B supplying the power to multiple Units in the SEZ. The
said Notification will not apply to a Developer like the
Appellant who has established the SEZ only for itself.
Having regard to the factual and legal aspects and
keeping in mind the purpose for which CSS is payable,
C on the facts of this case it is not possible for the Appellant
to avoid payment of C

## Text

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[2014] 13 S.C.R. 426
A
M/S SESASTERLITE LTD.
v.
ORI SSA ELECTRICITY REGULATORY COMM. & ORS.
B
(Civil Appeal No. 5479 of 2013)
APRIL 25, 2014
[SURINDER SINGH NIJJARANDA. K. SIKRI, JJ.]
c
Electricity Act, 2003 - Enactment of - Object- Payment •
of Cross Subsidy Surcharge (CSS) to Distribution company
- Rationale - Discussed- Held: CSS is the charge payable
by a consumer who opts to avail power supply through open
access from someone other than Distribution licensee in
D whose area it is situated - Such surcharge is meant to
compensate such Distribution licensee from the loss of cross
subsidy that such Distribution licensee would suffer by
reason of the consumer taking supply from someone other
than such Distribution licensee.
E
Eh~ctricity Act, 2003- s. 14 -Appellant, a Developer in
the SEZ area having its unit in the SEZ, not drawing or utilizing
any electricity from the Distribution Licensee viz. WESCO
for its unit- State Electricity Regulatory Commission rejected
F the Power Purchase Agreement (PPA) entered into by the
appellant with Mis. Sterlite Energy and directed the appellant
to pay Cross Subsidy Surcharge (CSS) to WESCO holding
the appellant to be a 'consumer' -
Validity -
Whether
developer of a notified SEZ, who has been deemed by law to
G be a licensee for distribution of electricity, is required to, once
again, apply to the Electricity Regulatory Commission for
grant of a licence or the deeming fiction carved out in s. 14 of
the Electricity Act automatically dispenses with this
requirement and ipso facto makes such SEZ developer a
H
426
M/S SESA STERLITE LTD. v. ORI SSA ELECTRICITY
427
REGULATORY COMM.
distribution licensee - Held: No doubt by virtue of the status A
of a developer in the SEZ area, the appellant was also treated
as deemed Distribution Licensee- However with this, it only
got exemption from specifically applying for licence uls.14
of the Electricity Act- In order to avail further benefits under
the Act, the appellant was also required to show that it was in
B
fact having distribution system and had number of consumers
to whom it was supplying the electricity - That was not the
case here- Notification dated 03.03.2010 issued u/s.49(1)
of the SEZ Act providing for the "Developer" of SEZ being
deemed as a "Distribution Licensee" was issued keeping in C
view the concept of Multi Unit SEZs and did not apply to a
Developer like appellant who had established the SEZ only
for itself-Appellant to make payment of CSS to WESCO -
Special Economic Zone Act, 2005- s. 2(g)lj)(za)(zr:), ss. 3, 4,
11; 12, 13, 15and49.
D
Dismissing the appeal, the Court
HELD:1. In the present case, no doubt by virtue of
the status of a developer in the SEZ area, the Appellant E
is also treated as deemed Distribution Licensee.
However with this, it only gets exemption from
specifically applying for licence under Section 14 of the·
Electricity Act, 2003. In order to avail further benefits
under the Act, the Appellant is also required to show that F
it is in fact having distribution system and has number
of consumers to whom it is supplying the electricity. That
is not the case here. For its own plant only, it is getting
the electricity from Sterlite Ltd. for which it has entered ·
into PPA. The object and scheme of SEZ Act envisages G
several units being set up in a SEZ area. This is evident
from a collective reading of the various provisions of the
Special Economic Zone Act, 2005 (SEZ Act) viz. Section
2(g)U)(za)(zc), Section 3, 4, 11, 12, 13 and 15. The
H
428
SUPREME COURT REPORTS
[2014] 13 S.C.R.
A Notification dated 03.03.2010 issued under Section 49(1)
of the SEZ Act providing for the "Developer" of SEZ
being deemed as a "Distribution Licensee" ~as issued
keeping in view the concept of Multi Unit SEZs and will
apply only to such cases in which the Developer is
B supplying the power to multiple Units in the SEZ. The
said Notification will not apply to a Developer like the
Appellant who has established the SEZ only for itself.
Having regard to the factual and legal aspects and
keeping in mind the purpose for which CSS is payable,
C on the facts of this case it is not possible for the Appellant
to avoid payment of CSS to WESCO. [Paras 43, 44]
[458-F-H; 459-A-E]
CIVIL APPELLATE JURISDICTION: Civil Appeal
D .No.5479of2013.
From the Judgment and Order dated 03.05.2013 of the
Appellate Tribunal for Electricity in Appeal No. 206 of 2012.
Shyam Diwan, Sr. Adv., Ms. Ranjana Roy Gawai,
E Abhishek K. Rao, Ms. Divya Roy, Ms. Vasudha Sen, Advs. for
the Appellant.
Parag P. Tripathi, Sr. Adv., Sibo Sankar Mishra, Adbhut
Pathak, Buddy A. Ranganadhan, Hasan Murtaza, Aditya
F
Panda, Shiv Kumar Suri, Raj Kumar Mehta, Ms. lshita C.
Dasgupta, Advs. for the Respondents.
The Judgment of the Court was delivered by
A. K. SIKRI, J. 1. Instant is a statutory Appeal which is
G filed by the Appellant under Section 125 of the Electricity Act,
2003 (hereinafter referred to as 'the Act'). This Appeal arises
out of the judgment and order dated 3'd May, 2013 passed by
Appellate Tribunal for Electricity.
H
M/S SESASTERLITE LTD. v. ORISSAELECTRICITY
429
REGULATORY COMM. [A. K. SIKRI, J.]
2. By the aforesaid judgment, the Appellate Triounal has A
affirmed the orders of the Odisha Electricity Regulatory
Commission (hereinafter referred to as the 'State
Commission'). The essence of these orders is that even when
the Appellant is a "Deemed Distribution Licensee~· for the
purpose of Electricity Act, it is still li~ble t<:> pay Cross Subsidy B
Surcharge (CSS) to the Respondent No.8 viz. WES.CO which
is a Distribution Licensee for the area in question ..
.
.
3. To put it in nutshell, the case of the Appellant is that it·
has its unit in Special Economic Zo'ne (SEZ) ·and ·it is a c
Developer in the said SEZ area. It is not drawing or utilizing
any electricity from the Distribution Licensee vll."WESCO for
its unit namelyVALE~SEZ. lnfac( the Appellant had entered
irifo a Power Purchase Agreement (PPA) dated 181h August,
2011 with M/s., Sterlite Energy L:td. The Appellan·( had filed D
application for getting approval of the said PPA. However the.
Odisha State Commission, instead of granting the approval,
rejected the said PPA and directed the Appellant to pay CSS
to WESCO holding the Appellant to be a 'Consumer'.
4. As per the Appellant, as it is a deemed distribution .
licensee for the purpose of Electricity Act by virtue of it being a
'Developer' because of the reason that its unit is in SEZ area
and such a recognition is given to the Appellant statutorily under
E
the provisions of Special EconomicZoneAct,2005 (hereinafter F
referred to as SEZAct). Therefore, the question of payment
of CSS to the Distribution Licensee does not arise. It is also
the case of the Appellant that, in any case, since no electricity
is being drawn from the open access network of WESCO,
there is no question of making payment of cross· subsidy G
surcharge. This is the brief description of the dispute raised
by the Appellant and· in orde·r to understand the gravamen of
this dispute, we take a tour of the.factual roadmap.
.
'-''
H
430
SUPREME COURT REPORTS
[2014] 13 S.C.R.
A
The Facts:
5. These facts are in narrow compass and have been
narrated succinctly by the Appellate Tribunal in its order. As
there is no dispute about the correctness of these facts, we
B intend to traverse the same therefrom. The Appellant is
engaged in the business of production and export of aluminium.
The Appellant has set up a 1.25 MTPA capacity aluminium
smelter project in a sector specific Special Economic Zone.
After getting all necessary approvals for the development of
c SEZ for manufacture of export of aluminium the appellant set
up the aforesaid plant. These approvals include the approval
with captive power plant as well. It is also a matter of record
that on 271h February, 2009 the Ministry of Commerce and
Industry, Government of India issued a notification declaring
D the unit of the Appellant to be SEZ. It was followed by
Notification dated 3ro March, 2010 under Section 49(1) of the
SEZAct. By the said notification, the Central Government of
promoting the objects of SpeCial Economic Zone and in terms
of powers delegated under the Special Economic Zone Act,
E introduced a proviso to the provisions of Section 14(b) of the
Electricity Act, 2003. By the said introduction, a developer of
a Special Economic Zone was declared as a deemed licensee
authorized to distribute electricity within the Special Economic
z.one area. The effect of the aforesaid Notification under
F section 14(b) of the Electricity Act is that the Appellant became
a deemed Distribution Licensee.
6. It would be pertinent to mention at this stage that the
units of the Appellant are divided into two broad areas. One is
G Domestic Tariff Area (DTA) where it has established one of its
unit. Other unit is VAL-SEZ which is in SEZ (hereinafter
referred to as VAL-SEZ Unit). In so far as its unit in DTA is
concerned, it draws power from open access and duly phased
pays cross subsidy surcharge for this area. There is no dispute
H
M/S SESASTERL:ITE LTD. v. ORISSAELECTRICITY
431
REGULATORY COMM. [A. K. SIKRI, J.]
to this extent. In the present Appeal, we are concerned with A
VAL-SEZ which is in SEZArea where the Appellant is stated
as deemed Distribution Licensee for the purpose of Electricity
Act by virtue of Notification under Section 14(b) of the Electricity
Act.
7. For supply of energy to this unit in SEZArea (VAL-2),
the Appellant entered into a PPA on 181h August, 2011 with
Sterlite Energy Ltd. which was arrayed as Respondent No.4
B
in the Appeal. However during the pendency of the Appeal
under the scheme of merger approved by the High Court, c
Sterlite stood merged with the Appellant itself and because of
this reason the Respondent No.4 (hereinafter referred to as
· 'Sterlite') has been deleted from the array of parties at the.
instance of the Appellant.
8. Since the supply of power by a Generating Company D
to Distribution Company is regulated under the provisions of
Electricity Act, 2003, the Appellant on 301h August, 2011 filed a
petition before the State Commission for approval of the said
PPA. Subsequently, the State Commission at the preliminary E
hearing sought some clarifications with regard to the factual
aspects. The Appellant, thereafter filed two amendment
petitions. One was on 81h November, 2011 and another was
on 271h March, 2012 seeking for the additional prayer
requesting the State Commission to grant deemed distribution F
licence in favour of the Appellant on the strength of the
Government of India notification issued dated 3rd March, 2010
with effect from the date of the said notification.
9.As already pointed out above, the State Commission G
rejected. this application for grant of deemed Distribution
Licensee and subsequently rejected the prayer of the Appellant
for approval of PPAalso. The State Commission, while doing
so held as under:
H
432
SUPREME COURT REPORTS
[2014] 13 S.C.R.
A
"a. Since the Application for grant of Distribution License
was rejected, State Commission did not consider it
necessary to go into the issues relating to the PPA.
b. Consequent upon the rejection of the Application for
B
grant of Distribution License, State Commission held that
VAL is to be treated as a consumer of WESCO.
· c. As a result, VAL has to pay cross subsidy surcharge
to WESCO for open access drawal of power from SEL."
C
10. This Order of the State Commission has been upheld
by the Appellate Tribunal in Appeal filed by the Appellant.
Question of Law:
11. In the present Appeal, the Appellant has raised
D following question of law which the Appellant recall this Court
to determine an answer:
"Whether a developer of a notified Special Economic
Zone, who has been deemed by law to be a licensee for
E
distribution of electricity, is required to, once again, apply
to Electricity Regulatory Commission under the Electricity
Act for grant of a licence or the deeming fiction carved
out in Section 14 of the Electricity Act automatically
dispenses with this requirement and ipso facto makes
F
such SEZ developer a distribution licensee."
The Arguments: Appellant
12. Mr. Shyam Diwan, Learned Senior Counsel
G appearing for the Appellant, with full of passion and vehemence
argued that all the three findings of the State Commissi9n,
which are upheld by the Appellate Tribunal, are ex facie
untenable in law. Questioning the first aspect of the order of
the authorities below refusing to register the said PPA, his
H plea was that since the PPA is a contract between the two
MIS SESASTERLITE LTD. v. ORISSAELECTRICITY
433
REGULATORY COMM. [A. K. SIKRI, J.] .
parties, the State Commission could not have refused to A
consider the same. Such outright refusal amounts to failure to
discharge the function enjoined by the Parliament on the State
Commission under Section 86(b) of the Act. Under this
provision, the State Commission has to .regulate electricity
purchase and procurement process of distribution licensee
B
including the price at which electricity shall be procured from
the generating company. Thus it was duty bound to approve a
PPA subject to the terms and conditions which it deems fit in·
law and only when the parties fail to comply with those terms
of the license that such license can be revoked. The failure to C
not look into a PPA altogether amounts to non exercise of
jurisdiction.
13. In so far as the opinion of the Appellate Authority that
the Appellant is to be treated as a consumer of WESCO is
D
concerned, Mr. Diwan placed heavy reliance on the proviso to
Section 14(b) of the Act as per which developer of the notified
SEZ itself becomes deemed Licensee from the date of such
notification. He thus argued that when there was a specific
notification under that proviso declaring the Appellant as a
E
developer, the Appellant was a deemed Licensee and
therefore there could not have any requirement for the Appellant
to obtain the license under the Electricit'! Act. As a fortiorari,
such ~ developer cannot be treated as a 'consumer'.·
Therefore, the authorities below could not, in law, hold the
F
Appellant to be a consumer of WESCO.
In the alternative, it was argued that in any case, the
Appellant was purchasing the electricity from Sterlite under the
PPA and, therefore, by no stretch of imagination, it could be G
treated as consumer of WESCO. To buttress this submission,
Mr. Diwan referred to the provisions of Section 2(15) of the
Electricity Act which defines the term "consumer" and submitted
that in order to treat the Appellant as a consumer, it was
H
/
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SUPREME COURT REPORTS
[2014] 13 S.C.R.
A necessary to establish that it is supplied with the electricity by
such "Licensee" or the "government" or "any other person
engaged in the business of supplying electricity to the public".
14. In so far as the third finding holding the Appellant liable
8 to pay CSS to WESCO for open access drawal of power from
SEZ is concerned, the submission of Mr. Diwan was that there
was no occasion for the State Commission (or for that matter
Appellate Tribunal) to go into the aspect of CSS in an
application filed by the Appellant initially for approval of PPA
c only which was later amended on the directions of the State
Commission to include a prayer to the extent that the Appellant
should be recognized as a Distribution Licensee under Section
14(b) of the Electricity Act. It was submitted that even in the
amended application there was no issue of CSS and the
D authorities below exceeded their jurisdiction in going into this
issue and giving such a direction.
Without prejudice to the aforesaid preliminary
submission, Mr. Diwan argued that even on merits that such a
E decision was palpably contrary to law. In this behalf his
submission was that since under Section 42 of the Electricity
Act, 2003, cross subsidy surcharge is payable to the
Distribution Licensee of the area of supply only when the
"distribution system" of such Distribution Licensee is "used"
F for supply of electricity. Therefore, without a clear finding of
fact on 3ppreciation of evidence, that the supply-line of SELVAL is connected to WESCO and that WESCO's "distribution
system" is "used" for supply of electricity, State Commission
could not have held that VAL has to pay cross subsidy
G surcharge to WESCO for open access drawal of power from
SEL.
In this context, the attention of the Court was drawn to the
National Tariff Policy dated 5th January, 2014, Clause 8.5,
H Orissa Electricity Regulatory Commission (Terms and
MIS SESASTERLITE LTD. v. ORISSAELECTRICITY
435
REGULATORY COMM. [A. K. SIKRI, J.]
Conditions for Open access Charges) Regulations, 2005 A
(Clause 13(1 )(ii)] and to Orissa Electricity Regulatory
Commission (Determination of Open access Charges)
Regulations, 2006 [Clause 2U). It was submitted that from a
bare perusal of the relevant Clauses of these Regulations, it is
clear that CSS can be levied on "open access customers" i.e.
B
"a consumer who has availed of or intends to avail of open
access".
In addition to the aforesaid submission, questioning the
correctness of the each of the findings of the State Commission c
and the Appellate Tribunal, Mr. Diwan emphasized that it is to
be kept in mind in deciding the issue that VAL SEZ is a
Deemed Distribution Licensee by operation of law and it need
not be a Distribution Licensee within the meaning of Section
2( 17) of the Electricity Act, 2003. He admitted that a contention D
of the Respondents that VAL SEZ does not qualify as a
Distribution Licensee within the meaning of Section 2(17) of
the Electricity Act, 2003 is misplaced since accepting such
contention would defeat the very purpose of the deeming fiction
created by the statute. The deeming fiction would have no E
relevance if the reality which the statute creates by way of fiction
already existed. He argued that none of the five provisos to
Section 14 of the Electricity Act, 2003 require the deemed
distribution licensees mentioned therein to obtain a license
under the Electricity Act. The Developer of a notified SEZ is a F
special entity under a special legislation and the definition of
"consumer" or "distribution licensee" etc. as defined under the
Electricity Act, 2003 cannot be made applicable.
It is crucial point that the SEZ Act conceptually envisages G
"Developer" of an SEZ distinct from the "Zone" itself as also
distinct from "Unit". Developer is defined under Section 2(g)
of the SEZ Act whereas Special Economic Zone is defined
under Section (za) of the SEZ Act and Unit is defined under
Section 2(zc) of the SEZAct. Thus the Appellant in its capacity H
436
SUPREME COURT REPORTS
[2014] 13 S.C.R.
A
as the Developer of the SEZ has the duty to develop, operate
and maintain the Zone. Failing the reconciliation between the
provisions of the Electricity Act, 2003 and the SEZ Act, the
provisions, objects and purpose of the SEZ Act will prevail
(Section 51 of the SEZ Act). The object and purpose of the
B SEZAct, inter alia, is to provide an internationally for export
production, expeditious and single window approval
mechanism and a package of incentives to attract foreign and
domestic investments for promoting export-led growth.
C
The Arguments: Respondents
15. Mr. R.K. Mehta, Learned Counsel appearing on
behalf of GRIDCO Ltd. refuted the aforesaid submissions of
Mr. Diwan. His main argument was that even though the
D Appellant was possessed of notification issued under Proviso
to Section 14(b) of the Electricity Act, which treats the Appellant
as of Deemed Distribution Licensee, the concept of
Distribution Licensee under the Electricity Act pre-supposes
supply/distribution of power. An entity which utilizes the entire
E quantum of electricity for its own consumption and does not
have any other consumers cannot be deemed to be a
Distribution Licensee, even by a legal fiction. In support of
this submission, the Learned Counsel referred to the definitions
of "consumer" in Section 2(15), "Distribution Licensee" as
F contained in Section 2(17) and "supply" in relation to electricity
to the consumers in Section 2(70). He also referred to Section
42 of the Act which spells out the duties of Distribution Licensee
and open access. His submission, thus, was that by virtue of
the legal fiction created by the Notification dated 3rd March,
G 2010, a person who distributes Electricity can be deemed to
be a distribution licensee even though he does not have a
distribution license- But the legal fiction cannot go further and
make a person who does not distribute electricity as a
distribution licensee.
H
M/S SESA STERLITE LTD. v. ORI SSA ELECTRICITY
437
REGULATORY COMM. [A. K. SIKRI, J.]
16. He also argued that if a 'Distribution Licensee' is A
equated with 'Consumer' the provisions of Section 2(15),
2( 17), 42 and 43 of the Electricity Act, 2003 would be rendered
otiose and nugatory; The mandate of Section 42 and 43 of
the Electricity Act, 2003 cannot be negated by exercise of
power under Section 49( 1 )(b) of the SEZ Act. It was further B
submitted that only a proviso has been added to Section 14(b)
by Notification dated 3rd March, 2010 qua the Appellant. There
is no stipulation in the Notification that other provisions of the
Electricity Act will not apply to the Developer of a SEZ.
c
17. Mr. Mehta called for harmonious construction of the ·
provisions of SEZ and the Electricity Act to support his
submission that the legal fiction of deemed Distribution
Licensee cannot be taken to the level of absurdity and made
applicable even when it does not involve distribution/supply of D
power at all. He further pointed out the object and scheme of
SEZAct envisages several units being set up in a SEZ. This
is evident from a collective reading of the various provisions
of the SEZAc;tviz. Section 2(g)Q)(za)(zc), Section 3, 4, 11, 12,
13 and 15: There can be a Sector Specific $EZ with Several E
Units i.e. for IT, Mineral Based Industries etc. but instances of
single unit SEZ like in the present case of the appellant may
be rare. The ~otification dated 3rd March, 2010 providing for·
the "Developer" of an SEZ being deemed as a "Distribution
Licensee" was issued keeping in view the concept of Multi F
Unit SEZs and will apply only to such cases in which the
Developer is supplying the power to multiple Units in the SEZ.
The said Notification will not apply to a Developer like the
Appellant who has established the SEZ only for itself.
18. Mr. Parag P. Tripathi, Learned Senior Counsel
appeared with Mr. Shiv Kumar Suri, Advocate on behalf of
WESCO. His submission was that in the facts of present case
WESCO was entitled to CSS on the electricity purchase by
G
H
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SUPREME COURT REPORTS
[2014] 13 S.C.R.
A the Appellant from Sterlite which was consumed wholly and
completely by the Appellant itself. It was pointed out that
surcharge was meant to compensate a Distribution Licensing
from the loss of cross subsidy surcharge that such distribution
licensee would suffer by reason of the consumer taking supply
B from someone other than such Distribution Licensee, the
moment it is found that the Appellant is covered by the Definition
of a consumer within the meaning of Section 2(15) of the Act.
He argued that in such a situation the mere fact that the
Appellants claims to be a deemed Distribution Licensee is of
C no consequence at all since the entire power purchase by the
Appellant is for its own use or consumer and not for the purpose
of Distribution. The Appellant, therefore, could be categorized
as a consumer as regards its own consumption even if it is a
deemed Licensee. On merits, it was submitted that
D Transmission line between the Generating Company (Sterlite)
and the Appellant is not a Dedicated Transmission Line, with
an attempt to justify it giving various reasons which we shall
advert to all a later stage.
E
19. It was also argued that as per Regulation 27 of the
OERC (Conditions of supply Code) Regulations 2004, the
"service line" shall be the property of the licensee unless
otherwise specified in writing. Hence the line between the
grid sub-station and the Appellant's SEZ qualify as the property
F of WESCO and therefore any use of such line could only be by
Open Access under the EA and in any event CSS would be
payable. Reference was also made to the Rule 4 of the
Electricity Rules, 2005, as per which aforesaid line would be
deemed as part of the Distribution System of WESCO. On
G that basis submission of Mr. Tripathi was that from any angle
the matter is to be looked into the orders of the Appellate
Tribunal was perfectly justified.
H
M/S SESASTERLITE LTD. v. ORISSAELECTRICITY
439
REGULATORY COMM. [A. K. SIKRI, J.]
Our Analysis:
A
20. From the aforesaid narration of events·as well as
arguments of the counsel for the parties, it has become
manifest the primary dispute relates to the CSS which the
Appellant is called upon to pay to WESCO. As per the B
Appellant no such CSS is payable and the PPA which was
submitted by the Appellant to the State Commission for
approval, should have been accorded due approval by the
State Commission.
(1) Special Feature of the 2003 Act ·
c
21. Before adverting to this central issue, it would be apt
to understand conceptually the rationale of payment of such
CSS to the Distribution Company, under tHe scheme of the
Electricity Act. The first enactment to govern electricity supply D
in India was passed in the year 1910 viz. the Electricity Act,
1910. This Act envisaged growth of electricity industry through
private licences. It created the legal framework for laying down
of wires and other works relating to the supply of electricity.
Thereafter, the Electricity (Supply) Act, 1948 mandated the E
creation of a State Electricity Board. The Board assigned the
responsibility of arranging the supply of electricity in the State.
It was experienced that over a period of time the performance
of State Electricity Boards had deteriorated on account of F
various factors. Main failure orr the part of these Electricity
Boards was to take decision on tariffs in independent manner
and cross subsidies had reached untenable levels. To address
this issue and also to distance governance from determination
of tariffs, the Electricity Regulation Commission Act was G
enacted in the year 1998. This Act created regulatory
mechanism. Within few years, it was felt that the three Acts of
1910, 1948 and 1998 which were operating in the field needed
to be brought in a new self contained comprehensive
H
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SUPREMECOURTREPORTS
[2014) 13 S.C.R.
A legislation with the policy of ensouraging private sector
participation in generation, transmission and distribution and
also the objectives of distancing the regulatory responsibilities
from the Government and giving it to the Regulatory
Commissions. With these objectfves in mind the Electricity
B Act, 2003 has been enacted. Significant addition is the
provisions for newer concepts like power trading and open
access. Various features of the 2003 Act which are outlined in
the statement of objects and reasons to this Act. Notably,
generation is being delicensed and captive generation is being
C freely permitted. The Act makes provision for private
transmission licensees. It now provides open access in
transmission from the outset.
D
(2) Open Access and CSS
22. Open access i~plies freedom to procure power from
any source. Open access in transmission means freedom to
the licensees to procure power from any source. The
expression "open access" has been defined in the Act to mean
E "the non-discriminatory provision for the use of transmission
lines or distribution system or associated facilities with such
lines or system by any licensee or consumer or a person
engaged in generation in accordance with the regulations
specified by the Appropriate Commission". The Act mandates
F that it shall be duty of the transmission utility/licensee to provide
non-discriminatory open access to its transmission system to
every licensee and generating company. Open access in
transmission thus enables the licensees (distribution licensees
and traders) and generating companies the right to use the
G transmission systems without any discrimination. This would
facilitate sale of electricity directly to the distribution companies.
This would generate competition amongst the sellers and help
reduce, gradually, the cost of generation/procurement.
H
M/S SESASTERLITE LTD. v. ORISSAELECTRICITY
441
REGULATORY COMM. [A. K. SIKRI, J.]
23. While open access in transmission implies freedom A
to the licensee to procure power from any source of his choice,
open access in distribution with which we are concerned here,
means freedom to the consumer to get supply from any source
of his choice. The provision of open access to consumers,
ensures right of the consumer to get supply from a person other B
than the distribution licensee of his area of supply by using the
distribution system of such distribution licensee. Unlike in
transmission, open access in distribution has not been allowed
from the outset primarily because of considerations of crosssubsidies. The law provides that open access in distribution C
would be allowed by the State Commissions in phases. For
this purpose, the State Commissions are required to specify
the phases and conditions of introduction of open access.
24. However open access can be allowed on payment D
of a surcharge, to be determined by the State Commission, to
take care of the requirements of current level of cross-subsidy
and the fixed cost arising out of the licensee's obligation to
supply. Consequent to the enactment of the Electricity
(Amendment) Act, 2003, it has been mandated that the State E
Commission shall within five years necessarily allow open
access to consumers having demand exceeding one
megawatt.
··
,
(3) CSS: Its Rationale
25. The issue of open access surcharge is very crucial
and implementation of the provision of open access depends
F
on judicious determination of surcharge by the State
Commissions. There are two aspects to the concept of G
surcharge-one, the cross-subsidy surcharge i.e. the surcharge
meant to take care of the requirements of current levels of crosssubsidy, and the other, the additional surcharge to meet the
fixed cost of the distribution licensee arising out of his obligation
H
442
SUPREME COURT REPORTS
[2014] 13 S.C.R.
A to supply. The presumption, normally is that generally the bulk
consumers would avail of open access, who also pay at
relatively higher rates. As such, their exit would necessarily
have .adverse effect on the finances of the existing licensee,
primarily on two counts - one, on its ability to cross-subsidise
B the vulnerable sections of society and the other, in terms of
recovery of the fixed cost such licensee might have incurred
as part of his obligation to supply electricity to that consumer
on demand (stranded costs). The mechanism of surcharge is
meant to compensate the licensee for both these aspects.
c
26. Through this provision of open access, the law thus
balances the right of the consumers to procure power from a
source of his choice and the legitimate claims/interests of the
existing licensees. Apart from ensuring freedom to the
D consumers, the provision of open access is expected to
encourage competition amongst the suppliers and also to put
pressure on the existing utilities to improve their performance
in terms of quality and price of supply so as to ensure that the
consumers do not go out of their fold to get supply from some
E other source.
27. With this open access policy, the consumer is given
a choice to take electricity from al'\Y Distribution Licensee.
However, at the same time the Act makes provision of
F surcharge for taking care of current level of cross subsidy. Thus,
the State Electricity Regulatory Commissions are authorized
to frame open access in distribution in phases with surcharge
for:
G
(a) Current level of cross subsidy to be gradually phased
out along with cross subsidies; and
(b) obligation to supply.
28. Therefore, in the aforesaid circumstances though
H CSS is payable by the Consumer to the Distribution Licensee
M/S SESASTERLITE LTD. v. ORISSAELECTRICITY
443
REGULATORY COMM. [A. K. SIKRI, J.]
of the area in question when it decides not to take supply from
A
that company but to avail it from another distribution licensee.
In nutshell, CSS is a compensation to the distribution licensee
irrespective of the fact whether its line is used or not, in view of
the fact that, but for the open access the consumer would pay
tariff applicable for supply which would include an element of B
cross subsidy surcharge on certain other categories of
consumers. What is important is that a consumer situated in
an area is bound to contribute to subsidizing a low and
consumer if he falls in the category of subsidizing consumer.
Once a cross subsidy surcharge is fixed for an area it is liable C
to be paid and such payment will be used for meeting the
current levels of cross subsidy within the area. A fortiorari,
even a licensee which purchases electricity for its own
consumption either through a "dedicated transmission line" or D
through "open access" would be liab!e to pay Cross Subsidy
Surcharge under the Act. Thus, Cross Subsidy Surcharge,
broadly speaking, is the charge payable by a consumer who
opt to avail power supply through open access from someone
other than such Distribution licensee in whose area it is
E
situated. Such surcharge is meant to compensate such
Distribution licensee from the loss of cross subsidy that such
Distribution licensee would suffer by reason of the consumer
taking supply from someone other than such Distribution
licensee.
F
(4) Application of the CSS Principle
29. In the present case, admittedly, the Appellant (which
happens to be the operator of an SEZ) is situate within the
area of supply of WESCO. It is seeking to procure its entire G
requirement of electricity from Sterlite (an Independent Power
Producer ("IPP") (which at the relevant time was a sister
concern under the same management) and thereby is seeking
to denude WESCO of the Cross Subsidy that WESCO would
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SUPREME COURT REPORTS
[2014] 13 S.C.R.
A othervvise have got from it if WESCO were to supply electricity
to the Appellant. In order to be liable to pay cross subsidy
surcharge to a distribution licensee, it is necessary that such
distribution licensee must be a distribution licensee in respect
of the area where the consumer is situated and it is not
B necessary that such consumer should be connected only to
such distribution licensee but it would suffice if it is a "consumer"
within the aforesaid definition.
30. Having regard to the aforesaid scheme, in normal
c course when the Appellant has entered to PPA with Sterlite,
another Electricity Generating Company and is purchasing
electricity from the said Company it is liable to pay CSS to the
WESCO. Admittedly under the PPA, the Appellant is
purchasing his electricity from the said generating station and
D it is consumed by the single integrated unit of the Appellant.
E
The Appellant therefore, qualifies to be a "consumer" under
Section 2(15) of the Electricity Act. I~ is also not in dispute that
the unit of the Appellant is in the area which is covered by the
licenses granted to WESCO as distribL.tion licenses.
31. Notwithstanding the above, because of the reason
that the area where the unit of Val-SEZ unit of the Appellant is
situate is a SEZ area and the Appellant is declared as
developer for that area under the SEZAct, it is the contention
F of the Appellant that i11 such a scenario it is not liable tc pay
any CSS to the WESCO. This submission flows from the fact
that there is a notification issued in this behalf under proviso
to Section 49 of the SEZ Act and the Appellant itself is treated
as a deemed Distribution Licensee as per the provisions or
G Section 14 of the Electricity Act. On that basis, detailed
submissions are made by the Appellant with an attempt to show
that it cannot be treated as a "consumer" under the Electricity
Act when the Appellant itself is deemed to be a licensee. It is
further argued that since the supply line of VAL-SEZ is not
H
M/S SESASTERLITE LTD. v. ORISSAELECTRICITY
445
REGULATORY COMM. [A. K. SIKRI, J.]
connected to WESCO and it is getting the electricity directly A
from Sterlite under the PPA, there is no question of payment
of CSS to WESCO at all. Argument of the WESCO that the
lines owned by the VAL-SEZ are·only ''Transmission Lines"
under Section 2 of. the Electricity Act and not "dedicated
Transmission Lines" because of the reason that the duty of the B
Generator to establish and maintain dedicated transmission
lines, is sought to be refuted by arguing that even as per Section .
2(72) of the Act Transmission Lines are part of the Distribution
System of Licensing". It is argued that it is not even the case
of WESCO that the supply line of SEL-VAL is a part of WESCO C
Distribution System.
(5) Factual Aspect of the Electricity Supply to the
Appellant:
32. In order to appreciate these arguments, it would
appropriate to first advert to the factual aspect of the supply of
electricity by Sterlite to the Appellant under the PPA. No doubt
D
the Appellant is getting direct supply of electricity from Sterlite.
However, question is as to whether, in the process, it is using
E
dedicated transmis~ion lines of WESCO. We may point out
at the outset that such an argument was not even raised before
the two authorities below. Primarily it was argued that having
acquired the status of deemed distribution licensee under the
Electricity Act, it cannot be treated as a "consumer" of other F
distribution licensee., viz. the WESCO. Even the question of
law which is proposed and framed iri the grounds of appeal
and is already reproduced, does not raise this issue, which is
even otherwise factual. Notwithstanding, the Learned Counsel
for the WESCO has argued that the transmission line between G
the Sterlite and the Appellant is not a dedicated transmission ·
line for the followin~ reasons:
(a) Under Section 2(16) of the Electricity Act, 2003, a
"Dedicated Transmission Line" is an electric supply line for H
446
SUPREME COURT REPORTS
(2014] 13 S.C.R.
A "point to point" transmission, which are required for the purpose
of connecting electric line or electric plan of a generating
station to "any transmission line", or "sub-station" or "generating
station" or the "load centre"; "as the case may be".
B
(b) The Transmission Line in question commences from
the Generator (Sterlite) and connects to the 400 KV Sub-Station
at Sterlite end at Jharsuguda. It does not connect directly to
the "Load Centre" which is the Appellant.
C
(c) The 400 KV Busbar at the Generator (Sterlite) end is
connected to a 200 KV Busbnar at VAL-CGP caters to the
VAL- Smelter 1 in the Domestic Tariff Area.
(d) The said 400/200 KV sub-station is also connected
to the OPTCL Grid (State Transmission Utility) at Budhipadar
D through 220 KV Bus at VAL - CGP end for the purpose of
evacuation of Sterlite power to GRIDCO as well as drawal of
power by VAL- Smelter- 1.
(e) The said 400/220 kv sub-station is also connected
E to Power Grid Corporation of India (PGCIL) line from which 2
nos of 400 KV Lines emanate for Interstate sale of its Sterlite
power through PGCIL Grid.
(f) The said 400/220 kv sub-station which is connected
F through 5 Km of 220 KV line to the 220 KV Bus of switching
station at VAL - CGP end. There are 4 no's of 200 KV
transmission lines branching out from the said 220 KV
switching station to carry power to VAL Smelter-1 Unit of the
Appellant which is within the area of the Distribution LicenSE:ti
G (WESCO).
H
(g) The said 400/220 kv sub-station also has 2 nos of
33 KV Tertiary transmission lines from 100/220/33 KV
Transformer supplying electricity to Vedanta Township.
MIS SESASTERLITE LTD. v. ORISSAELECTRICITY
447
REGULATORY COMM. [A. K.