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Wednesday, May 7, 2014

Electricity Act -payment of CSS to WESCO- SEZ - PPA - payment of CSS to WESCO -only for running it's unit but not for Muliti Unit SEZ - Benefits conferred under Notification whether applies - and whether CSS is to be payable to WESCO - The Notification dated 03.03.2010 providing for the “Developer” of SEZ being deemed as a “Distribution Licensee” was issued keeping in view the concept of Multi 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. Apex court held that it is not possible for the Appellant to avoid payment of CSS to WESCO. = M/s. Sesa Sterlite Ltd. ….Appellant(s) Vs. Orissa Electricity Regulatory Comm. & Ors. …Respondent(s) = 2014 (April. Part)http://judis.nic.in/supremecourt/filename=41475

Electricity Act -payment of CSS to WESCO-  SEZ - PPA - payment of CSS to WESCO -only for running it's unit but not for Muliti Unit SEZ - Benefits conferred under Notification whether applies - and whether CSS is to  be payable to WESCO - The Notification  dated  03.03.2010  providing  for  the “Developer” of SEZ being  deemed  as  a  “Distribution  Licensee”  was issued keeping in view the concept of Multi 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. Apex court held that it is not  possible  for  the  Appellant  to avoid payment of CSS to WESCO.  =

To recapitulate  briefly,
      in the present case no doubt by virtue of the status of a developer in
      the SEZ area, the Appellant is also  treated  as  deemed  Distribution
      Licensee.  
However with this, it only gets exemption from specifically
      applying for licence under Section 14 of the Act.  
In order  to  avail
      further benefits under the Act, the Appellant is also required to show
      that 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.  
We have to  keep  in
      mind the object and scheme of SEZ Act which  envisages  several  units
      being set up in a SEZ area.  This is evident from a collective reading
      of the various provisions of the SEZ Act viz. Section 2(g)(j)(za)(zc),
      Section 3, 4, 11, 12, 13 and 15.  
There can be a Sector  Specific  SEZ
      with Several 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 Notification  dated  03.03.2010  providing  for  the
      “Developer” of SEZ being  deemed  as  a  “Distribution  Licensee”  was
      issued keeping in view the concept of Multi 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.

      44.  Having regard to the aforesaid  factual  and  legal  aspects  and
      keeping in mind the purpose for which CSS is payable, as explained  in
      detail in the earlier part of this judgment, we are of the  view  that
      on the facts of this case it is not  possible  for  the  Appellant  to
      avoid payment of CSS to WESCO.  
We, therefore, do not find  any  merit
      in this Appeal which is accordingly dismissed.
2014 (April. Part)http://judis.nic.in/supremecourt/filename=41475   
SURINDER SINGH NIJJAR, A.K. SIKRI

                                                                  REPORTABLE

                       IN THE SUPREME COURT OF INDIA

                       CIVIL APPELLATE JURISDICTION

                       CIVIL APPEAL NO. 5479 of 2013




      M/s. Sesa Sterlite Ltd.                              ….Appellant(s)

                             Vs.

      Orissa Electricity Regulatory
      Comm. & Ors.                                            …Respondent(s)



                                   J U D G M E N T

      A.K. SIKRI, J.




   1. Instant is a statutory Appeal which is 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
      3rd May, 2013 passed by Appellate Tribunal for Electricity.

   2. By the aforesaid judgment, the Appellate Tribunal  has  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 liable to  pay  Cross
      Subsidy Surcharge (CSS) to the Respondent No.8 viz. WESCO 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 Zone (SEZ) and it is a Developer in the said
      SEZ area.  It is not drawing or utilizing any  electricity  from  the
      Distribution Licensee viz. WESCO for its unit  namely  VALE-SEZ.   In
      fact, the Appellant had entered into a Power Purchase Agreement (PPA)
      dated 18th August, 2011 with M/s. Sterlite Energy Ltd.  The Appellant
      had filed 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   the
      provisions of Special Economic Zone Act, 2005  (hereinafter  referred
      to as SEZ Act).  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 surcharge.  This is the brief description of
      the dispute raised by the Appellant and in order  to  understand  the
      gravamen of this dispute, we take a tour of the factual roadmap.

      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  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 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 27th  February,  2009
      the Ministry of Commerce and Industry, Government of India  issued  a
      notification declaring the unit of the Appellant to be SEZ.   It  was
      followed by Notification dated 3rd March, 2010 under Section 49(1) of
      the SEZ Act.  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, 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 zone area.  The effect of  the  aforesaid
      Notification under 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  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 to this extent.  In the present  Appeal,  we  are
      concerned with VAL-SEZ which is in SEZ Area 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 SEZ Area (VAL-2), the  Appellant
      entered into a PPA on 18th August, 2011  with  Sterlite  Energy  Ltd.
      which was arrayed as Respondent No.4 in the Appeal.   However  during
      the pendency of the Appeal under the scheme of merger approved by the
      High Court, 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  to  Distribution
      Company is regulated under the provisions of Electricity  Act,  2003,
      the Appellant on 30th August, 2011 filed a petition before the  State
      Commission for approval of the said  PPA.   Subsequently,  the  State
      Commission at the preliminary hearing sought some clarifications with
      regard to the factual aspects.  The Appellant, thereafter  filed  two
      amendment petitions.  One was on 8th November, 2011 and  another  was
      on 27th March, 2012 seeking for the additional prayer requesting  the
      State Commission to grant deemed distribution 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  rejected  this
      application  for  grant   of   deemed   Distribution   Licensee   and
      subsequently rejected the prayer of the Appellant for approval of PPA
      also.  The State Commission, while doing so held as under:

           “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  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.”




  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 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 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  such  SEZ  developer   a   distribution
           licensee.”




      The Arguments: Appellant



  12. Mr. Shyam Diwan, Learned Senior Counsel appearing for the  Appellant,
      with full of passion and vehemence argued that all the three findings
      of the State Commission, 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
      plea was that since the PPA is a contract between  the  two  parties,
      the State Commission could not have refused  to  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 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 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  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 developer, the Appellant was a deemed Licensee and
      therefore there could not have any requirement for the  Appellant  to
      obtain the license under the Electricity Act.  As a fortiorari,  such
      a developer cannot  be  treated  as  a  ‘consumer’.   Therefore,  the
      authorities below could not, in law,  hold  the  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 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 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  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 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 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  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” for
      supply of electricity.  Therefore, without a clear finding of fact on
      appreciation  of  evidence,  that  the  supply-line  of  SEL-VAL   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  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 6th January,  2014,  Clause  8.5,  Orissa
      Electricity Regulatory  Commission  (Terms  and  Conditions  for  Open
      access Charges) Regulations, 2005 (Clause  13(1)(ii)]  and  to  Orissa
      Electricity  Regulatory  Commission  (Determination  of  Open   access
      Charges) Regulations, 2006 [Clause 2(j).  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. “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  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 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
      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  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
      “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 SEZ Act.  Thus  the
      Appellant in its capacity 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  SEZ  Act,
      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.

      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  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
      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 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, 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.

  16. He also argued that if a  ‘Distribution  Licensee’  is  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 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.

  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 power at all.   He  further  pointed  out  the
      object and scheme of SEZ Act envisages several units being set up  in
      a SEZ.  This is evident from a  collective  reading  of  the  various
      provisions of the SEZ Act viz. Section 2(g)(j)(za)(zc), Section 3, 4,
      11, 12, 13 and 15.  There can be a Sector Specific SEZ  with  Several
      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 Notification 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 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  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 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 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  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.

  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 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 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.

      Our Analysis:

  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 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

  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 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 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 various factors.  Main failure on 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 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
      legislation  with  the   policy   of   encouraging   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
      objectives in mind  the  Electricity  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  freely  permitted.   The  Act  makes  provision  for   private
      transmission licensees.  It now provides open access in  transmission
      from the outset.

      (2)  Open Access and CSS

  22. Open access implies 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 “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 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  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.

  23. While open access in transmission implies freedom 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 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
      cross-subsidies.  The law provides that open  access  in  distribution
      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 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 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 on judicious determination  of
      surcharge by the State Commissions.  There  are  two  aspects  to  the
      concept of surcharge –  one,  the  cross-subsidy  surcharge  i.e.  the
      surcharge meant to take care of the requirements of current levels  of
      cross-subsidy, and the other, the additional  surcharge  to  meet  the
      fixed cost of the distribution licensee arising out of his  obligation
      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  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.

  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 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  other
      source.

  27. With this open access policy, the consumer is given a choice to  take
      electricity from any Distribution Licensee.   However,  at  the  same
      time the Act makes provision of 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:

           (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 CSS  is  payable  by
      the Consumer to the Distribution Licensee of  the  area  in  question
      when it decides not to take supply from 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 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 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  through  “open  access”  would  be
      liable 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
      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.

      (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   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 otherwise 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
      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  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 it is consumed by the single  integrated  unit
      of the  Appellant.   The  Appellant  therefore,  qualifies  to  be  a
      “consumer” under Section 2(15) of the Electricity Act.   It  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 distribution 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
      SEZ Act, it is the  contention  of  the  Appellant  that  in  such  a
      scenario it is not  liable  to  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 of 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 connected
      to WESCO and it is getting the  electricity  directly  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  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
      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 the  Appellant  is  getting
      direct supply of electricity from Sterlite.  However, question is  as
      to whether, in the process, it is using dedicated transmission  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 distribution licensee, viz. the WESCO.  Even  the
      question of law which is proposed and framed in 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 the Sterlite  and
      the Appellant is not a dedicated transmission line for the  following
      reasons:

      (a)  Under Section 2(16) of the Electricity Act, 2003,  a  “Dedicated
      Transmission Line” is an electric supply line for  “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)  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)  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 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 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 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
      Licensee (WESCO).

      (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.

      (h)  Three such 400 KV Transmission lines emanating from the  400  KV
      Busbar at the Sterlite-IPP (Generator end)  also  happens  to  Supply
      power from the sub-station  to  the  Appellant’s  load  centre  (VAL-
      Smelter-2) in the SEZ area.

      (i)  Hence, the only part of the “dedicated” transmission line, if at
      all, is from the Generating Station 9Sterlite – IPP) to such  400  KV
      Busbar of the 400/220 KV Grid Sub-station.

      (j)  The transmission line that connects the sub-station to the  load
      centre of the Appellant is only a “transmission line”  under  Section
      2(72) of the EP 2003.



















  33. Following diagram is placed by WESCO to demonstrate this:

      [pic]

      34. Though the Appellant endeavoured to counter this position and has
      given its own diagram that  does  not  lodge  the  aforesaid  factual
      aspect.  Therefore, prima facie we accept the position  as  explained
      by the WESCO. Thus we feel that notwithstanding that supply  line  of
      SEL-VAL is transmission line, but not “dedicated transmission  line”.
      The Appellant cannot run away from the fact that under Section  2(10)
      of the Electricity Act, it is the  duty  of  the  Generating  Company
      (i.e.  WESCO)  in  this  case  to  establish,  operate  and  maintain
      dedicated transmission lines.  Since it is duty bound  to  establish,
      operate and maintain these dedicated lines by making huge investment,
      in order to get into the consumption in the area in question the very
      necessity of payment of CSS arises by  the  consumer  of  Electricity
      covered by the definition of “consumer” under Section  2(15)  of  the
      Act but is not getting supply of that Generator and someone else.  We
      have also to keep in mind the provision  of  Regulation  27  of  OERC
      (Conditions of Supply Code) Regulation 2004.  As per this  Regulation
      the “service line” shall be  the  property  of  the  licensee  unless
      otherwise specified in writing.  This clause reads as under:

           “27.  The entire service line,  notwithstanding  that  whole  or
           portion thereof has been paid for by the consumer, shall be  the
           property of the licensee and shall be maintained by the licensee
           who shall always have the right to use  it  for  the  supply  of
           energy to any other person unless the line has been provided for
           the exclusive use of the consumer through any arrangement agreed
           to in writing.”




      35.  Further as per Rule 4 of the Electricity Rule, 2005 the aforesaid
      line would be deemed to be part of Distribution System of WESCO:

           “4.   Distribution  System  –  The  distribution  system  of   a
           distribution licensee in terms of sub-section (19) of section  2
           of the Act shall also include  electric  line,  sub-station  and
           electrical plant that are primarily maintained for  the  purpose
           of distributing electricity  in  the  area  of  supply  of  such
           distribution  licensee  notwithstanding  that  such  line,  sub-
           station or electrical plant are high pressure cables or overhead
           lines or associated with such high pressure cables  or  overhead
           lines; or used incidentally for  the  purposes  of  transmitting
           electricity for others.”

           “Distribution system” is defined in Section 2(19) of the Act  to
           mean:-

           “(19) “distribution  system”  means  the  system  of  wires  and
           associated  facilities  between  the  delivery  points  on   the
           transmission lines or the generating station connection and  the
           point of connection to the installation of the consumers:”

           “Transmission Line” is defined in Section 2(72) to mean:-

           (72) “transmission lines” means all  high  pressure  cables  and
           overhead lines (not being an essential part of the  distribution
           system of a licensee) transmitting electricity from a generating
           station to another generating station or a sub-station, together
           with any step-up and  step-down  transformers,  switch-gear  and
           other works….”



      (6)  Appellant deemed distribution Licensee: Its effect



      36.   It is now to be seen as to whether the fact that  the  Appellant
      is a Developer in SEZ, armed with Notification dated 3rd  March,  2010
      issued under Proviso to Section 49  of  the  SEZ  Act  and  it  deemed
      distribution licensee as per Section 14 of the Electricity  Act,  this
      would take away the Appellant from the clutches of CSS liability?

      37.   In order to appreciate this argument let us first refer  to  the
      certain statutory provisions:

                Section 49 of the Special Economic  Zone  Act  provides  as
           under:

                “Power to modify provisions of this Act or other enactments
           in relation to Special Economic Zones.

                (1)  the Central Government may,  by  notification,  direct
           that any of the provision of this Act (other than Section 54 and
           56) or any other Central Act or any rules  or  regulations  made
           thereunder or any notification  or  Order  issued  or  direction
           given thereunder (other than the provisions relating  to  making
           of the rules or regulations) specified in the notification-

                (a) shall not apply to a Special Economic Zone or  a  class
           of Special Economic Zones or all Special Economic Zones: or

                (b) shall apply to a Special Economic Zone or  a  class  of
           Special Economic Zones or all Specials Economic Zones only  with
           such  exceptions,  modifications  and  adaptation,  as  may   be
           specified in the notifications.”




      38. Likewise Section 14 of the Electricity Act reads as under:

           “14.  Grant of License

           The Appropriate Commission may, on application made to it  under
           section 15, grant any person licence to any person –

           (a)  To transmit electricity as a transmission licensee: or

           (b)  To distribute electricity as a distribution licensee: or

           (c)  To undertake  trading  in  electricity  as  an  electricity
           trader, in any area which may be specified in the licence:

           Provided that any person engaged in the business of transmission
           or supply or electricity under the provisions  of  the  repealed
           laws or any Act specified in  the  Schedule  on  or  before  the
           appointed date shall be deemed to be a licensee under  this  Act
           for such period as may be stipulated in the  licence,  clearance
           or approval granted to him under the repealed laws or  such  Act
           specified in the Schedule, and the provisions  of  the  repealed
           laws or such Act specified in the Schedule in  respect  of  such
           licence shall apply for a period of one year from  the  date  of
           commencement of this Act  or  such  earlier  period  as  may  be
           specified, at the request of the licensee,  by  the  Appropriate
           Commission and thereafter the provisions of this Act shall apply
           to such business:

           Provided further that the Central transmission  Utility  or  the
           State Transmission Utility shall be deemed to be a  transmission
           licensee under this Act:

           Provided also that in case an Appropriate  Government  transmits
           electricity or distributes electricity or undertakes trading  in
           electricity, whether before or after the  commencement  of  this
           Act, such Government shall be deemed to be a licensee under this
           Act, but shall not be required to obtain a  licence  under  this
           Act:

           Provided also that the Damodar Valley  Corporation,  established
           under  sub-section(1)  of  section  3  of  the  Damodar   Valley
           Corporation Act, 1948, shall be deemed to be  a  licensee  under
           this Act but shall not be required to  obtain  a  licence  under
           this Act and the provisions of the  Damodar  Valley  Corporation
           Act, 1948, in so far as  they  are  not  inconsistent  with  the
           provisions  of  this  Act,  shall  continue  to  apply  to  that
           Corporation:

           Provided  also  that  the  Government  Company  or  the  Company
           referred to in sub-section (2) of section 131 of  this  Act  and
           the company or  companies  created  in  pursuance  of  the  Acts
           specified in the Schedule, shall be  deemed  to  be  a  licensee
           under this Act.

           Provided also  that  the  Appropriate  Commission  may  grant  a
           licence to two or more persons for distribution  of  electricity
           through their own distribution  system  within  the  same  area,
           subject to the  conditions  that  the  applicant  for  grant  of
           licence within the same area, subject to the conditions that the
           applicant for grant of  licence  within  the  same  area  shall,
           without prejudice to the other conditions or requirements  under
           this Act, comply with the additional requirements (including the
           capital adequacy, credit worthiness, or code of conduct) as  may
           be prescribed by the Central Government, and no  such  applicant
           who complies with all the requirements  for  grant  of  licence,
           shall be refused grant of  licence  on  the  ground  that  there
           already exists a licensee in the same are for the same purpose:

           Provided also that in  a  case  where  a  distribution  licensee
           proposes  to  undertake  distribution  of  electricity   for   a
           specified area within his area of supply through another person,
           that person shall not be required to obtain any separate licence
           from  the  concerned  State  Commission  and  such  distribution
           licensee shall be responsible for distribution of electricity in
           his area of supply:

           Provided also that  where  a  person  intends  to  generate  and
           distribute electricity in a rural area to  be  notified  by  the
           State Government, such person shall not require any licence  for
           such generation and distribution of electricity,  but  he  shall
           comply with the measures which may be specified by the Authority
           under section 53:

           Provided also that a distribution licensee shall not  require  a
           licence to undertake trading in electricity.”

      39.  We would also like to take note of Notification dated 3rd March,
      2010 issued in  the  case  of  Appellant.   It  makes  the  following
      reading:

      “NOTIFICATION

      S.O. No.528(E). In exercise of the powers conferred by  clause(b)  of
      sub-section (1) of section 49 of the Special Economic zones Act, 2005
      (28 of  2005),  the  Central  Government  hereby  notifies  that  the
      provisions of clause (b) of section 14 of the Electricity  Act,  2003
      (36 of 2003), shall apply to  all  Special  Economic  Zones  notified
      under sub-section (1) of section 4 of the Special Economic Zones Act,
      2005, subject to the following modification, namely:-

           In clause (b) of section 14 of the Electricity Act, 2003 (36  of
      2003), the following proviso shall be inserted, namely:-

                “Provided that the Developer of  a  Special  Economic  Zone
           notified under sub section (1)  of  section  4  of  the  Special
           Economic Zones Act, 2005 shall be deemed to be  a  licensee  for
           the purpose of  this  clause,  with  effect  from  the  date  of
           notification of such Special Economic Zone.”




      40.   The reading of Section 49 of  SEZ  Act  would  reveal  that  the
      Central Government has got the authority to direct  that  any  of  the
      provisions of a Central Act and rules and regulations made  thereunder
      would not apply or to declare that  some  of  the  provisions  of  the
      Central Acts shall apply with exceptions, modifications and adaptation
      to the Special  Economic  Zone.   So,  under  the  scheme  of  Special
      Economic Zone Act, Central Government has to first notify as  to  what
      extent the provision of the other Acts are to be  made  applicable  or
      applicable  with  modification  or  not  applicable  for  the  Special
      Economic Zone area.  It is in furtherance thereto, the  Government  of
      India, Ministry of Commerce  and  Industry  through  its  notification
      dated 21st March, 2012, with regard to  power  generation  in  Special
      Economic Zone, has declared that all the provisions of the Electricity
      Act, 2003 and Electricity  Rule,  2005  shall  be  applicable  to  the
      generation, transmission and  distribution  of  power,  whether  stand
      alone or captive power.  This notification would clarify that there is
      no  inconsistency  between  Special  Economic  Zone  Act,   2005   and
      Electricity Act, 2003.

      41.   No  doubt  vide  Notification  dated  3rd  March,  2010  Central
      Government has added an additional proviso to Clause (b) of Section 14
      of the Electricity Act viz.  the  Appellant  shall  be  deemed  to  be
      licensee for the purpose  of  the  said  clause  w.e.f.  the  date  of
      notification of such SEZ.  It is on this basis, the  argument  of  the
      Appellant is that as it is already a deemed Distribution  Licensee  it
      need not apply for this license to the said Commission before entering
      into the PPA and the State Government is bound to grant  the  License.
      This contention is negated by the Appellate Tribunal  on  two  grounds
      which are as follows:

      (i)  There has to  be  a  harmonious  construction  of  SEZ  Act  and
      Electricity Act to give effect to the provisions of both the acts  so
      long as they are not consistent with each other in the opinion of the
      Tribunal.  The provisions of Section 51 of SEZ Act, 2005  are  to  be
      considered along with the provisions of Section 49 of the  said  Act.
      Accordingly, in view of the  provision  of  the  SEZ  Act,  2005  and
      consequent notification by the Ministry of Commerce and Industry, the
      deemed distribution licensee  status  as  claimed  by  the  Appellant
      should also be tested through other  provisions  of  the  Electricity
      Act, 2003 and Electricity Rules, 2005, for  certifying  its  validity
      and converting it into a formal distribution licensee.  In fact,  the
      Appellant has submitted to the jurisdiction of the State  Commission,
      by filing a petition before the State Commission seeking for approval
      of the PPA and also for grant of distribution licence. The  Appellate
      Tribunal, thus queried as to how could the Appellant now question the
      jurisdiction?

      (ii)  The Appellate Tribunal pointed out that there are none provisos
      to Section 14(b) of the Electricity  Act  and  another  is  added  in
      respect of the Appellant vide Notification dated 3rd March, 2010.   A
      reading of these provisos would indicate that  some  of  them  confer
      status of deemed distribution licensee on certain specified  entities
      who are  not  required  to  take  separate  licence  from  the  State
      Commission under this Act whereas some other provisos merely  declare
      the party as deemed licensee and nothing specified as to whether they
      are required to obtain the  licence  or  not.   However  when  it  is
      specially provided in proviso 4 and proviso 8 and 2 that the  Damodar
      Valley Corporation and State Government are not  required  to  obtain
      licence, and other provisos do not confer such privilege, they  would
      be required to obtain licence.

      42.   Further discussion on this aspect by the Appellate  Tribunal  is
      as under:

           “42.   Keeping  this  in  mind,  the  statute  makers   by   the
           notification  dated  3.03.2010  have  inserted  the   additional
           proviso to Section 14(b) of the  Electricity  Act.   Admittedly,
           the development and  operation  of  the  SEZ  are  two  distinct
           activities.  Thus, the jurisdiction of the State  Commission  to
           scruitinise the deemed distribution status of the  Appellant  is
           well established in view of the Section 49(1) of SEZ, Act,  2005
           and the notification of the Central Government dated 21.03.2012.
            Therefore, the contention  of  the  Appellant  that  the  State
           Commission dealt with  the  matter  relating  to  the  grant  of
           distribution  licence  by  going  beyond  its  jurisdiction   is
           misplaced.

           43.  It is noticed that the Ministry of  Commerce  and  Industry
           (Department of SEZ Section)  has  accorded  SEZ  status  to  the
           Appellant for  development  and  operation  and  maintenance  of
           sector specific Special Economic Zone for manufacture and export
           of  aluminium  on  the  condition  that  the  Appellant   should
           establish captive generating plant as stipulated in the approval
           letter of Ministry of Commerce and Industry but  it  is  pointed
           out the still the plant has not  been  established  for  various
           reasons.  If Captive  generating  plant  of  1215  MW  had  been
           established as per  the  condition  inside  the  SEZ  area,  the
           question of power purchase from Sterlite  Energy  Limited  under
           the pretext of  distribution  licensee  status  would  not  have
           arisen.  That apart, the  State  Commission  has  framed  Orissa
           Electricity  Regulatory   Commission   (conduct   of   business)
           Regulation, 2004 under the powers conferred under Section 181 of
           the Electricity Act,  2003.   The  distribution  of  electricity
           Licence (Additional  requirement  of  Capital  Adequacy,  Credit
           Worthiness and Code  of  Conduct)  Rules,  2005  framed  by  the
           Central  Government  also  would  apply  to  the  Appellant  for
           distribution licence in addition to the  requirements  of  State
           Commission’s Regulations.

           45.  Section 174  of  the  Electricity  Act  provides  that  the
           provisions of the  Electricity  Act  shall  have  to  overriding
           effect notwithstanding anything inconsistent with any other  law
           for the time being in force or in any instrument  having  effect
           by virtue of any law other than Electricity  Act.   That  apart,
           Section 175 also provides that the provisions of the Electricity
           Act are in addition to and not in derogation of  any  other  law
           for the time being in force.

           47.  The perusal of the notification dated 03.03.2010 would make
           it evident that the legislation’s intention  for  declaring  the
           developer  in  SEZ  area  as  deemed  distribution  licence,  is
           confined only to clause-b of  Section  14  of  Electricity  Act,
           which deals with the grant of license by the  appropriate  State
           Commission to any person for distribution of  electricity.   The
           said  notification  has  not  curtailed  the  power   of   State
           Commission so far as the applicability of  other  provisions  is
           concerned.  The interpretation of  various  relevant  terms  was
           necessary prior to grant of deemed distribution licence  by  the
           State Commission.  Therefore, the State Commission rightly acted
           upon those provisions.   As  a  matter  of  fact,  by  the  said
           amendment by inserting another proviso  to  Section  14(b),  the
           context has not been changed as claimed by the Appellant.

           49.   As  correctly  indicated  by  the  State  Commission,  the
           definition of term “distribution licensee” as  enumerated  under
           Section 2(17) of Electricity  Act,  2003,  emphasizes  upon  the
           distribution licensee to operate  and  maintain  a  distribution
           system and supply of power to the  consumers.   Considering  the
           definition of ‘supply’ in Section 2(70), the supply  here  means
           sale of electricity to consumers.  By merely being authorized to
           operate and maintain a distribution system as a deemed licensee,
           would not confer the status  of  distribution  licensee  to  any
           person.  The purpose of such  establishment  is  for  supply  of
           power to consumers.  Mere fact that the Appellant claims to be a
           deemed distribution licensee is of no consequence at  all  since
           admittedly, the entire power purchased by the Appellant  is  for
           its  own  use  and  consumption  and  not  for  the  purpose  of
           distribution and supply/sale to consumers.

           50.  An entity which utilizes the entire quantum of  electricity
           for its own consumption and does not have any  other  consumers,
           cannot, by such a notification, be  deemed  to  be  distribution
           licensee, even by a legal  fiction.   By  virtue  of  the  legal
           fiction  created  by  the  notification  dated  3.03.2010,   the
           Developer of SEZ notified under the  SEZ  Act,  who  distributes
           electricity can be deemed to be a distribution licensee.   Thus,
           this legal fiction cannot go further and make a person who  does
           not distribute electricity to the consumers as  to  distribution
           licensee.  Therefore there is no merit in the contention of  the
           Appellant.

      43.   We are in agreement with the aforesaid rationale in the impugned
      order of the Appellate Tribunal as that is the only  manner  in  which
      the two Acts can be harmoniously construed.  To recapitulate  briefly,
      in the present case no doubt by virtue of the status of a developer in
      the SEZ area, the Appellant is also  treated  as  deemed  Distribution
      Licensee.  However with this, it only gets exemption from specifically
      applying for licence under Section 14 of the Act.  In order  to  avail
      further benefits under the Act, the Appellant is also required to show
      that 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.  We have to  keep  in
      mind the object and scheme of SEZ Act which  envisages  several  units
      being set up in a SEZ area.  This is evident from a collective reading
      of the various provisions of the SEZ Act viz. Section 2(g)(j)(za)(zc),
      Section 3, 4, 11, 12, 13 and 15.  There can be a Sector  Specific  SEZ
      with Several 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 Notification  dated  03.03.2010  providing  for  the
      “Developer” of SEZ being  deemed  as  a  “Distribution  Licensee”  was
      issued keeping in view the concept of Multi 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.

      44.  Having regard to the aforesaid  factual  and  legal  aspects  and
      keeping in mind the purpose for which CSS is payable, as explained  in
      detail in the earlier part of this judgment, we are of the  view  that
      on the facts of this case it is not  possible  for  the  Appellant  to
      avoid payment of CSS to WESCO.  We, therefore, do not find  any  merit
      in this Appeal which is accordingly dismissed.


                                                           …………………………….………J.
                         [Surinder Singh Nijjar]







                                                           …………………………………….J.
                                         [A.K. Sikri]





      New Delhi
      April 25, 2014

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