Electricity Act, 2003 — Sections 2(17), 2(19), 14 & 42 — Railways Act, 1989 — Section 11(g) & (h) — Indian Railways not a deemed distribution licensee — Internal consumption of electricity — Liability to pay Cross-Subsidy Surcharge and Additional Surcharge.
Indian Railways claimed status of deemed distribution licensee under third proviso to Section 14 of Electricity Act on ground that Railways, being entity of Central Government and “Appropriate Government”, was authorised under Section 11 of Railways Act to erect, maintain and operate electric traction equipment, power supply and distribution installations. Railways contended that it was entitled to non-discriminatory open access without payment of Cross-Subsidy Surcharge (CSS) and Additional Surcharge. Appellate Tribunal for Electricity (APTEL) held that Railways was not a deemed distribution licensee and was liable to pay surcharge under Section 42.
Held, mere establishment and operation of “distribution installations” under Section 11(g) of Railways Act does not amount to operation of “distribution system” within meaning of Sections 2(17) and 2(19) of Electricity Act. Distribution system under Electricity Act must ultimately connect to installation of consumers and supply electricity to consumers within area of supply. Railways merely conveys electricity within its self-contained operational network for its own consumption in locomotives, signalling systems and station facilities and does not supply electricity to consumers against consideration. Activities of Railways therefore do not satisfy statutory requirements of a distribution licensee or deemed distribution licensee. Railways remains consumer under Electricity Act and is liable to pay Cross-Subsidy Surcharge and Additional Surcharge when availing open access. (Paras 16 to 37, 51 to 58)
Electricity Law — Distribution licensee — Essential requirements — Supply to consumers mandatory — Mere internal conveyance of electricity insufficient.
Indian Railways argued that conveyance of electricity from traction substations through its electrical network constituted “distribution” of electricity and that “supply” was not licensed activity under Electricity Act.
Held, conjoint reading of Sections 2(17), 2(19) and 42(1) of Electricity Act establishes that distribution licensee must fulfil twin requirements: (i) operate and maintain distribution system, and (ii) supply electricity to consumers within area of supply. Mere internal transmission or conveyance of electricity for self-consumption does not amount to “distribution” under Electricity Act. Distribution necessarily contemplates last-mile connectivity to consumers and supply of electricity against consideration. Railways’ internal operational network for traction, locomotives, signals and stations is only captive self-consumption infrastructure and not a statutory distribution system. (Paras 16 to 25, 28 to 33)
Railways Act, 1989 — Section 11 — Non-obstante clause — Scope and extent — Does not override Electricity Act licensing framework.
Railways contended that non-obstante clause in Section 11 of Railways Act conferred unfettered authority to distribute electricity independent of Electricity Act and exempted Railways from regulatory framework under Electricity Act.
Held, Section 11 of Railways Act cannot be read so expansively as to dispense with mandatory licensing framework under Sections 12 and 14 of Electricity Act. Non-obstante clause operates only in event of direct and irreconcilable inconsistency and cannot function as blanket exemption from applicability of subsequent regulatory statute. No inconsistency exists between Railways Act and Electricity Act since Railways can exercise operational powers under Section 11 while simultaneously complying with Electricity Act. Judicial endeavour must be to harmoniously construe both enactments. (Paras 26, 27, 29)
Electricity Act, 2003 — Section 2(5) — “Appropriate Government” — Railways falls within control of Central Government — Yet not entitled to deemed distribution licensee status.
Question arose whether Indian Railways, being instrumentality of Union Government, falls within ambit of “Appropriate Government” under Section 2(5)(a) of Electricity Act.
Held, Railways operates under pervasive fiscal, administrative and operational control of Central Government and for limited purpose falls within ambit of “Appropriate Government”. However, mere status as Government entity does not automatically confer deemed distribution licensee status. Such status depends upon actual performance of statutory functions of distribution licensee, namely supply of electricity to consumers. Railways’ electrical infrastructure exists exclusively for self-consumption and not for supply to consumers. Hence, despite satisfying limited governmental test, Railways cannot claim benefits of deemed distribution licensee under third proviso to Section 14. (Paras 38 to 50)
Electricity Act, 2003 — Section 42 — Open access — Cross-Subsidy Surcharge (CSS) and Additional Surcharge — Object and rationale.
Railways claimed exemption from payment of Cross-Subsidy Surcharge and Additional Surcharge while procuring electricity through open access.
Held, Cross-Subsidy Surcharge under Section 42(2) compensates distribution licensees for loss of revenue required to subsidise weaker consumer categories, while Additional Surcharge under Section 42(4) offsets stranded costs arising from existing supply obligations. Open-access consumers procuring electricity from alternate sources remain liable to bear such statutory charges. Even deemed distribution licensee procuring electricity exclusively for its own consumption is liable to pay CSS and Additional Surcharge. Since Railways procures electricity solely for captive consumption, it remains liable for payment of such charges. (Paras 51 to 58)
Statutory Interpretation — Executive clarifications — Ministry letters — No binding statutory force.
Railways relied upon Ministry of Power letters dated 06.05.2014 and 03.04.2023 declaring Railways to be deemed distribution licensee under Electricity Act.
Held, executive communications or administrative clarifications issued by Ministry of Power neither amend nor override statutory provisions of Electricity Act and carry no binding legal force. Jurisdictional status and statutory rights must flow from legislation and not from executive correspondence. Such letters therefore cannot confer status of deemed distribution licensee upon Railways. (Para 49)
Electricity Law — Functional test — Consumer vis-à-vis distribution licensee — Self-consumption decisive.
Railways asserted that it was not merely consumer but distribution entity because of its extensive nationwide electricity network.
Held, functionality test determines whether entity actually supplies electricity to consumers or merely consumes electricity for itself. Railways operates closed and self-contained electrical network only for traction, signalling and operational purposes and supplies electricity to no independent consumers. Railways therefore functions as consumer and not distribution licensee. Claim to deemed distribution licensee status was merely attempt to avoid liability towards Cross-Subsidy Surcharge and Additional Surcharge without assuming corresponding statutory obligations. (Paras 31 to 37, 57, 58)
