Tags Income Tax

Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Civil), 1220 of 2015, Judgment Date: Feb 02, 2016

                                                                  Reportable

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO.1220 OF 2015



Gujarat Urja Vikas Nigam Limited                            …     Appellant

                                 Versus

EMCO Limited & Another                                    …     Respondents






                               J U D G M E N T


Chelameswar,  J.

1.     The  2nd  respondent  herein,  the  Gujarat  Electricity   Regulatory
Commission is a body constituted under Section 82 of  the  Electricity  Act,
2003 (hereinafter referred to as “the Act”). In exercise  of  its  statutory
powers under Sections 61(h), 62(1)(a)  and  86(1)(e)  of  the  Act  the  2nd
respondent issued Order No.2 of 2010 dated 29.01.2010 (hereinafter  referred
to as the “1st Tariff Order”) determining  the  tariff  for  procurement  of
power  by  the  Distribution  Licensees  in  Gujarat   from   Solar   Energy
Projects[1].   The said order was issued after  an  elaborate  consideration
of the various relevant factors  including  the  policy  guidelines  of  the
State of Gujarat and Union of India.   Under  the  said  order,  tariff  for
procurement  of  electricity   generated   by   PROJECTS   employing   Solar
Photovoltaic (SPV) Technology was fixed at Rs.15 per kWh for the initial  12
years starting from the date of commercial  operation  of  the  project  and
Rs.5 per kWh from the 13th year to 25th year.  The said order  was  declared
to have had come  into  force  w.e.f.  29.01.2010.   Various  financial  and
operational parameters taken into consideration for determining  the  tariff
are mentioned at para 4 of the said Order[2].   One  of  the  factors  taken
into consideration is the ‘Rate of Depreciation’.  It is specified  at  para
5 of the Order that the  tariff  fixed  under  the  said  Order  “took  into
account the benefit of accelerated depreciation under  the  Income  Tax  Act
and Rules”.  It is further declared that “for a project that  does  not  get
such  benefit,  the  Commission  would,  on  a  petition  in  that  respect,
determine a separate tariff taking into account all the relevant facts.”

2.    The 1st respondent produces electric energy (power) from  one  of  the
PROJECTS. The appellant and 1st respondent[3] entered into a Power  Purchase
Agreement (PPA) dated 09.12.2010 for sale and purchase of  electricity  from
the 5 MW project to be established by the 1st respondent in  Surendra  Nagar
district of Gujarat.   The  provisions  relevant  for  the  dispute  in  the
present appeal are Clauses 5.1 & 5.2,
“Article 5: Rates and Charges
5.1   Monthly Energy Charges: GUVNL shall pay to the  Power  Producer  every
month for Scheduled Energy/Energy injected as certified in the  monthly  SEA
by SLDC the amounts (the “Tariff”) set forth in Article 5.2.

5.2   GUVNL shall pay the fixed tariff mentioned hereunder  for  the  period
of 25 years for all the Scheduled Energy/Energy  injected  as  certified  in
the monthly SEA by SLDC.  The tariff is  determined  by  Hon’ble  Commission
vide Tariff Order for Solar based power project dated 29.01.2010.

Tariff for Photovoltaic Project:            Rs.15/kWh  for  First  12  years
and
                             Thereafter Rs.5/kWh from 13th Year
                             To 25th Year.

Above tariff shall apply for solar projects commissioned on or  before  31st
December 2011.  In case, commissioning of Solar  Power  Project  is  delayed
beyond 31st December 2011, GUVNL shall  pay  the  tariff  as  determined  by
Hon’ble GERC for Solar Projects effective on the date  of  commissioning  of
solar power project or above mentioned tariff, whichever is lower.”

and Clauses 12.8[4] & 12.10[5] of the said PPA.


3.    However, after entering into the abovementioned PPA,  respondent  no.1
decided to  change  the  PROJECT’S  location.    Therefore,  a  Supplemental
Agreement was entered into between the  appellant  and  respondent  no.1  on
07.05.2011 making appropriate and necessary modifications to the  PPA  dated
09.12.2010.  However, Articles 5.1 and 5.2  of  the  original  PPA  remained
unaltered.

4.    2nd respondent passed  another  order  dated  27.01.2012  (hereinafter
referred to as the “2nd Tariff Order”) determining the tariff applicable  to
the PROJECTS to be commissioned on or after 29.01.2012.   The  tariff  fixed
under the said order for the PROJECTS generating electrical  Energy  through
Solar Photovoltaic (SPV) Technology “availing  the  benefit  of  accelerated
depreciation under the Income Tax Act”  is  less  favourable  to  the  power
producers and the tariff payable by the appellant  to  the  power  producers
which do not avail “the  benefit  of  accelerated  depreciation”  under  the
Income-tax Act is more favourable to such power producers.

5.    The 1st respondent commissioned its PROJECT only  on  2.3.2012,  i.e.,
beyond the “control period[6]” of tariff  specified  under  the  1st  Tariff
Order.  The said “control period” ended on 28.01.2012.  The  1st  respondent
admittedly did not avail the accelerated depreciation under  Section  32  of
the Income-tax Act.

6.    The 1st respondent,  therefore,  filed  a  petition  no.1270  of  2012
before the State Commission invoking Section 86(1)(f)  of  the  Act  praying
“(A)  This Hon’ble Commission be  pleased  to  hold  and  declare  that  the
Petitioner is entitled to claim the  tariff  applicable  to  megawatt  scale
solar photovoltaic projects not availing of accelerated depreciation as  per
tariff order dated 27.1.2012; and (B) This Hon’ble Commission be pleased  to
quash and set aside the decision of the Respondent taken  in  letters  dated
20.4.2012, 22.6.2012 and 20.11.2012 for denying  the  tariff  applicable  to
megawatt scale solar  photovoltaic  projects  not  availing  of  accelerated
depreciation as per tariff order  dated  27.1.2012  to  the  Petitioner  and
direct the Respondent to forthwith make payment of a sum of Rs.  59,50,260/-
to the Petitioner being the differential amount of invoices which is  unpaid
by the Respondent;”

7.    The 2nd respondent by its order dated 08.08.2013  held  that  the  1st
respondent is entitled for the benefit of the tariff specified  in  the  2nd
Tariff Order dated 27.01.2012[7].  The 2nd respondent  also  held  that  the
benefit of its adjudicatory order should not only go to the  1st  respondent
but also to others who have commissioned their PROJECTS  subsequent  to  the
2nd Tariff Order.
Para 8. Before parting with the judgment, we would like to observe that  the
issue raised in the present petition is in fact on  interpretation  of   the
Order No.1 of 2012 dated 27.01.2012; and hence the  decision  in  this  case
would impact not only the petitioner, but also  other  developers  who  have
either commissioned or are likely to commission their  projects  within  the
control period of the said order.  Some of such developers might  not  avail
the benefits of accelerated depreciation and it would be unfair  if  all  of
them are required to file separate petitions  to  seek  justice,  especially
when we have already decided that in the Order No.1 of 2012, the  Commission
has determined separate tariff for such projects.   We,  therefore,  in  the
interest of justice and fairness, decide that the  present  order  shall  be
applicable in all such cases.  The onus of proof regarding  non-availing  of
accelerated depreciation shall, however, be on such developers.


8.     Aggrieved  by  the  order  dated  08.08.2013,  the  appellant  herein
preferred  an  appeal  before  the  Appellate   Tribunal   for   Electricity
(hereinafter referred to as “the  Appellate  Tribunal”),  constituted  under
Section 110 of the Act invoking its jurisdiction under Section  111  of  the
Act.

9.    By  the  impugned  order  dated  20.11.2014,  the  Appellate  Tribunal
confirmed the order of the 2nd respondent.
“Para 62. Summary of Findings:

The PPA  dated  19.12.2010  entered  into  between  the  Appellant  and  the
Respondent No.1 provided for tariff as determined by  the  State  Commission
vide order dated 30.1.2010, viz. Rs.15  per  kWh  for  first  12  years  and
thereafter Rs.5 per kWh from 13th year to  25th  year,  provided  the  Solar
Project is commissioned on or before 31st December 2011.  However,  in  case
commissioning of the project is delayed  beyond  31st  December,  2011,  the
Appellant has to pay the  tariff  as  determined  by  the  State  Commission
effective on the date of commissioning of Solar Power  Project.   The  Solar
Project of the Respondent No.1 was  commissioned  on  2.3.2012.   Therefore,
the tariff as  determined  by  the  State  Commission  by  the  Order  dated
27.1.2012 for the next control period from 29.1.2012 to  31.3.2015  will  be
applicable to the Respondent No.1.
In order dated 27.1.2012, the State Commission  has  determined  the  tariff
for Solar Project availing accelerated  depreciation  and  without  availing
the accelerated depreciation.  As the Respondent No.1 has  not  availed  the
accelerated  depreciation,  the  tariff   determined   without   accelerated
depreciation in the order dated 27.1.2012 will be  applicable  in  terms  of
the PPA and the tariff order of the State Commission dated 27.1.2012.

Complete reading of the Tariff Order dated 27.1.2012 clearly indicates  that
the State Commission has determined tariff for both, the  projects  availing
accelerated depreciation and those not  availing  accelerated  depreciation.
The order gives a choice to the Solar Developer to avail  or  not  to  avail
the benefit of accelerated depreciation.”

Hence, the instant appeal under Section 125 of the Act.

10.   Both the 1st Tariff Order and the 2nd Tariff Order issued by  the  2nd
respondent deal with the tariff payable to  the  producers  of  power.   The
distinction between both the tariff orders insofar as  it  is  relevant  for
the purpose of the present case is that:
(I)   1st Tariff Order fixed the tariff  for  the  PROJECTS  which  get  the
“benefit of accelerated depreciation” under Section 32  of  the  Income  Tax
Act.
“Based on the various parameters as discussed above,  the  levelised  tariff
including RoE of Solar PV power generation,  using  a  discounting  rate  of
10.19% works out to Rs. 12.54 per kWh and levelised tariff  using  the  same
discounting factor for Solar Thermal Power generation works out to Rs.  9.29
per kWh.   However, the Commission feels that it  would  be  appropriate  to
determine tariff for two sub-periods: 12 years and 13 years instead  of  the
same tariff for 25 years.   Hence, the Commission determines the tariff  for
generation of electricity from Solar PV Power Project at Rs. 15 per kWh  for
the  initial  12  (twelve)  years  starting  from  the  date  of  Commercial
operation of the project and Rs. 5 per kWh from the 13th  (Thirteenth)  year
to 25th (twenty fifth) year.   The Commission  also  determines  the  tariff
for generation of electricity from Solar Thermal Power  project  at  Rs.  11
per kWh for the  initial  12  (twelve)  years  starting  from  the  date  of
Commercial operation of the project and Rs.  4.00  per  kWh  from  the  13th
(Thirteenth) year to 25th (twenty fifth) year.

The above tariffs take into account the benefit of accelerated  depreciation
under the Income Tax Act and Rules.   For a project that does not  get  such
benefit, the Commission would, on a petition in that  respect,  determine  a
separate tariff taking into account all the relevant facts.”

(II)  2nd Tariff Order, on the other hand, fixed the  tariff  for  both  the
classes of PROJECTS[8] i.e. those which “avail” the “benefit of  accelerated
depreciation” (under Section 32 of the Income Tax Act) and  those  which  do
not “avail” the “benefit of accelerated depreciation”.
“Based on these technical and financial  parameters,  the  levelized  tariff
including return on  equity  for  megawatt-scale  solar  photovoltaic  power
projects availing accelerated depreciation is calculated to be Rs. 9.28  per
kWh,  while  the  tariff  for  similar  projects  not  availing  accelerated
depreciation is calculated to be Rs. 10.37 per kWh.    The  Commission  also
decides to determine the tariff for two  sub-periods.    For  megawatt-scale
photovoltaic projects availing accelerated depreciation, the tariff for  the
first 12 years shall be Rs. 9.98 per kWh and for  the  subsequent  13  years
shall be  Rs.  7  per  kWh.    Similarly,  for  megawatt-scale  photovoltaic
projects not availing accelerated depreciation, the tariff for the first  12
years shall be Rs. 11.25 per kWh and for the subsequent 13  years  shall  be
Rs. 7.50 per kWh.”


11.   The case of the 1st respondent is that notwithstanding the  fact  that
it entered into a PPA during the  “control  period”  specified  in  the  1st
tariff order, it is not obliged to sell  power  to  the  appellant  for  the
price specified in Article 5.2 of the PPA and is legally  entitled  to  seek
(from the 2nd respondent) fixation of a separate tariff.  It is the  further
case of the 1st respondent that under the PPA, the  appellant  is  under  an
obligation to procure the power from the 1st respondent for a period  of  25
years if the 1st respondent commences the generation  of  power  within  the
“control period” and is also obliged to pay for the power procured by it  at
the rates specified in Article 5.2 of the PPA.  But the  obligation  of  the
1st respondent to sell power generated by it to the appellant at  the  rates
specified in Article 5.2 of  the  PPA  comes  into  existence  only  on  the
happening of the two contingencies, i.e., the 1st respondent (i)  commencing
the generation of power within the “control  period”  stipulated  under  the
1st Tariff Order; and (ii) choosing to avail  the  “benefit  of  accelerated
depreciation” under the Income Tax Act.  According to  the  1st  respondent,
the stipulation under the 1st Tariff Order that the tariff fixed  thereunder
is not applicable to those PROJECTS which “does not get  such  benefit,  the
Commission would on a petition in that respect determine a  separate  tariff
taking into account all the relevant facts from not” would only  imply  that
tariff fixed  under  the  1st  Tariff  Order  is  not  applicable  to  those
PROJECTS/power producers  which do not avail  the  “benefit  of  accelerated
depreciation” under the Income Tax Act.

12.   On the other hand, the case of  the  appellants  throughout  has  been
that the 1st respondent clearly knew when it entered into the PPA  that  the
tariff propounded under the 1st Tariff Order is applicable  only  for  those
PROJECTS which avail the “benefit of  accelerated  depreciation”  under  the
Income Tax Act.   If the first  respondent  did  not  intend  to  avail  the
“benefit of the accelerated depreciation”  under  the  Income  Tax  Act,  it
ought  not  to  have  entered  into  the  PPA  without  first  seeking   the
determination of the tariff by the 2nd respondent.  Having chosen  to  enter
into a PPA, the 1st respondent cannot decide not to avail  the  “benefit  of
accelerated depreciation” at a later point of time i.e. beyond  the  control
period prescribed under the 1st Tariff Order and  claim  the  benefit  of  a
more advantageous tariff fixed in the 2nd Tariff  Order  in  favour  of  the
PROJECTS which do not avail the “benefit of accelerated depreciation”.

13.   We have already noticed that  the  1st  respondent  did  not  commence
generation of power within “control period” stipulated under the 1st  Tariff
Order and also did not avail the “benefit of the  accelerated  depreciation”
under the Income Tax Act.

14.   It  is  admitted  on  all  hands  that  the  “benefit  of  accelerated
depreciation” mentioned  in  the  1st  Tariff  Order  and  the  PPA  is  the
stipulation contained in Section 32 (1)(i) of the Income Tax Act  read  with
Rule 5(1A) of the Income Tax Rules. They provide for the method  and  manner
in which depreciation of the assets of an  assessee  is  to  be  calculated.
Section 32 of the  Income  Tax  Act  (insofar  as  relevant)  stipulates  as
follows:-

“32(1) in respect of depreciation of –
buildings, machinery, plant or furniture, being tangible assets;

know-how, patents, copyrights, trade  marks,  licences,  franchises  or  any
other business or commercial rights  of  similar  nature,  being  intangible
assets acquired on or after the 1st day of April, 1998.

owned, wholly or partly, by the assessee and used for the  purposes  of  the
business or profession, the following deductions shall be allowed –

in the case of assets of an undertaking engaged in generation or  generation
and distribution of power, such percentage on the  actual  cost  thereof  to
the assessee as may be prescribed.”


The prescription contemplated is found in  Rule  5(1A)  of  the  Income  Tax
Rules, 1962 which reads as follows:-
“(1A)   The allowance under clause (i) of sub-section (1) of section  32  of
the Act in respect of depreciation of assets acquired on or  after  1st  day
of April, 1997 shall be  calculated  at  the  percentage  specified  in  the
second column of the Table in Appendix IA of these rules on the actual  cost
thereof to the assessee as are used for the purposes of the business of  the
assessee at any time during the previous year:”


Under the second proviso to the said Rule, it is further provided;
“Provided further that the undertaking  specified  in  clause  (i)  of  sub-
section (1) of section 32 of  the  Act  may,  instead  of  the  depreciation
specified in Appendix IA, at its option, be allowed depreciation under  sub-
rule (1) read with Appendix I, if such option is exercised  before  the  due
date for furnishing the return of income under sub-section  (1)  of  section
139 of the Act,

for the assessment year 1998-99, in the case of an undertaking  which  began
to generate power prior to 1st day of April, 1997; and

for the assessment year relevant to the previous year in which it begins  to
generate power, in case of any other undertaking:”


15.   It can be seen  from  the  above  extracted  proviso,  an  undertaking
engaged in generation of power has an option to claim  depreciation  on  its
assets in accordance with the scheme under Section 32(1)(i)  of  the  Income
Tax Act.  Such an option could be exercised at the relevant  point  of  time
as indicated in the said proviso.

16.   The argument of the first respondent  throughout  has  been  that  the
stipulation in the 1st Tariff Order that “a project that does not  get  such
a benefit….” only means that the tariff  propounded  under  the  said  order
does not apply to PROJECTS which do not choose to exercise the option to  be
governed by the scheme under Section 32 of  the  Income  Tax  Act.   On  the
other hand, the argument by the appellant throughout has been  that  such  a
clause only implies that the tariff  under  the  1st  Tariff  Order  is  not
applicable to those power generating PROJECTS  which  by  operation  of  law
(but not because of the violation of the  assessees)  are  not  entitled  to
claim the benefit of the scheme under Section 32(1)(i)  of  the  Income  Tax
Act.

17.   We do not wish to examine the question whether there is a  possibility
under the Income Tax  Act  for  any  PROJECT/  undertaking  engaged  in  the
generation of power[9] not to fall within the operation of Section  32(1)(i)
apart from those cases where the “undertaking” chooses not  to  be  governed
by such regime.   Neither of the parties made the  submission  that  in  law
there is a possibility of a power project not getting  the  benefit  of  the
accelerated depreciation.

18.   Assuming for the sake of argument  that  in  law  such  a  possibility
exists, the construction such  as  the  one  sought  to  be  placed  on  the
relevant portion of para 5 of the 1st Tariff Order by the  appellant  cannot
be accepted because it would  be  inherently  illogical.   At  the  cost  of
repetition, we reproduce that portion of  the  para  5  of  the  1st  Tariff
Order:
The above tariffs take into account the benefit of accelerated  depreciation
under the Income Tax Act and Rules.   For a project that does not  get  such
benefit, the Commission would, on a petition in that  respect,  determine  a
separate tariff taking into account all the relevant facts.”

It is not the case of either  the  appellant  or  the  2nd  respondent  that
Section 32(1)(i) of the Income Tax Act does  not  apply  to  some  PROJECTS.
The tenor of the statement  is  clear.   The  2nd  respondent  proposed  the
tariff for all classes of PROJECTS taking into  account  that  all  of  them
would be entitled to claim the ‘benefit of accelerated  depreciation’  under
Section 32 of Income Tax Act.  The 2nd respondent must be presumed  to  have
known at the time of propounding the 1st tariff order that  the  Income  Tax
Act and the Rules thereunder provide an option to the assessee (producer  of
power) either to claim or not the  ‘benefit  of  accelerated  depreciation’.
Hence, the stipulation.  The  submission  of  the  appellant  regarding  the
construction of the above extracted  clause  of  the  1st  Tariff  Order  is
rejected.

19.   However, that does not solve the  problem  on  hand.    Two  questions
still remain to be examined, (i) Even if the interpretation  placed  by  the
1st respondent on the above extracted portion of para 5 of  the  1st  Tariff
Order is correct (in fact  it  would  be  the  logical  consequence  of  the
rejection of the submission of the  appellant),  would  the  1st  respondent
have  a  right  to  exercise  the  choice  not  to  avail  the  ‘benefit  of
accelerated depreciation’ after signing the PPA?     (ii)  Whether  the  1st
respondent’s right under the Income Tax Act to make such a choice  could  be
so exercised which would result in a situation whereby the  appellant  would
be obliged under the  PPA  to  purchase  the  power  generated  by  the  1st
respondent for a period of 25 years without knowing the price at  which  the
1st respondent would be obliged to supply the power?

20.   These questions were raised and argued before the 2nd  respondent  but
unfortunately the issue  was  unnecessarily  complicated  by  the  arguments
based on promissory estoppel[10]. After noticing the  issue,  the  appellate
tribunal elaborately extracted from the order of the  2nd  respondent  dated
8.8.2013.  The relevant part of which reads as under:
“6.16.      However, it is also a fact that the parties  to  the  above  PPA
agreed in the second para of the Article 5.2 of the PPA that if the  project
of the Petitioner is not commissioned  during  the  control  period  of  the
Order No.2 of 2010 dated 29.1.2010, either the tariff  that  was  agreed  in
Article 5.2 of the PPA or the tariff determined by the Commission as on  the
date  of  commissioning  of  the  project,  whichever  is  lower,  will   be
applicable.  Thus, the aforesaid PPA recognizes the two  tariffs  applicable
to the Petitioner case.  As the Petitioner’s  project  was  commissioned  on
2.3.2012, it falls under the control period of  Order  No.1  of  2012  dated
27.01.2012, for tariff  purposes,  relevant  para  of  which  is  reproduced
below:
xxx         xxx        xxx        xxx
The above table reveals that both the  tariffs  i.e.  one  for  the  project
availing the  benefit  of  Accelerated  Depreciation  and  another  for  the
project not availing the benefit of accelerated Depreciation is  allowed  by
the Commission for the projects commissioned during the  control  period  of
29.01.2012 to 31.03.2015.  Such being the case, on  the  cogent  reading  of
the Article 5.2 of  the  PPA  and  the  tariff  Order  No.1  of  2012  dated
27.01.2012, we are of the view that the Principle of Promissory Estoppel  is
not applicable in the present case.”
[Extracted portion of the order  of  the  2nd  respondent  in  the  impugned
order]


It can  be  seen  from  the  above  that  the  2nd  respondent  noticed  the
stipulation in the PPA that if the 1st respondent does  not  commission  the
PROJECT during the control period  specified  under  the  1st  Tariff  Order
“….either the tariff that was agreed …  or  the  tariff  determined  by  the
Commission … whichever is lower will be applicable but reached a  conclusion
that ……. on a cogent reading of the Article 5.2 …….  and  the  tariff  order
No.1 of 2012 dated 27.01.2012, we are of the  view  that  the  Principle  of
Promissory Estoppel  is  not  applicable  in  the  present  case.”  The  2nd
respondent noticed the stipulation  of  the  PPA  regarding  the  applicable
tariff in the event of the 1st  respondent  not  commissioning  the  PROJECT
would be the lower of the two tariffs. Without examining  the  legal  effect
of such stipulation, the 2nd respondent went into the analysis  of  the  2nd
Tariff Order which is neither necessary (nor  called  for)  for  determining
the legal effect of the stipulation of the PPA.

21.   The appellate Tribunal after noticing  the  issue  and  the  elaborate
consideration bestowed on it by the 2nd respondent did  not  record  in  the
impugned order its view regarding the correctness  of  the  above  extracted
conclusion of the 2nd respondent.  We can only presume  that  the  appellate
tribunal approved the reasoning and the conclusion  of  the  2nd  respondent
since it did not reverse the 2nd respondent’s order.

22.   One of the submissions of the 1st respondent  which  was  accepted  by
the Tribunal is that the issue is covered by  an  earlier  judgment  of  the
Tribunal in Appeal No.111 of 2012 dated 30th April, 2013[11]  pertaining  to
Rasna Marketing Services LLP v. Gujarat Urja Vikas Nigam Limited  &  Another
(hereinafter referred to as “RASNA case”).

23.   The facts of RASNA case are: that Rasna,  a  power  producer,  entered
into a power purchase agreement on  8.12.2010  with  the  appellant  (GUVNL)
herein.  Under the said  PPA,  Rasna  agreed  to  sell  power  at  the  rate
prescribed by the 1st Tariff  Order.   Eventually,  Rasna  commissioned  its
power plant on 31.12.2011 within the control period stipulated  in  the  1st
Tariff Order.  However, Rasna filed a petition  before  the  2nd  respondent
praying for determination of specific tariff for the sale of  power  on  the
ground that Rasna would not be availing accelerated  depreciation  benefits.
The said application of Rasna was resisted  by  the  GUVNL.   A  preliminary
objection that such an application is not maintainable was raised  by  GUVNL
on the ground that Rasna having received the benefit of  the  PPA  and  also
the payment pursuant thereto is debarred from seeking  the  relief  such  as
the one  sought  by  it.   The  2nd  respondent  overruled  the  preliminary
objection.  Therefore, GUVNL went before the  appellate  tribunal.   Dealing
with the said appeal, the Tribunal took  note  of  the  categoric  objection
raised by the GUVNL that the application for  determination  of  a  separate
tariff by Rasna  could  not  be  entertained  after  Rasna  had  signed  the
PPA.[12]

24.   The Tribunal rejected the said objection of GUVNL.[13]  In  substance,
the conclusion of the Tribunal in RASNA case was that the execution  of  the
PPA  does  not  put  any  embargo  on  the  right  of  Rasna  to  seek   the
determination of a specific tariff.   The  tribunal’s  reasons  for  such  a
conclusion are that (i) the 1st Tariff Order recognises  the  right  of  the
power producers like Rasna either to opt for or not to opt for  the  benefit
of accelerated depreciation; (ii) there is no specific  stipulation  in  the
Tariff Order that the power producers like Rasna which do not wish to  avail
the benefit of accelerated depreciation should  intimate  the  same  to  the
appellant before entering into the PPA; (iii) nor there  is  any  obligation
under any law by which Rasna is bound to disclose the  fact  before  signing
the PPA that it would not avail the benefit of accelerated depreciation.

25.   Relying on the judgment of the RASNA case,  the  Tribunal  recorded  a
conclusion in the impugned order:
“32.  In the present case, the  Solar  Project  could  not  be  commissioned
during the control period specified in the State  Commission’s  Order  dated
29.1.2010.  Therefore, in terms of the PPA, the Respondent No.1 is  entitled
to tariff as determined by the State  Commission  in  the  subsequent  order
dated 27.1.2012.”

We do not wish to make any comment on the correctness of the  order  of  the
tribunal in RASNA case.  We are  not  sure  whether  the  order  has  become
final.  But we are of the opinion that the reliance by the tribunal  in  the
instant case on RASNA case order is  clearly  wrong.   In  RASNA  case,  the
prayer was for the determination of a separate tariff applicable to it.   In
the instant case, the prayer of the 1st respondent is not  for  fixation  of
separate tariff but for a declaration that the 1st  respondent  is  entitled
for claiming the benefits of the tariff  determined  under  the  2nd  Tariff
Order.

26.   Apart from that, the conclusion of the Tribunal in  the  instant  case
is wrong.  First of all the PPA does not give any option to  the  respondent
to opt out of the terms of the PPA.   It only visualises  a  possibility  of
the producer not commissioning  its  PROJECT  within  the  “control  period”
stipulated under  the  1st  Tariff  Order  and  provides  that  in  such  an
eventuality what should be the tariff applicable to the  sale  of  power  by
the 1st  respondent.     Secondly,  the  PPA  does  not  ‘entitle’  the  1st
respondent to the “tariff as determined by the” 2nd respondent  by  the  2nd
Tariff Order.  On the other hand, the PPA clearly stipulates  that  in  such
an eventuality;
“Above tariff shall apply for solar projects commissioned on or before  31st
December 2011.  In case, commissioning of Solar  Power  Project  is  delayed
beyond 31st December 2011, GUVNL shall  pay  the  tariff  as  determined  by
Hon’ble GERC for Solar Projects effective on the date  of  commissioning  of
solar power project or above mentioned tariff, whichever is lower.”

The right of the 1st respondent not to avail  the  “benefit  of  accelerated
depreciation” flows from the Income Tax Act.   It is  only  the  1st  Tariff
Order which gives an option to the 1st respondent (for that  matter  to  all
the power producers who are similarly situated as the  1st  respondent)  not
to sell the power produced by it at the price specified in  the  1st  Tariff
Order but seek the determination of a separate tariff.   Such  a  right  and
option is available to the power producers only  in  one  contingency  i.e.,
that  they  are  not  inclined  to  avail  the   ‘benefit   of   accelerated
depreciation’.

27.   The real question is: what is the point of time  at  which  the  power
producer can exercise such right to seek the  determination  of  a  separate
tariff.

28.   The Income Tax Act gives an option to the producers  of  power  either
to avail the ‘benefit of the accelerated depreciation’  or  not.    It  also
specifies the point of time at which such  an  option  could  be  exercised.
The right to exercise such option at a point of time specified  in  the  2nd
proviso to Rule 5(1A) is limited  only  for  the  purpose  of  availing  the
benefits flowing from the Income  Tax  Act.   The  PPA  does  not  make  any
reference  to  the  “benefits  of  accelerated  depreciation”.   It   simply
specified the price to be paid by the appellant for the power  purchased  by
it from the 1st respondent.   The appellant determined the said price  after
taking into consideration various factors.  One of them happened to be  that
the Power Producers are entitled to certain ‘benefits’ under the Income  Tax
Act.  The availability of such ‘benefit’ is dependent  upon  the  option  of
the power producers.  Though the 1st Tariff  Order  employs  the  expression
‘benefit’ in the context of the AD Scheme under Section 32 of  the  IT  Act,
the applicability of the provision to a  power  producer  depends  upon  the
choice of the power producer.  Whether the availability of the AD Scheme  is
beneficial to the power producer or not in a given case depends  on  various
factors the details of which we do not propose to examine.  It  is  for  the
power producer to make an assessment whether  the  availing  of  the  AD  is
beneficial or not will take a decision if the scheme  under  Section  32  IT
Act should be availed or not.

29.   But the availability of such an option to the power producer  for  the
purpose of the assessment of income under the IT Act does  not  relieve  the
power producer of the contractual obligations incurred under  the  PPA.   No
doubt that the 1st respondent  as  a  power  producer  has  the  freedom  of
contract either to accept the price offered by the appellant or  not  before
the PPA was entered into.  But such freedom is extinguished  after  the  PPA
is entered into.

30.   The 1st  respondent  knowing  fully  well  entered  into  the  PPA  in
question which expressly stipulated under Article 5.2 that  “the  tariff  is
determined by Hon’ble Commission vide tariff order  for  solar  based  power
project dated 29.1.2010”

31.   Apart from that both the respondent No. 2 and the  appellate  tribunal
failed to notice and the 1st respondent  conveniently  ignored  one  crucial
condition of the PPA contained in the last sentence of para 5.2 of the PPA:-

“In case, commissioning of  Solar  Power  Project  is  delayed  beyond  31st
December 2011, GUVNL shall pay the tariff as determined by Hon’ble GERC  for
Solar Projects effective  on  the  date  of  commissioning  of  solar  power
project or above mentioned tariff, whichever is lower.”


The said stipulation clearly envisaged  a  situation  where  notwithstanding
the contract between the parties (the PPA), there is a  possibility  of  the
first respondent not being able to commence the  generation  of  electricity
within the “control period” stipulated in the 1st tariff  order.    It  also
visualised that for the subsequent control period, the tariffs payable to  a
PROJECTS/power producers (similarly situated as the first respondent)  could
be different.   In recognition of the said  two  factors,  the  PPA  clearly
stipulated that in such a situation, the 1st respondent  would  be  entitled
only for lower of the two tariffs.  Unfortunately, the said  stipulation  is
totally overlooked by the second  respondent  and  the  appellate  tribunal.
There is no whisper about the said stipulation in either of the orders.

32.   The 1st respondent created enough confusion.  While on  one  hand  the
1st respondent asserted a right to seek determination of a  separate  tariff
independent of the tariff fixed under the 1st Tariff Order in  view  of  the
stipulation contained in the 1st Tariff Order that “for a project that  does
not get such benefit, the Commission would, on a petition in  that  respect,
determine a separate tariff taking into account all the relevant facts”  did
not seek a relief  before the 2nd respondent to determine a separate  tariff
but claimed the benefit of the 2nd Tariff Order.  Assuming for the  sake  of
argument that the petition filed by the 1st respondent (1270/2012) is to  be
treated as an application for determination of separate tariff  which  would
be identical with the tariff fixed under the 2nd Tariff Order,  whether  the
1st respondent would be entitled for such a relief depends, if at all he  is
entitled to seek such a  determination,  on  a  consideration  of  “all  the
relevant facts” but not by virtue of the operation of the 2nd Tariff Order.

33.   For all the above-mentioned reasons, we are of the  opinion  that  the
impugned order cannot be sustained and the same is therefore set aside.   As
a consequence, the order of the 2nd respondent  dated  8.8.2013,  which  was
the subject matter of appeal in the impugned order, is also set aside.

34.   At this juncture, we need to mention that the learned counsel for  the
respondents  very  vehemently  argued  that  the  instant  appeal   is   not
maintainable because Section 125 of the Electricity  Act  mandates  that  an
appeal to this Court under the said provision  is  maintainable  only  where
there is a substantial question of law and the  parties  seeking  to  invoke
the appellate jurisdiction of this Court must clearly indicate  as  to  what
is the substantial question of law that arises  for  consideration  of  this
Court.   According to the respondents, the memorandum  of  appeal  does  not
disclose any substantial question of law which arises for the  consideration
of this Court

35.   We do not find any substance  in  the  submission.   We  believe  that
debate in the foregoing paragraphs of this  judgment  revolved  around  more
than one  substantial  question  of  law  justifying  the  exercise  of  the
appellate jurisdiction of this Court.  The  appeal  is  allowed  with  costs
quantified at Rs. 2 lakhs payable by the 1st respondent herein. The  interim
orders granted earlier stand dissolved.  The amounts, if any,  paid  by  the
appellant pursuant to the interim orders of this  Court  shall  be  adjusted
towards the payments due to the 1st respondent  for  future  procurement  of
power by the appellant in  such  manner  as  the  appellant  deems  fit  and
proper.


                                                             ….………………………….J.
                                                            (J. Chelameswar)


                                                             …….……………………….J.
                                                       (Abhay Manohar Sapre)
New Delhi;
February 2, 2016
-----------------------
[1]    The Tariff Order uses the term ‘Solar Energy Projects’ and the PPA
uses the term ‘Solar Power Projects’.  The terms ‘Solar Power Projects’ and
‘Solar Energy Projects’ are identical. Hereinafter, we use the term
‘PROJECTS’ to denote them.
[2]    Para 4. Components of Tariff
       The  following  financial  and  operational  parameters   have   been
considered while determining the tariff.
      Capital cost
      Evacuation cost
      Operations & Maintenance charges
      Debt – Equity Ratio
      Loan Tenure
      Interest rate on loan
      Return on equity
      Rate of Depreciation
      Interest on Working Capital
      Capacity Utilization Factor
      Duration of Tariff
      Auxiliary Consumption
[3]     Described as power producer in the PPA
[4]    12.8 Amendments:
            This Agreement  shall  not  be  amended,  changed,  altered,  or
modified except by a written  instrument  duly  executed  by  an  authorized
representative of both Parties.  However, GUVNL may consider  any  amendment
or change that the Lenders may require to be made to this Agreement.
[5]    12.10 Entire Agreement, Appendices:
            This Agreement constitutes the entire  agreement  between  GUVNL
and the Power Producer, concerning the subject matter hereof.  All  previous
documents,  undertakings,  and  agreements,  whether   oral,   written,   or
otherwise, between the Parties concerning  the  subject  matter  hereof  are
hereby cancelled and shall be of no further force or effect  and  shall  not
affect or modify  any  of  the  terms  or  obligations  set  forth  in  this
Agreement, except as the  same  may  be  made  part  of  this  Agreement  in
accordance with its terms, including the terms of  any  of  the  appendices,
attachments or exhibits.   The  appendices,  attachments  and  exhibits  are
hereby made an integral part of this Agreement and shall  be  fully  binding
upon the Parties.

            In the event of  any  inconsistency  between  the  text  of  the
Articles of this Agreement  and  the  appendices,  attachments  or  exhibits
hereto or in the event of  any  inconsistency  between  the  provisions  and
particulars of one appendix, attachment or exhibit and those  of  any  other
appendix, attachment or exhibit GUVNL and the Power Producer  shall  consult
to resolve the inconsistency.
[6]    Para 7.2 Control Period
      The Commission had proposed a control period for this order as the
period from the date of final order of the Commission to 31.12.2011.
      Commission’s Ruling-
      “It has been observed  that  the  capital  cost  of  the  solar  power
project might reduce  drastically  as  time  elapses.   However,  since  the
gestation period for Solar PV projects is about 6 months and that for  Solar
Thermal Projects is 18-24 months, the Commission decides  that  the  control
period for this order will be 2 years.”
[7]     Para  7.   Considering  the  above,  we  decide  that  the  petition
succeeds.  We decide that the petitioner’s project, which  is  not  availing
the benefit of  Accelerated  Depreciation  is  entitled  to  the  tariff  of
Rs.11.25/Unit for the first 12 years of the  project  and  Rs.7.50/Unit  for
the subsequent 13 years.  The respondent is directed to pay  the  amount  of
difference of Rs.11.25 – Rs.9.98  =  1.27/KWh  to  the  petitioner  for  the
invoices so far raised by the petitioner and payment of which  have  already
been made by the respondent.  The respondent is  further  directed  that  he
shall pay the above tariff now onward also  to  the  petitioner  for  energy
supplied by him.


[8]    There is some dispute between the parties  in  this  regard  and  the
Appellate Tribunal recorded:-

      “36. .  The Tariff Order 2012 determines both the  tariffs  i.e.  with
or without accelerated depreciation.”

      In our opinion, the conclusion of  the  Tribunal  in  this  regard  is
right.  The Tenor of the two tariff orders (relevant portions of  which  are
extracted  above)  is  too  obvious  and  does  not  call  for  any  further
explanation to justify the above conclusion of the Appellate Tribunal.

[9]    The relevant portion of Section 32 of the Income Tax Act reads as
under:

      “….. undertaking engaged in generation …. of power ……..”

      The said Section covers not only Solar Power Projects but also all
kinds of Power Projects.
[10]   18.  One other  issue  raised  by  the  Appellant  before  the  State
Commission is that the choice to sell electricity  at  the  tariff  with  or
without accelerated depreciation was to be exercised by the  Developer  only
at the relevant time and such a claim made subsequently  is  barred  by  the
principles of estoppel.
[11]    29.  According to the Respondent, the issue has already been
decided in favour of the Developer in judgment dated 30.4.2013 in Appeal
No.111 of 2012.
         31.   In the above judgment in Rasna  case,  the  Tribunal  decided
that there is no infirmity in the State Commission  determining  the  tariff
for the Solar Power Projects  of   Rasna  Marketing  Services  Ltd.  without
considering the benefit of accelerated depreciation in terms  of  the  Order
No.2 of 2010 dated 29.1.2010.  In that case, Rasna Marketing  Services  Ltd.
had commissioned its project within the  Control  Period  specified  in  the
State  Commission’s  order  dated  29.1.2010.   The  order  dated  29.1.2010
determined the tariff for Solar Projects with accelerated  depreciation  but
provided that for a project that does not get the  accelerated  depreciation
benefit,  the  Commission  on  a  Petition  filed  by  the  Developer  would
determine a separate tariff without accelerated depreciation.

[12]    21.  The main ground of objection raised by  the  Appellants  before
the State Commission was that Rasna Marketing  Services Limited,  R-2  could
not be permitted to file the said application after having signed  the  PPAs
both on 08.12.2010 and 8.6.2011 with the  Appellants  and  such  a  petition
could be entertained by the State Commission only before the signing of  the
PPAs and Rasna Marketing Services Ltd. R-2 having preferred to sign the  PPA
as per the tariff order dated 29.1.2010 fixing  the  generic  tariff  cannot
take a different stand  and  maintain  the  petition  for  determination  of
project specific tariff on the  pretext  of  not  availing  the  accelerated
depreciation benefits.
[13]    22.(ii)  It can not be contended that the  subsequent  execution  of
PPA would in any manner put an embargo on  the  jurisdiction  of  the  State
Commission for such a specific tariff determination especially when the  PPA
itself recognised the fact that the tariff shall be as per  the  order  No.2
of  2010  dated  29.01.2010  and  particularly  when  the  said  order  also
recognised the right of the developers  who  are  not  willing  to  get  the
benefit of accelerated depreciation to approach  the  State  Commission  for
determining the specific tariff for those projects.
      (iii)  According to the Appellants, if Rasna Marketing Services LL (R-
2) did not want to avail accelerated depreciation benefits, the same  should
have been intimated to the Appellants  even  before  signing  of  the  PPAs.
This contention is not tenable because there is no such  reservation  either
in the tariff order No.2 of 2010 or in the  PPA  entered  into  between  the
parties.
      (iv)   Rasna Marketing Services LLP (R-2) is not  mandated  under  any
provision of law to  disclose  to  the  Appellants  that  it  would  not  be
availing the benefit of accelerated depreciation  before  signing  the  PPA.
It is the discretion of the project developer not availing  the  benefit  of
accelerated depreciation  to  move  the  State   Commission  in  a  separate
petition for determination of project specific tariff as  permitted  by  the
State Commission in the tariff order No.2  of  2010  dated  29.1.2010.   The
said tariff order is a statutory order binding  on  the  project  developers
and licensees such as the Appellants and the developers.
      v)  If the option of signing or not signing the PPA was contingent  on
the developers in exercise of option, then  that  option  should  have  been
specifically sought for by the Appellant  and  ensured  that  the  same  was
incorporated in the PPA.  This admittedly has not been done.