Gujarat Urja Vikas Nigam Limited v. EMCO Limited & Others
- ByPravleen Kaur --
- 06 May 2025 --
- 0 Comments
1. Introduction
This case revolves around a dispute between Gujarat Urja Vikas Nigam Limited (GUVNL) and EMCO Limited, a power producer, regarding the applicable tariff for the sale of electricity generated by EMCO's solar power project. The Gujarat Electricity Regulatory Commission (GERC) and the Appellate Tribunal for Electricity (APTEL) had ruled in favor of EMCO, allowing it to claim a higher tariff determined by GERC's subsequent tariff order. GUVNL challenged this decision in the Supreme Court. [Para 1]
2. Background
A. GERC's Tariff Orders
1. First Tariff Order (2010): GERC issued an order on 29.1.2010, determining the tariff for solar power projects that availed the benefit of accelerated depreciation under the Income Tax Act. It also allowed projects not availing this benefit to petition for a separate tariff. [Para 1]
2. Second Tariff Order (2012): GERC issued another order on 27.1.2012, determining separate tariffs for projects availing and not availing accelerated depreciation benefits. The tariff for projects not availing the benefit was higher. [Para 4]
B. Power Purchase Agreement (PPA)
GUVNL and EMCO entered into a PPA on 9.12.2010, wherein EMCO agreed to sell power at the tariff determined by the First Tariff Order. The PPA stipulated that if EMCO's project was not commissioned by 31.12.2011 (the control period), GUVNL would pay the lower of the two tariffs - the one agreed in the PPA or the tariff determined by GERC on the commissioning date. [Paras 2, 3]
EMCO commissioned its project on 2.3.2012, after the control period of the First Tariff Order. It did not avail the accelerated depreciation benefit. [Para 5]
3. EMCO's Claim and Rulings by GERC and APTEL
EMCO petitioned GERC, seeking the higher tariff applicable to projects not availing accelerated depreciation as per the Second Tariff Order. GERC allowed EMCO's petition, and APTEL upheld GERC's order, relying on its earlier judgment in the Rasna Marketing case. [Paras 6, 7, 9, 22-25]
4. Supreme Court's Observations and Findings
A. Accelerated Depreciation Benefit
The accelerated depreciation benefit mentioned in the tariff orders and PPA refers to the provisions under Section 32(1)(i) of the Income Tax Act and Rule 5(1A) of the Income Tax Rules. These provisions give power producers the option to claim accelerated depreciation on their assets. [Paras 14, 15]
B. Interpretation of the First Tariff Order
The Supreme Court rejected GUVNL's argument that the First Tariff Order's tariff was not applicable to projects that could not legally claim accelerated depreciation benefits. The Court held that the tariff order proposed a tariff for all projects, assuming they would avail the accelerated depreciation benefit. The order recognized the producers' option to claim or not claim this benefit. [Paras 16-18]
C. EMCO's Right to Opt-out of the PPA
The Court observed that the PPA did not give EMCO the option to opt-out of its terms. It only envisaged a situation where EMCO could not commission the project within the control period and provided for the applicable tariff in such a case. [Para 26]
The right to not avail the accelerated depreciation benefit flows from the Income Tax Act, not the PPA. The First Tariff Order gave producers the option to seek a separate tariff if they did not wish to avail this benefit, but this option was available only in that specific contingency. [Paras 26, 28]
D. Contractual Obligations under the PPA
The Court held that EMCO's option to avail or not avail the accelerated depreciation benefit under the Income Tax Act did not relieve it of its contractual obligations under the PPA. EMCO had the freedom to accept or reject the tariff offered by GUVNL before entering into the PPA, but this freedom was extinguished after signing the PPA. [Paras 28, 29]
The PPA clearly stipulated that the tariff was determined by the First Tariff Order. EMCO conveniently ignored the crucial condition in the PPA that if the project was not commissioned within the control period, GUVNL would pay the lower of the two tariffs - the one agreed in the PPA or the tariff determined by GERC on the commissioning date. [Paras 30, 31]
E. Applicability of the Rasna Marketing Case
The Court found that the APTEL's reliance on its earlier judgment in the Rasna Marketing case was misplaced. In the Rasna case, the prayer was for determining a separate tariff, while in the present case, EMCO sought the higher tariff determined by the Second Tariff Order. [Para 25]
5. Conclusion
The Supreme Court allowed GUVNL's appeal, setting aside the orders of GERC and APTEL. It held that EMCO was not entitled to claim the tariff determined by the Second Tariff Order, as the PPA obligated EMCO to sell power at the tariff specified in the First Tariff Order or the lower tariff determined by GERC on the commissioning date. [Paras 33, 35]
The Court imposed costs of Rs. 2 lakhs on EMCO and directed that any amounts paid by GUVNL pursuant to interim orders should be adjusted towards future power procurement payments from EMCO. [Para 35]
RELATED Blog
0 comments