IMPORTANT POINT
– Exemption granted earlier withdrawn – Held,
Adjustment in monthly tariff payment on restitutionary principles contained in Article 13 of PPA will be applicable from date of the withdrawal of exemption.

JUDGMENT :

R.F. Nariman, J.

The appellants in Civil Appeal No. 5865 of 2018 are Uttar Haryana Bijli Vitran Nigam Ltd. and Dakshin Haryana Bijli Vitran Nigam Ltd. [collectively referred to as the “Haryana Discoms”], which are distribution licensees in the State of Haryana. The appellant in Civil Appeal No. 6190 of 2018 is the Gujarat Urja Vikas Nigam Ltd. [“GUVNL”], which has been assigned with the task of procuring power by the State of Gujarat. The respondent, Adani Power Ltd., is a generating company in terms of Section 2(18) of the Electricity Act, 2003 and has a 4620 MW coal-fired power plant at Mundra, District Kutch, Gujarat. On 23.06.2005, the Special Economic Zones Act, 2005 [“SEZ Act”] was enacted. Section 26 of this Act provides that every Developer shall be entitled to various exemptions, such as duty leviable under the Customs Act, 1962, Customs Tariff Act, 1975, Central Excise Act, 1944, etc. The Government of India approved the respondent as a Co-Developer (which is included within the term “Developer”). The Ministry of Commerce and Industry [“MoC&l”], by a letter dated 19.12.2006, granted approval to the appellant for setting up a power plant in the aforesaid SEZ. Thus, the appellant has established the aforesaid power plant in four phases consisting of four units of 330 MW in Phase I and II, two units of 660 MW in Phase III, and three units of 660 MW in Phase IV. The respondent has entered into various Power Purchase Agreements [“PPAs”] with the appellant. We are concerned in the present case with the PPAs dated 07.08.2008 and 02.02.2007. The MoC&I, vide notification dated 06.04.2015 has withdrawn the exemption of all duties under the Customs Act, Customs Tariff Act, Central Excise Act, etc. on goods imported/procured by the respondent for authorized operations w.e.f. 01.04.2015. Equally, vide notification dated 16.02.2016, fiscal benefits including exemption of service tax on power plants approved prior to 27.02.2009 was promulgated, as a result of which, exemption from service tax, to which the respondent was entitled, has been withdrawn. On 15.10.2015, the respondent filed Petition No. 235/MP/2015 before the Central Electricity Regulatory Commission [“CERC” or “Commission”], seeking compensation for change in law by invoking Article 13 of the respective PPAs. On 04.05.2017, the CERC allowed, as a change in law, the added cost by way of payment of tax consequent to withdrawal of the exemption notifications thus:

“35....... However, the change in rates of custom duty, excise duty, withholding tax and service tax on taxable services which have been imposed pursuant to the Acts passed by the Parliament shall be covered under Change in Law. As regards the Green Energy Cess, it was imposed after the cut-off date and satisfied the requirements of Change in Law. Accordingly, the Petitioner shall therefore be entitled for reimbursement of custom duty, excise duty on import/procurement of any other goods and service tax on the spares and consumables payable by it from 1.4.2015 on account of the withdrawal of exemption to the power plants located in the SEZ by the Ministry of Commercial [sic Commerce] and Industry only to the extent of difference in the duty or tax as on the cut-off date and as prevailing as on 1.4.2015 and thereafter.”

However, the CERC followed its earlier order dated 06.02.2017 in Petition No.156/MP/2014, in which it stated that “carrying cost” under Article 13 of the PPA must be given to the respondent as it is to be restored to the same economic position as if the change in law - which is withdrawal of the exemption notifications - did not take place. After setting out Article 13 of the PPA and distinguishing a Supreme Court judgment in National Thermal Power Corporation Ltd. v. Madhya Pradesh State Electricity Board, (2011) 15 SCC 580 [“National Thermal Power Corporation Ltd.”], the Commission came to the conclusion that there is no provision in the PPA for payment of carrying cost for the period fro