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ITC Captive Power Supply to Contractor Not Unauthorised Use Under Section 126:
The has delivered a significant ruling on the scope of , holding that the provision cannot be invoked for every alleged regulatory violation. Justice Nagesh Bheemapaka set aside a of Rs 81.18 lakh raised against for using electricity generated from its to supply a contractor engaged in constructing the company’s own expansion project within its premises.
The Background: Captive Power for Construction Activity
ITC operates a paper and paperboard manufacturing unit at Sarapaka in Khammam District, equipped with several captive co-generation plants. The company was expanding its facility by setting up an additional paper machine and a new 25 MW co-generation plant. It engaged as the engineering, procurement, and construction (EPC) contractor for civil, structural, and allied works. Under the contract, ITC agreed to provide electricity free of cost to the contractor, generated entirely from its own captive plants.
Following an inspection on , the issued a under Section 126, alleging that ITC had used electricity for a purpose other than the sanctioned HT-I category, resold electricity to the contractor, and failed to obtain prior permission, amounting to unauthorised use. The assessment covered six months and demanded over Rs 81 lakh.
Arguments Before the Court
ITC’s Stand: argued that Section 126 applies only to electricity supplied or arranged to be supplied by the licensee, not to electricity generated by the consumer from its own captive plants. There was no sale or supply to the contractor; the electricity was used exclusively for ITC’s own construction project. The proceedings were without .
Distribution Licensee’s Stand: countered that supplying electricity to a separate legal entity like Shapoorji Pallonji amounts to ‘supply’ under , attracting regulations and charges. The failure to comply with Sections 9 and 42, and applicable regulations, constituted unauthorised use under Section 126.
Court’s Analysis: Cannot be Assumed
The High Court closely examined the jurisdictional foundation of the assessment. It noted that the respondents did not dispute that the electricity in question was generated from ITC’s own captive plants. The core question was whether such use could be labelled ‘’ under Section 126.
Justice Bheemapaka observed that the respondents had not demonstrated how every breach of Sections 9 or 42 automatically becomes unauthorised use under Section 126. “The under Section 126 cannot be enlarged by importing alleged violations of other provisions of the Act or Regulations,” the court remarked.
The court distinguished the present case from , where the dealt with excess supply by the licensee. Here, the challenge was to the very competence of the assessing officer to invoke Section 126.
Contractor’s Status Does Not Alter Nature of Usage
A key contention of the respondents was that Shapoorji Pallonji, being a separate company, must be treated as a consumer. The court rejected this argument, holding that “ alone cannot determine the applicability of Section 126. The real question is the nature and purpose of the consumption.”
The electricity was utilised solely for constructing ITC’s own additional paper machine and co-generation plant within its premises. The contractor was engaged to execute the work on ITC’s behalf. “Mere execution of construction work by a contractor does not, by itself, conclusively establish transfer or sale of electricity,” the court noted.
No Material to Show Theft or Independent Consumption
The court also flagged an inconsistency in the , which proceeded on the assumption of ‘’ under , yet the proceedings were initiated under Section 126 (unauthorised use). The respondents had not produced any material to suggest that the contractor independently consumed electricity as a separate consumer or that there was any commercial sale.
Not a Bar
On the preliminary objection of maintainability, the court held that where the action is alleged to be wholly without , the existence of an alternative under is not an absolute bar to invoking . Since ITC’s challenge went to the root of the Assessing Officer’s competence, the was entertainable.
Key Observations
“According to respondents, their allegation essentially is that petitioner failed to comply with the statutory mechanism governing and to another entity. Such alleged non-compliance may, if otherwise established, attract consequences contemplated under those statutory provisions. However, respondents have not demonstrated how every alleged breach of Sections 9 or 42 automatically becomes '' under Section 126.”
“ alone cannot determine the applicability of Section 126. The real question is the nature and purpose of the consumption.”
“Mere execution of construction work by a contractor does not, by itself, conclusively establish transfer or sale of electricity.”
The Final Verdict
The court concluded that the respondents had failed to establish the jurisdictional foundation necessary to invoke Section 126. Allowing the , Justice Nagesh Bheemapaka set aside the order dated , with no order as to costs.
The judgment reaffirms that are entitled to use electricity from their own plants for their own purposes, including through contractors, without attracting the draconian provisions of Section 126, as long as the use remains within the premises and for the generator’s own benefit.
This ruling is likely to have far-reaching implications for industries with undertaking expansions and construction activities, clarifying the scope of ‘unauthorised use’ under the Electricity Act.
