Power Generators Cannot Claim 'Change in Law' For Withdrawal Of Deemed Export Benefits : Supreme Court

The Supreme Court held that power generators who entered into Power Purchase Agreements (PPAs) relying on the fiscal benefits, which were later withdrawn by the government, cannot seek compensation, arguing that the sudden withdrawal constituted the 'Change in Law'.

The bench comprising Chief Justice of India BR Gavai and Justice AG Masih delivered a judgment, resolving a long-standing dispute over the availability of "deemed export" benefits under the Foreign Trade Policy (FTP) 2009-2014 for large thermal power plants.

The case stemmed from claims by Appellants-Power Generators that a 2011 decision by the Directorate General of Foreign Trade (DGFT) to withdraw certain benefits constituted a "Change in Law" under their Power Purchase Agreements (PPAs) with the Punjab State Power Corporation Limited (PSPCL). The power generator companies argued that this sudden change increased their project costs, and under the PPA's protective clauses, they were entitled to compensation from the state utility.

These benefits, outlined in Chapter 8 of the Foreign Trade Policy, are designed to incentivize domestic manufacturing by providing duty exemptions and drawbacks on goods supplied to specific projects, treating them as if they were exported.

Before adverting to the issue of whether the withdrawal of the deemed export benefits by the DGFT constituted 'change in law', the Court primarily dealt with the question of whether the Appellants were entitled to claim benefit under the DGFT benefits or not.

The judgment authored by Justice Masih observed that since the FTP benefits apply only to "movable goods” which is manufactured and bear a distinctive character, name, and use. Therefore, the Appellants' entire power plant, an immovable asset assembled on-site, is not a "good" but a piece of infrastructure used to assemble a plant from the components, the court said.

"Therefore, in the light of the above, the instant case, as projected and pressed before us by the Appellants, would fall foul of the essentiality when Para 9.36 of the FTP requires that the manufactured good should have been brought into existence with a distinctive name, character, or use. Such a feasibility would be impossible when it comes to the concerned power plants in the instant set of Appeals.”, the court said.

Another important condition for taking advantage of FTP's deemed export mandates the company to not "supply" a power plant to itself. The FTP requires a transaction between a separate supplier and the project, since there was no distinct supply of goods by either a main contractor or a sub-contractor thereof, the court said that the Appellants were not entitled to FTP benefits.

Furthermore, the Court rejected the Appellants' argument that the DGFT's 2011 clarifications were a "Change in Law." It ruled that these notices were merely clarificatory, explaining the correct interpretation of the existing law, and did not introduce any new, oppressive legislation. Since the appellants were never legally entitled to the benefits, withdrawal of an inapplicable benefit could not give rise to compensation claims, the court said.

The Court relied on its earlier decision in Nabha Power Ltd. v. PSPCL 2024 LiveLaw (SC) 861, reiterating that press releases, cabinet decisions, or internal clarifications do not constitute law unless notified in the official gazette.

“However, while placing reliance on our discussion above of the issue(s), the aforesaid notifications issued through DGFT were mere clarificatory in nature. As a matter of fact, no interpretation of law was undertaken prior to the cut-off date to the effect that a developer shall be able to import goods to be assembled into a power plant and also claim the deemed export benefits on those. Therefore, APTEL, while dealing with the said issue in detail, and correctly so, concluded that the aforesaid contended circulars to be merely clarificatory and not as something which has either changed or introduced something new, being allegedly oppressive towards the Appellants.”, the court said.

Accordingly, the appeals failed and were dismissed.

Cause Title: NABHA POWER LIMITED VERSUS PUNJAB STATE POWER CORPORATION LIMITED AND OTHERS (and connected case)

Citation : 2025 LiveLaw (SC) 820

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Appearance:

For Appellant(s) : In CA. 8694/2017 - Mr. C.S. Vaidyanathan, Sr. Adv. Mr. A.N.S. Nadkarni, Sr. Adv. Mr. Mahesh Agarwal, Adv. Mr. Shri Venkatesh, Adv. Mr. Rohan Talwar, Adv. Mr. Shashwat Singh, Adv. Ms. Priya Dhankar, Adv. Mr. Naman Agarwal, Adv. Mr. E. C. Agrawala, AOR

In CA.8739/2017 - Mr. Arvind Datar, Sr. Adv. Mr. Vishrov Mukerjee, Adv. Mr. Pratyush Singh, Adv. Mr. Raghav Malhotra, Adv. Ms. Juhisenguttuvan, Adv. Mr. Pranav Bansal, Adv. Mr. Rahul Khurana, Adv. Mr. Kumar Visalaksh, Adv. For M/s. Trilegal Advocates on Record

For Respondent(s) : For PSPCL - Mr. M G Ramachandran, Sr. Adv. Mr. Balbir Singh, Sr. Adv. Mrs. Poorva Saigal, Adv. Mr. K.V. Mohan, AOR Mrs. Pallavi Saigal, Adv. Ms. Shirin Gupta, Adv. Mr. Rishabh Saxena, Adv. Mr. Shubham Arya, Adv. Mr. Aneesh Bajaj, Adv. Ms. Srishti Khandaria, Adv.

For PSERC - Ms. Sunieta Ojha, AOR Ms. Gargi Kumar, Adv.