Electricity Act | Cross-Subsidy Surcharge Based On Prevailing Tariff Rates Valid Even If Decided Separately : Supreme Court

In a major development concerning the discoms, the Supreme Court recently noted that while the determination of the Cross-Subsidy Surcharge (CSS) should be consistent with the applicable tariff rates for the relevant financial year, it is not essential for the CSS to be determined alongside the tariff rates determination.

Holding thus, the bench comprising Justices Abhay S. Oka and A.G. Masih set aside the decision of the Appellate Tribunal for Electricity (APTEL), which had interfered with the Rajasthan State Regulatory Commission's (the Commission) determination of the Cross-Subsidy Surcharge (CSS), solely on the ground that it was not fixed simultaneously with the tariff rates, despite being based on the prevailing tariff rates.

Relying on the Electricity Act, 2003 and Regulation 90 of the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff) Regulations, 2014 ('the Rajasthan Tariff Regulations, 2014'), the judgment authored by Justice Oka stated that the law does not require CSS to be set at the same time as tariffs, and the only requirement for determining the CSS is that it must align with the current tariff rates prevailing the fiscal year.

“Thus, the determination of CSS is not necessarily a part of the tariff determination process. The CSS can be determined along with the tariff. But, it can be determined separately in accordance with Regulation 90 based on the prevailing rate of tariff. In fact, as per Regulation 90, the tariff payable by the relevant category of consumers is the basis for the CSS. Therefore, the APTEL committed an error by holding that the determination of the tariff and the determination of the CSS should always coincide.”, the court observed.

“When the CSS was determined based on the prevailing rates of tariff, the APTEL ought not to have found fault with the Commission's determination of rates of the CSS.”, the court added.

To clarify, CSS is a statutory charge payable by the consumers who decide to source electricity through open access from sources other than the distribution licensee of the area. In other words, it is a compensation to the distribution licensees for being deprived of the subsidisation prevalent in the retail supply tariff.

Background

In this case, the Respondent-Rajasthan Textile Mills Association, which was the industrial consumer, had outsourced the electricity from the open market operation, causing a subsidisation loss to the Appellant-Jaipur Vidyut Vitaran Nigam Ltd. (“JVVNL”), for which the Respondent was compelled to pay CSS to the Appellant for the deprivation.

The dispute concerned the determination of the CSS, where the State Commission justified the determination of CSS based on the prevailing tariff rates between 2015–2016. The Respondent- Industrial consumers argued this led to an unfair hike in CSS, as it should align with annual tariff revisions.

On appeal, APTEL set aside the Commission's decision and held in favour of the Respondent-industries, calling the RERC's approach “unfair” and a violation of the Electricity Act's mandate to progressively reduce cross-subsidies.

Against the APTEL's decision, JVVNL approached to Supreme Court.

Decision

Setting aside the APTEL's decision, the Court noted that APTEL erred in interfering with the State Commission's decision, as CSS depends on the prevailing tariff at the time of calculation. The September 2016 tariff was still valid until November 2017, so using it in December 2016 was legally acceptable, the court said.

The Court added that there was no legal basis for APTEL's simultaneous determination of Rules because the law does not mandate CSS and tariff to be set together, and the formula in Regulation 90 explicitly ties CSS to the current applicable tariff, regardless of when it was decided.

“The State Commission determined the CSS based on the data and financials provided in the order dated 22nd September 2016. As provided in the said order dated 22nd September 2016, the same was to be in force until there was a fresh tariff determination. The order dated 22nd September 2016 continued to be in force till 2nd November 2017. Moreover, the perusal of the order dated 22nd September 2016 shows that the determination of the CSS was not undertaken while doing the exercise of tariff determination. In fact, by the further order dated 2nd November 2017 passed by the State Commission, the determination of the CSS has been made along with the determination of the tariff. Thus, the determination made by order dated 1st December 2016 remained in force until 2nd November 2017. The effect of the determination of the CSS from 1st December 2016 is that the respondents-consumers were not charged the CSS as per the order from 22nd September 2016 till 1st December 2016.”, the court said.

“we find that the view taken by the APTEL is erroneous. Therefore, the impugned judgment of the APTEL cannot be sustained, and the same is accordingly set aside. Accordingly, the order dated 1st December 2016 passed by the State Commission is restored. Needless to add that the order dated 1st December 2016 was to remain in force only till 2nd November 2017.”, the court ordered.

In terms of the aforesaid, the Court allowed the appeal.

Case Title: JAIPUR VIDYUT VITARAN NIGAM LIMITED AND ORS. VERSUS RAJASTHAN TEXTILE MILLS ASSOCIATION & ANR ETC.

Citation : 2025 LiveLaw (SC) 529

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Appearance:

For Appellant(s) Mr. M.G. Ramachandran, Sr. Adv. Ms. Poorva Saigal, Adv. Mr. Shubham Arya, Adv. Mr. Nikunj Dayal, AOR Ms. Pallavi Saigal, Adv. Ms. Reeha Singh, Adv. Mr. Aneesh Bajaj, Adv.

For Respondent(s) No.1 Mr. Anand Ganesan, Adv. Ms. Swapna Seshadri, Adv. Ms. Jesal Wahi, AOR Mr. Amal Nair, Adv.

For Res.No.3 Mr. Ishaan George, AOR

For Res.No.4 Mr. Amit Verma , AOR

For Res.No.7 Mrs. Vanita Bhargava, Adv. Mr. Ajay Bhargava, Adv. Ms. Nanadita Chauhan, Adv. Ms. Tijal Thakur, Adv. For M/S. Khaitan & Co., AOR

For Res.Nos.8-10 Mr. P.N Bhandari, Adv. Mr. Prabhat Ranjan Raj, Adv. Mr. Anil Kumar, Adv. Mr. Gunjesh Ranjan, Adv. Mr. Vaibhav Jain, Adv. Mr. Keshav Khandelwal, Adv. Mr. Shantanu Sagar, AOR