BY TIOL News Service

NEW DELHI, NOV 10, 2015: THE issue before the Apex Court is - Whether the Limitation Act will be applicable to the State Electricity Commission constituted under the Indian Electricity Act 2003, when such Commission is not a Court in the strict sense. NO is the answer. The other issue was - Whether a State owned DISCOM can avoid the liability to reimburse advance income tax paid by the contract awardee on the ground that MAT is a new variety of tax concept introduced subsequently, even though the DISCOM was bound to reimburse any liability arising due to "change in law" under the Power Purchase Agreement. NO is the answer.

Facts of the case

M/s. LANCO is engaged in the generation and sale of electricity and has set up its power project at Kondapalli Industrial Development Area in Krishna District of Andhra Pradesh. A.P. Power Co-ordination Committee (Appellant 1) was constituted on 07.06.2005 to ensure coordination between the four distribution companies of Andhra Pradesh. M/s. Transmission Corporation of Andhra Pradesh (APTRANSCO or Appellant 2) was engaged in procurement of power for the Distribution Companies. In the first phase of power sector reforms, Andhra Pradesh State Electricity Board was unbundled into Generation and Transmission Corporation and subsequently the four Distribution Companies were notified by the Government on 31.3.2000 on account of unbundling of the Transmission Corporation in the subsequent phase of reforms. The erstwhile Revenue State Electricity Board had invited bids for short gestation power projects. M/s. LANCO also submitted its bid which was accepted by the Board and approved by the Government of Andhra Pradesh leading to a Power Purchase Agreement ('PPA'). M/s. LANCO then set up a 355 MW (ISO) Combined Cycle Gas Power Plant. The completion of the plant took more than the scheduled period of 16 months. M/s. LANCO declared 25.10.2000 as the date of commissioning of their project but this was not accepted as the Commercial operation Date (COD) by APTRANSCO. However, M/s. LANCO continued to generate power and delivered it to grid. While the charges for the energy delivered were accepted, the bill for capacity charges was disallowed on the ground that it was not in accordance with the PPA.

In 2003 M/s. LANCO issued a notice of arbitration under Article 14 of the PPA seeking capacity charges and demand for reimbursement of income tax payment made by M/s. LANCO, as per Article 3.8 of the PPA. After the parties nominated their representatives, APTRANSCO took a stance that the arbitration clause was not enforceable, particularly in the light of Section 86(1)(f) of the Electricity Act, 2003. M/s LANCO filed an arbitration application before the High Court held that all disputes between the licencee such as APTRANSCO and generating companies such as M/s. LANCO require adjudication only by the State Commission which is alone competent to either adjudicate the disputes or refer them for arbitration and to appoint arbitrator. M/s LANCO approached the State Commission to enforce its claim, but the same was resisted by APTRANSCO on the ground that the claim was barred by the Limitation Act. M/s LANCO invoked section 14 of the Limitation Act and pleaded for exclusion of time since the arbitration application was pending before the High Court. However, the State Commission rejected the plea of M/s LANCO so it preferred appeal before Appellate Tribunal for Electricity (APTEL) where the findings of the Commission on the issue of limitation was reversed and directed the Commission to pass appropriate follow up order on the actual claims and interest.

Due to the order of the APTEL, the Commission allowed the claim of M/s LANCO for reimbursement of MAT for the periods 2006-2009 and 2009-2012 on account of its earlier order in respect of similar claim in another case which elicited a concession by the counsel for Revenue, although in the written statement before the Commission the Appellant had seriously contested such claim on merits. It was contended by the counsel for the appellant that the concession was misconceived and unauthorized. The counsel for M/s. LANCO, fairly conceded that the issue relating to claim for reimbursement of MAT may be heard and decided by the Supreme Court on merits but in case the claim of MAT for 2001-2005 was barred by limitation.

Having heard the parties, the Supreme Court held that,

Applicability of Limitation Act

++ in the case of M.P. Steel Corporation v. Commissioner of Central Excise it was held that although the Limitation Act including Section 14 thereof would not apply to appeals filed before a quasi-judicial tribunal such as the Collector (Appeals) mentioned in Section 128 of the Customs Act, 1962 but the principles underlying Section 14 of the Limitation Act would nevertheless apply as they advance the cause of justice. It concluded that a quasi-judicial Tribunal will suffer Limitation Act only as per the statutory scheme under which it is created and functions. On the other hand, on its own the Limitation Act is applicable in respect of proceedings before courts proper, i.e., courts as understood in the strict sense of being part of the Judicial Branch of the State. In view of this, it is held that by itself the Limitation Act will not be applicable to the Commission under the Indian Electricity Act 2003 as the Commission is not a Court stricto sensu. Further stand of the respondents that the Commission being a statutory tribunal, cannot act beyond the four walls of the Electricity Act also does not brook any exception. In the case of PPN Power Generating Co. (P) Ltd. this Court examined the issue of limitation in a very summary manner and without referring to the relevant provisions of the Electricity Act 2003, at the end of para 64 it was observed in a single sentence that the Limitation Act is inapplicable to proceeding before the State Commission;

++ Section 175 reads ["175. Provisions of this Act to be in addition to and not in derogation of other laws. - The provisions of this Act are in addition to and not in derogation of any other law for the time being in force."]. A plain reading of this Section leads to a conclusion that unless the provisions of the Electricity Act are in conflict with any other law when this Act will have overriding effect as per Section 174, the provisions of Electricity Act will not adversely affect any other law for the time being in force. In other words, as stated in the Section the provisions of the Electricity Act will be additional provisions without adversely affecting or substracting anything from any other law which may be in force. Such provision cannot be stretched to infer adoption of the Limitation Act for the purpose of regulating the varied and numerous powers and functions of authorities under Electricity Act 2003. In this context it is relevant to keep in view that the State Commission or the Central Commission have been entrusted with large number of diverse functions, many being administrative or regulatory and such powers do not invite the rigours of the Limitation Act. Only for controlling the quasi judicial functions of the Commission under Section 86(1)(f), it will not be possible to accept the contention of the appellant that by Section 175 the Electricity Act, 2003 adopts the Limitation Act either explicitly or by necessary implication;

++ the Court took the view that a statutory authority like the Commission is also required to determine or decide a claim or dispute either by itself or by referring it to arbitration only in accordance with law and thus Section 174 and 175 of the Electricity Act assume relevance. Since no separate limitation has been prescribed for exercise of power under Section 86(1)f) nor this adjudicatory power of the Commission has been enlarged to entertain even the time barred claims, there is no conflict between the provisions of the Electricity Act and Limitation Act to attract the provisions of Section 174 of the Electricity Act. In such a situation on account of provisions in Section 175 of the Electricity Act or even otherwise the power of adjudication and determination or even the power of deciding whether a case requires reference to arbitration must be exercised in a fair manner and in accordance with law. In the absence of any provision in the Electricity Act creating a new right upon a claimant to claim even monies barred by law of limitation, or taking away a right of the other side to take a lawful defence of limitation, the Court held that in the light of nature of judicial power conferred on the Commission, claims coming for adjudication before it cannot be entertained or allowed if it is found legally not recoverable in a regular suit or any other regular proceeding such as arbitration, on account of law of limitation. The Court took this view not only because it appears to be more just but also because unlike Labour laws and Industrial Disputes Act, the Electricity Act has no peculiar philosophy or inherent underlying reasons requiring adherence to a contrary view;

++ it would be fair to infer that the special adjudicatory role envisaged under Section 86(1)(f) also appears to be for speedy resolution so that a vital developmental factor - electricity and its supply is not adversely affected by delay in adjudication of even ordinary civil disputes by the Civil Court. Evidently, in absence of any reason or justification the legislature did not contemplate to enable a creditor who has allowed the period of limitation to set in, to recover such delayed claims through the Commission. Hence a claim coming before the Commission cannot be entertained or allowed if it is barred by limitation prescribed for an ordinary suit before the civil court. But in appropriate case, a specified period may be excluded on account of principle underlying salutary provisions like Section 5 or 14 of the Limitation Act. The Court also added that such limitation upon the Commission on account of this decision would be only in respect of its judicial power under clause (f) of sub-section (1) of Section 86 of the Electricity Act, 2003 and not in respect of its other powers or functions which may be administrative or regulatory;

++ in the light of above there can be no difficulty in appreciating that M/s. LANCO rightly appreciated the hurdle of limitation in its way when such an objection was taken by the appellant and it rightly chose to seek exclusion of the period it was pursuing arbitration proceeding before the High Court, on the basis of principles underlying Section 14 of the Limitation Act. In law, the APTEL could grant exclusion of certain period on the basis of principles under Section 14 in view of law laid down or clarified in M.P. Steel Corporation. On facts, there is no difficulty in holding that APTEL has adopted a just and lawful approach in examining the relevant facts and in excluding the entire period claimed by M/s. LANCO which starts from the notice for arbitration dated 8.9.2003 given by M/s. LANCO, till the application of M/s. LANCO under Section 11 of the Arbitration Act before the High Court was finally disposed of on 18.3.2009;

Minimum Alternate Tax

++ on account of the view indicated earlier upholding the order of APTEL on the issue of limitation, the claim of MAT for 2001-2005 cannot be treated as barred by limitation. Thus the claim of MAT for entire concerned period that is from 2001-2012 will be covered by our decision on Merits of Claim relating to MAT. The argument of the counsel of the appelant that MAT cannot be covered by the provisions in Article 3.8 of the PPA providing for claims for taxes on income because the appellant had not foreseen such eventuality in view of the then prevailing tax regime under which income from such power projects stood exempted, is noticed only to be rejected. The entire phraseology used in Article 3.8 of the PPA leaves no manner of doubt that parties were aware that tax regime keeps changing and therefore any advance income tax payable for the income from the project only had to be reimbursed by the Board. As a successor of the Board the appellant cannot avoid the liability to reimburse advance income tax paid by the M/s. LANCO, on the ground that MAT was a new variety of tax concept introduced subsequently in which minimum tax became payable on the basis of mere book profits of even power generating companies;

++ Article 1.4 of the PPA provides that reference to any 'Law' shall be construed as a reference to such Law as from time to time amended or re-enacted. This general provision is sufficient to take care of all the taxes on income under Article 3.8 of the PPA notwithstanding different rates of income tax or other changes which may be brought about in the Income Tax Act. This view commends itself to us because such change in Law relating to Income Tax does not require any additional claim to be raised by the power generating companies. There is no specific amount - or rate which is to be reimbursed by the Board. Rather, the entire advance income tax payable requires reimbursement on account of Article 3.8 of the PPA provided of course that the accounts are maintained in the manner required by the Agreement so that tax is only on the basis of income from the project;

++ the claim of the appellant that liability of MAT is on account of change in Law and therefore required M/s. LANCO to adopt the procedure for making claims under Article 11.4 of the PPA is not acceptable for the aforesaid reasons. The entire stipulation in Article 11.4 of the PPA is in respect of additional or reduced expenditures or costs which have not been catered for and arise later due to change in Law. The burden on account of income tax as per Article 3.9 of the PPA cannot be treated as additional or reduced burden because the entire actual advance income tax payable for the project is required to be reimbursed by the Board. It is immaterial whether the income tax payable is high or low in any particular year. When there is already a special provision in respect of entire payable taxes on income under Article 3.8 of the PPA, that should have precedence over the general provisions in Article 11.4 of the PPA;

++ simply because the exemption earlier granted to power generating companies has been withdrawn so as to subject them to income tax liability under a special provision, cannot lead to any inference as suggested on behalf of the appellant that it is not an income tax but some other tax which is levied under Section 115JB of the Income Tax Act. Hence the claim for MAT is covered by Article 3.8 of the PPA and payable as such when requisite conditions stand satisfied.

(See 2015-TIOL-274-SC-LMT)