Supreme Court Rules Against EMCO Limited in Gujarat Solar Power Tariff Dispute

Court sets aside earlier orders favoring solar power producer, upholds contractual tariff terms despite delayed project commissioning and non-availment of accelerated depreciation benefits

In a landmark judgment delivered on February 2, 2016, the Supreme Court of India settled a critical dispute between Gujarat Urja Vikas Nigam Limited (GUVNL) and EMCO Limited concerning the tariff applicable to solar power procurement under a Power Purchase Agreement (PPA). The case revolved around whether EMCO Limited, which commissioned its solar power project after the stipulated control period and did not avail accelerated depreciation benefits under the Income Tax Act, was entitled to a more favorable tariff determined by a subsequent tariff order.

The Gujarat Electricity Regulatory Commission (GERC), constituted under Section 82 of the Electricity Act, 2003, had issued two key tariff orders: the first on January 29, 2010, fixing tariffs for solar power projects commissioning on or before December 31, 2011, and the second on January 27, 2012, fixing tariffs for projects commissioned thereafter. The 2010 order set a tariff of ₹15 per kWh for the first 12 years and ₹5 per kWh thereafter up to 25 years, premised on the assumption that projects would avail accelerated depreciation benefits under the Income Tax Act. The 2012 order differentiated tariffs between projects availing and not availing such benefits.

EMCO Limited entered into a PPA with GUVNL in December 2010 based on the 2010 tariff order but commissioned the project on March 2, 2012, beyond the control period. EMCO did not avail the accelerated depreciation benefit but sought the more favorable tariff under the 2012 order for projects not availing this benefit. The GERC and the Appellate Tribunal for Electricity ruled in favor of EMCO, holding it was entitled to the tariff under the 2012 order.

However, GUVNL appealed to the Supreme Court challenging these rulings. The apex court meticulously analyzed the statutory provisions and contractual terms of the PPA. It observed that the PPA explicitly contemplated the situation where a project is commissioned post the control period, stipulating that the tariff applicable would be the lower of the tariff under the original order or the tariff determined at the time of commissioning.

The Court emphasized the contractual obligation of EMCO to adhere to the agreed tariff structure, noting that the option to avail or not avail accelerated depreciation under the Income Tax Act did not absolve the power producer of its contractual commitments. It rejected the interpretation that EMCO could unilaterally switch to the more favorable tariff post facto by not availing accelerated depreciation.

Furthermore, the Court distinguished the present case from previous judgments relied upon by EMCO, particularly the Rasna Marketing Services LLP case, clarifying that unlike Rasna, EMCO did not seek determination of a separate tariff but claimed entitlement to the 2012 tariff order’s benefit without fulfilling the stipulated conditions.

Concluding that the orders of the GERC and the Appellate Tribunal were unsustainable, the Supreme Court set aside these orders, reinstating GUVNL’s right to pay tariff as per the original contractual terms. The Court imposed costs of ₹2 lakhs on EMCO and dissolved interim orders. It also clarified that any amounts paid pursuant to interim orders would be adjusted against future payments.

This judgment underscores the binding nature of tariff agreements and the limited scope for power producers to alter tariff entitlements post-contract, reinforcing the sanctity of contractual commitments in the power sector.

Statutory provisions

Electricity Act, 2003 - Sections 32 (Income Tax Act reference), 61(h), 62(1)(a), 82, 86(1)(e), 110, 111, 125

Gujarat Urja Vikas Nigam Limited v. EMCO Limited (SC) : Law Finder Doc Id # 738226