Case: A.P.Power Coordination Commit Vs. M/S Lanco Kondapalli Power Ltd

3. Before adverting to the issues noticed above and the rival contentions, it will be useful to notice the essential facts relevant for deciding the issues. M/s. LANCO is engaged in the generation and sale of electricity. Its Registered Office is at Hyderabad and it has set up its power project at Kondapalli Industrial Development Area in Krishna District of Andhra Pradesh. A.P. Power Co-ordination Committee, the appellant no.1, as the name suggests, was constituted on 07.06.2005 to ensure coordination between the four distribution companies of Andhra Pradesh who are appellant nos.3 to 6. M/s. Transmission Corporation of Andhra Pradesh (APTRANSCO) is the second appellant. At the relevant time the appellant no.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.4. There is no dispute between the parties that the erstwhile A.P. 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 (for brevity, PPA) dated 31.3.1997. 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. It is not necessary to go into reasons for the delay in the present proceeding. It will suffice to note that 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. It raised bills from 19.9.2000. 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. On 8.9.2003 M/s. LANCO issued a notice of arbitration under Article 14 of the PPA. There is some dispute as to whether this notice was only for invoking the mechanism for informal dispute resolution or also a notice for resolution of dispute by Arbitration. The appellants through a reply dated 24.9.2003 requested for an ordinary meeting to discuss pending problems before considering the request for arbitration. On 14.10.2003 M/s. LANCO wrote a letter intimating the nomination of its Companys Secretary as its representative to participate in the proceeding for informal dispute resolution required by Article 14.1. It requested the other side to designate their representative and to intimate the date and venue of the meeting. The appellants through a letter dated 25.11.2003 designated their Chief General Manager to act as their representative but the meeting scheduled could not take place. On 26.3.2004, M/s. LANCO issued another notice for arbitration and intimated the name of Justice B.P. Jeevan Reddy as its arbitrator. Through a letter dated 8.4.2004, APTRANSCO raised various grounds in support of its stance that the arbitration clause was not enforceable, particularly in the light of Section 86(1)(f) of the Electricity Act, 2003.5. M/s. LANCO did not accept the stand of appellants and filed an Arbitration Application bearing No.31 of 2004 on 27.4.2004 before the High Court of Andhra Pradesh at Hyderabad under Section 11(4) of the Arbitration and Conciliation Act, 1996 seeking appointment of arbitrator for APTRANSCO so that the disputes raised by it could be resolved through arbitration. APTRANSCO contested the maintainability of arbitration proceedings on various grounds including Section 86(1)(f) of the Electricity Act, 2003. While the matter before the High Court was still pending, the scope and effect of Section 86(1)(f) of the Electricity Act was decided by a judgment of this Court dated March 13, 2008 in the case of Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd. (2008) 4 SCC 755. This Court held that all disputes between the licencee such as the appellants 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. It was clearly held that it is the State Commission or its nominee under Section 86(1)(f) of the Electricity Act, 2003 and not the Chief Justice or his nominee under Section 11 of the Arbitration and Conciliation Act, 1996 who will have the authority to appoint an arbitrator if it decides to refer the disputes to arbitration. This Court further clarified that except the power of appointing arbitrator getting shifted to the State Commission, conduct of arbitration even under Section 86(1)(f) of the Electricity Act would be governed by provisions of the Arbitration and Conciliation Act, 1996. Only in cases of conflict the Electricity Act would prevail.6. In view of law settled by the judgment in the case of Gujarat Urja (supra), the Arbitration Application No.31 of 2004 was closed by the High Court on 18.3.2009 with liberty to M/s. LANCO to approach the Commission under Section 86(1)(f) of the Electricity Act. M/s. LANCO filed O.P.No.33 of 2009 before the Commission on 5.6.2009 to claim capacity charges on the basis of bills raised from 15.9.2000 onwards to 11.1.2001. The appellants resisted the claim inter alia on the ground of limitation. The appellants preferred a specific application for rejecting the O.P.No.33 of 2009 on the ground of limitation. M/s. LANCO preferred a reply in which Section 14 of the Limitation Act was invoked for seeking exclusion of time when the arbitration proceeding had remained pending with the High Court in the form of Arbitration Application No.31 of 2004. The Commission rejected the claim by order dated 13.6.2011 on the ground of limitation by holding that the time spent in the arbitration proceedings did not merit exclusion under Section 14 of the Limitation Act because it had not been pursued in good faith. M/s. LANCO preferred Appeal No.129 of 2011 before APTEL. That appeal was allowed by the impugned judgment presently under appeal, dated 2.7.2012. APTEL reversed the findings of the Commission on the issue of limitation and directed the Commission to pass appropriate follow up order on the actual claims and interest.7. So far as claim of M/s. LANCO for reimbursement of MAT for various periods is concerned, the claim for the period 2001-2005 was rejected by the Commission on the ground of limitation but it got revived on account of common appellate order by APTEL dated 2.7.2012 and after the remand only a consequential order is required to be passed by the Commission. For other periods, the claim for reimbursement of MAT has been allowed in favour of M/s. LANCO. The Commission allowed the claim 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 the appellants, although in the written statement before the Commission the appellants had seriously contested such claim on merits. It is contended by Mr. V. Giri, learned senior counsel for the appellant that the concession was misconceived and unauthorized. Learned senior counsel for M/s. LANCO, Mr. Sundaram, fairly conceded that the issue relating to claim for reimbursement of MAT may be heard and decided by us on merits and accordingly the parties have been heard in detail on the merits of such claim for the entire period, i.e., from 2001 to 2012. But in case the claim of MAT for 2001-2005 is held by us to be barred by limitation, it will not be considered on merits.

Court's reasoning:
11. Although, we were taken through various other Articles of PPA but it is not imperative to reproduce all such provisions. Article 3.1 provides for capacity charge which is required to be computed as per Article 3.2 and is meant to be paid by the Board. This is in respect of the Cumulative Available Energy provided by the Project in respect of any tariff year, upto (but not exceeding) an amount calculated on the basis of Prescribed Plant Load factor. Since the issue of capacity charge is not required to be addressed by us on merits, further details need not detain us. Clause 3.8 has been read over again and again because it is of immense significance in deciding the issue relating to MAT. Article 5 contains various sub-articles relating to billing and payment. They provide for monthly tariff bills which are payable by the Board or the licensee on the Due Date of Payment. The supplementary bills are covered by Article 5.5. They cover different items and are required to be supported by supporting data. Such bills are also payable on the Due Date of Payment, except the supplementary bill for taxes on income which is to be submitted at least 30 days prior to the time when the income tax is required to be paid by the generating company. Such bill is payable by the Board within 25 days of presentation or at least 5 days before the date on which the tax is required to be paid by the company, whichever is later.12. Article 5.7 relates to billing disputes and it refers to the provisions of Article 14 which governs Arbitration including Informal Dispute Resolution. Article 11 caters to the effects of Change in Law upon the rights and liabilities of the parties. This has assumed relevance in the present context on account of stand taken by the appellant that MAT does not fall under Article 3.8 governing claims for Taxes on Income but under Article 11.4 which provides an altogether different procedure for making claim for additional costs by the company on account of any Change in Law etc. In this context it may usefully be noted that Article 1 of PPA contains definitions for the purposes of the agreement. Article 1.2 adopts definition of several terms as defined in the Indian Electricity (Supply Act) 1948 and set out in Schedule B to the Agreement. Article 1.4 contains various general provisions such as - unless the context otherwise requires, the singular shall include plural etc. and vice versa and that " .......a reference to any Law shall be construed as a reference to such Law as from time to time amended or re-enacted.It has already been noted that the claim for reimbursement of MAT for the period 2001-2005 was rejected by the Commission on the ground of limitation and after impugned order by APTEL reversing such order, that claim stands remitted to the Commission for passing a consequential order. The claims for other periods have been allowed by the Commission. On account of our 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 Mr. Giri 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. The argument that such tax is not on income from the project and therefore, not covered by Article 3.8 of the PPA is also found to be without any substance.35. The objective of levying MAT, as declared by the Income Tax Department is to bring into the tax net "Zero Tax Companies" which in spite of having earned substantial book profits and having paid handsome dividends, do not pay any tax due to various tax concessions and incentives provided under the Income Tax Law. It is no bodys case that in fact M/s. LANCO had not generated income from the project during the relevant years. The taxable income, of course, became amenable to MAT on account of Section 115JB. The Legislative changes in respect of MAT show that it came into force initially with effect from 1.4.1988 by introduction of Section 115J in the Income Tax Act, 1961 but this provision was amended to exempt power generating companies with effect from 1.4.1989 and from 1.4.1991 MAT became inapplicable because of deletion of Section 115J which was reintroduced with effect from 1.4.1997 by insertion of Section 115JA. But it was not made applicable to power generating companies till 31.3.2001. However, Section 115JA was withdrawn and Section 115JB was inserted with effect from 1.4.2001 to make MAT applicable to all targeted corporate entities including power generating companies. The submission on behalf of the appellant that Section 115JB is a tax not on profit but of different character is based on misconception. No doubt this Section has a special provision for payment of tax by certain companies on the basis of its book profit which is deemed to be the total income of the assessee and is subjected to income tax at a specified rate. The provisions of Sections 115JA and 115JB have been also construed as a self-contained code in Ajanta Pharma Limited v. CIT, 2010 (9) SCC 455  and in several other judgments as stand alone sections. But that does not change the basic nature of the provision. It remains a provision under the Income Tax Act and what is levied is income tax on the assessment of income as per such a special provision.36. Article 1.4 of the PPA provides inter alia 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 in our view 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. No such dispute has been raised in the present case.37. 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 does not appeal to us 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.38. We have also considered other relevant provisions of the Income Tax such as definition of income, total income, tax and find that they do not help the case of the appellant in any manner. Section 2(43) defines Tax to mean income tax chargeable under the provisions of Income Tax Act and Total Income has been defined with reference to Section 5 which enlarges the scope of total income not only to income received or accrued but also deemed to be received or deemed to be accrued in India (for a resident). 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 we hold the claim for MAT covered by Article 3.8 of the PPA and payable as such when requisite conditions stand